The IT outsourcing (ITO) and business process outsourcing (BPO) markets will witness a significant number of contracts coming to end of term, totaling more than US$85 billion in total contract value (TCV) during the next 18 months, according to Impending Contract Renewals: Back to the Future, published by Everest Group, an advisory and research firm on global services. Because buyers signed progressively larger deals until the economic slowdown struck, more than $US55 billion of contracts will expire in the next 12 months, and IT contracts that will expire during the 12- to 18-month period actually show a dip in size compared to preceding year.

“Infrastructure outsourcing, data center and network tower deals make up a significant portion of the ITO contracts expiring in the near term,” said Ross Tisnovsky, senior vice president, Everest Group. “Disruptive next generation technologies, such as cloud computing, will introduce new benefits and challenges that the market didn’t see five years ago. As buyers are looking for more than just cost savings, service providers will likely find themselves fighting for renewals if they don’t adapt to new buyer preferences.”

The report examines the following factors and challenges influencing future ITO renewals in detail:

Cloud computing is fast emerging on the IT outsourcing scenario and is likely to play a disruptive role, with maximum impact visible initially in data center and applications projects

Remote infrastructure management outsourcing (RIMO) as a model is maturing quickly and entering into a phase of sustained growth
External realities such as the advent of the big data era and greatly enhanced role of mobility in enterprises will shape solutions that providers propose on renewed contracts

Recent deal signings are indicative of new trends, such as increasing popularity of multi-sourcing, decline of “lift & shift” models, reinvigorated attention to pricing models, and increased importance accorded to analytics

Highlights of the report’s in-depth analysis include:

The banking and manufacturing industries lead in the TCV of IT contracts coming up for renewal while the manufacturing and healthcare industries lead in TCV of BPO contracts that will be up for renewal

North America has the highest cumulative TCV of IT and BPO deals for renewal during the next 12 months. Western Europe picks up the lead in the IT and BPO contracts approaching renewal during the subsequent six months

Bundled ADM and infrastructure outsourcing constitute some of the largest ITO contracts coming to term in both North America and Western Europe

Human resource outsourcing and contact center contracts make up the bulk of the single-tower BPO contract expirations during the next 12 months

More than US$25 billion TCV will be up for renewal in the defense and public sector in the next 18 months, of which more than US$20 billion will be up for renewal in the next 12 months

The analysis in the report is based on more than 2,700 outsourcing contracts that will expire after April 1, 2012, catalogued in Everest Group’s Transaction Intelligence Database, a comprehensive record of publicly announced outsourcing transactions. The contract renewals in this report spans across nine industries, four geographic regions, and seven ITO towers and four BPO functions in scope, accounting for more than 30 percent of the entire sourcing market.