Restructuring of outsourcing contracts now represents 20% of the value of deals signed in the first six months of 2005, according to the latest half-year index published by leading sourcing advisory firm TPI.
Cheap offshoring opportunities are fuelling the growth in contract restructuring, which is almost double the 10-year average of 11% recorded by TPI.
The TPI index shows that of the 112 outsourcing contracts worth over £27m signed globally in 2005, 25 have been restructurings, with a combined value of £3.16bn.
Duncan Aitchison, TPI international managing director, said, “In general, contract restructuring is prompted by considerations such as price, service, change of scope or additional capability.
“Lately, however, the emergence of a growing number of viable offshore locations, both nearshore and farshore, has added new impetus to organisations’ desire to renegotiate.”
Aitchison also said that as the outsourcing market matured, outsourcing buyers were developing an increasingly precise view of their needs and what the market could provide.
From a buyer’s perspective, the trend in restructured contracts also emphasised the critical importance of both flexible contracts and “robust exit strategies”, he said.
The 112 transactions tracked by TPI were valued at £15.8bn, representing a 13% drop in value compared with this time last year. This demonstrates a tough market for suppliers and their willingness to re-negotiate contracts to keep business.
TPI defines restructuring as contract renewals, extensions, scope expansions, regional adaptations, incorporations of acquired assets, and re-negotiations.