Despite the economic chill and customers turning toward best-of-breed deals and multisourcing, reports of the mega-deal's death are exaggerated, said top industry legal advisor Tim Wright. "There is currently a trend towards shorter and smaller 'best of breed' arrangements," he said to Sourcingfocus. "However, one look at the insurance sector and it is clear that the 'mega-deal' is not dead. In the second half of 2007, Resolution announced a 12-year, £580 million strategic partnership, which saw around 2,000 UK-based staff transfer to Capita and a phased outsourcing of back-office customer services to India."

Wright, a partner specialising in Global Sourcing with legal giant Pillsbury Winthrop Shaw Pittman LLP, also singled out Co-operative Financial Services' undertaking of a 10-year technology and BPO project worth £277 million, and Prudential's announcement of a 15-year deal worth over £750 million.

However, the underlying picture is not all rosy for the big-deal players. Wright added: "These life and pensions administration deals have relatively unique drivers. Declining business volumes coupled with static or growing fixed costs, coupled with the problems of running multiple administration platforms, continue to generate longer than typical deals due to the particular economics of the sector."

Wright said that in may cases the mega-deal can be a sign of inexperience on the part of the customer, coupled with the promise of poor management once the contract has been signed: "Outside of life and pensions administration, organisations with less outsourcing experience often look for the mega-deal as they don't necessarily have a complete understanding of the governance and other challenges of dealing with multiple service providers," he warned. "[Whereas] those organisations with more experience – often tempered by problems they'’ve experienced in the past – have instead adopted a “best-of-breed” approach, with many different providers engaged to provide smaller packages of services."

The trade-off of this leaves the customer seeking to manage the hand-offs and interactions between all of the different suppliers. He said, "[This] sees increasing management overheads and an ever-growing retained organisation, which does not necessarily have the requisite skills, as well as the transfer of risk back to the customer and the erosion of the promised economic benefits."

This, in turn, may drive buyers to rationalise providers over time and drive a less complex delivery model, he concluded.

For more from this interview, turn to The Big Questions: January 2008.