Price falls on contract renewals in buyer's market

Price falls on contract renewals in buyer's market

Organisations have begun to take advantage of a "buyer's market" for IT services by demanding hefty reductions in charges from suppliers in return for renewing contracts, according to Richard Holway, director at analyst firm Ovum Holway.

Many large deals were signed when organisations could afford to pay much more to suppliers for outsourced services, he said.

"Most of the contracts that are coming up for renewal were awarded between five and seven years ago in the golden age of the IT industry," said Holway.

"Things have changed dramatically since then and we have heard of outsourcing companies re-quoting for an extension of a deal at rates 50% lower than the peak period [in the late 1990s].

"Obviously, most companies want to keep their incumbent supplier, and the last thing a supplier wants is for a contract to go out to tender."

Holway said contracts with a handful of suppliers rather than a single supplier were becoming more popular as users sought to spread the risk of outsourcing IT.

He cited car maker Renault's outsourcing deal last month with three suppliers and the government's multibillion-pound NHS IT programme as examples of multiple-supplier outsourcing arrangements.

Read more on IT legislation and regulation