Consultancy TPI has found that the final quarter of 2006 was the
worst fourth quarter for the sector in five years by value of deals
done. The value of new contracts also dipped, by 8%.
Contracts are getting smaller but more numerous, TPI found, and
focus on single, specialised areas. The number of contracts agreed
in 2006 was 350, slightly up on the previous year's 341.
"The trend towards shorter contract duration means that
outsourcing providers are obliged to compete more often in order to
secure the same level of business," said Duncan Aitchison, the
managing director of TPI in Europe, Africa and Asia.
"For many the cost of sale can become a major issue.
Consequently service providers need to be increasingly selective in
terms of the contracts they pursue," said Aitchison.
While the size of deals is shrinking, the number of companies
winning those contracts is increasing, creating a competitive
squeeze on providers. The number of companies winning deals has
increased by 64% in four years, said TPI, and the six largest
companies in outsourcing – Accenture, ACS, CSC, EDS, HP and IBM –
are winning a decreasing proportion of the biggest deals. The
market share of those six firms in the market for contracts that
are worth more than $50 million fell from 71% in 2002 to 46% in
2006.
Ben Doherty, an employment specialist with Pinsent Masons, said
that changing regulations could be behind the move to smaller,
shorter contracts.
"One explanation for the trend towards shorter and smaller
contracts could be the changes made to the TUPE [Transfer of
Undertakings (Protection of Employment)] regulations last year,"
said Doherty. "TUPE has been in force for more than 20 years
and the Regulations operate to protect the employment of employees
when the undertaking that they are employed by transfers to a new
owner. Following changes made in last year's amended
Regulations there is now statutory certainty that the
Regulations apply to outsourcing deals as they fall within the
definition of service provision changes."
"A service provision change will always be covered by
the Regulations unless it constitutes a single specific event or a
task of short term duration," said Doherty. "Potentially this means
that to avoid the Regulations applying and thus preventing the
transfer of employees, we will see the increased use of short term
contracts or contracts for a specific event. As the Regulations do
not define what period constitutes a short term duration whether
these attempts will be successful will be a matter for the
courts to decide."
