RSS feedsThe £100m IT-enabled business transformation contract announced by utility giant Welsh Water last week is the latest in a series of major outsourcing deals so far this year.
The list of decade-long multimillion-pound contracts suggests the outsourcing mega-deal model is still going strong.
In April, insurance firm Pearl signed a £486m, 12-year contract with a Tata Consultancy Services (TCS) subsidiary, while in May BAE renewed its deal with CSC in an agreement worth £1bn over the next five years.
And it is not just the private sector. In the public sector, Rochdale Metropolitan Borough Council signed a 15-year, £200m deal with Agilysis in March, and Birmingham City Council signed a 10-year, £475m contract with Capita in April.
Mega-deals still have a lot to offer large firms compared with the alternative of a series of best-of-breed small agreements, says National Outsourcing Association chairman Martyn Hart.
‘Big organisations go to big contracts because they can do the whole thing for you – it is the simplest solution and you only have one entity you need to go to if things go awry,’ said Hart.
‘If you have a lot of small deals you have to manage all these different companies separately.
‘The overhead for that, the management of 30 or 40 providers, means the cost outweighs the savings,’ he said.
Welsh Water’s nine-year deal with suppliers Capgemini, LogicaCMG and TCS is part of the company’s overall management strategy, according to head of IT Fraser Nairn.
‘We outsource between 80 and 90 per cent of all our business activities. Our business model relies on a number of partners doing what would normally be done in-house,’ he said.
The newly-formed IT Alliance will supply technology services to the rest of the contractors who manage Welsh Water’s physical assets such as pipes, out-stations and reservoirs, says Nairn.
But while some organisations are sticking with the mega-deal, there is also growing interest in outsourcing deals of smaller size and scope, according to a report from Forrester Research published last month.
Most UK outsourcing deals are now just over five years in length and are worth about £60m, the report says.
There is a growing view that outsourcing deals do not work well if they are too big, says Forrester Research principal analyst Pascal Matzke.
‘Over the past 18 months we have seen a steady but consistent trend towards shortening the length and value of outsourcing contracts,’ he said.
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Further reading
Big deal
- Welsh Water is the latest UK company to sign a large, long-term IT outsourcing deal.
- Large companies tend to prefer big deals for simplicity and accountability.
- There is also a growing trend for smaller, shorter contracts to fulfil specific functions.
