The number of reported outsourcing "megadeals" awarded to a single service provider in 2008 has increased to 12 up from 10 in 2007, according to analyst firm, Gartner. Megadeals are characterised as being worth more than US $1 billion. In terms total contact value (TCV), the total for 2008’s 12 megadeals was US $17.1 billion, compared with US $12 billion for 2007.

However, des[ite the relative increase over the last two years, a recent Gartner report has found an overall decline in TCVs from 2000 to 2006. The average annual TCV of all reported megadeals per year for this period was US $28 billion.

Commenting on the trend, Dean Blackmore, senior research analyst for Gartner, said, “With the increasing popularity of selective sourcing and the trend toward greater control of the buyer, we continue to see both the average value of a deal, and the average duration of a deal decline.”

In all outsourcing deals (not just megadeals), the report shows a definite trend toward a greater number of deals, but for smaller TCVs. In 2008, deals below US $50 million saw a clear increase over 2006 and 2007, but deals over US $50 million saw a collective decline. TVC for all deals in 2008 was US $42.2 billion, which, although an increase over the 2007 figure of US $29.5 billion, can be attributed to the much larger volume of total deals signed in 2008.

“In economic downturns, we closely watch contract reporting as an indicator of the health of the outsourcing market,” said Allie Young, vice president of Gartner. “We have seen some softness in large deal signings, but no catastrophic decline. While economic forces can change priorities, the basic drivers of outsourcing remain intact — organisations still outsource for cost, efficiency, access to skills, focus on core business, innovation, modernisation and even business transformation.”

The largest IT outsourcing (ITO) or business process outsourcing (BPO) contract signed in 2008 was for a TCV of US $2.5 billion. There were two of these size deals, one of which was awarded to TCS. 2008 was the first year that an Indian IT services provider was awarded the largest deal. The two largest deals in 2008 were for the delivery of a combination of ITO and BPO services.

Since 2006 there has been a steady decline in the number of ITO and BPO deals signed in the Americas and a gradual increase in the number signed in the Europe, the Middle East and Africa (EMEA) region. In 2008, EMEA overtook the Americas as the leading geographic region in terms of volume of deals signed. In 2008, there were 162 signed in EMEA and 158 deals signed in the Americas. Deals signed that cover the global IT operations of buyers are also increasing and represented 25 percent of all deals signed in 2008.

“While outsourcing held up in 2008, we expect to see a slowdown in contract signings during the first half of 2009 and possibly extending into the third quarter, largely due to the tightening of IT budgets in the fourth quarter of 2008, and only slow loosening of budgets in early 2009,” said Ms. Young. “Long sales cycles for outsourcing are the norm, depending on the complexity, scale, and scope of the outsourcing deals, which may lead to delayed signings. However, organisations with approval to outsource — and desperate to save money — may seek to move rapidly and shorten some steps of due diligence just to get the deal into place."

Additional information on outsourcing contract trends in 2008 is available in the report “Outsourcing Contracts Annual Review (2008) Shows Outsourcing Growth — But Signs of Change.”