TPI, the sourcing data and advisory firm, has released first-quarter market data showing a reduction in outsourcing contract size.

The TPI Index, which measures commercial contracts greater than US$25 million, showed that the 141 contracts signed during the quarter with a total contract value (TCV) of $19 billion, were down 21 percent quarter-on-quarter and 22 percent year-on-year. Annual contract value (ACV) reached nearly US$4 billion in the quarter, down 18 percent quarter-on-quarter and 27 percent year-on-year. The TCV for the first quarter of 2009 was the lowest first quarter since 2001, and the ACV was the lowest first quarter since 2003.

The index also highlighted that the information technology outsourcing (ITO) market delivered a steady flow of contract awards during the past three quarters and the first quarter of 2009 was no exception. ITO transactions, which accounted for 101 contract awards valued at US$15 billion during the quarter, tend to make the most significant near-term cost impact for buyers of outsourcing.

Peter Allen, Partner and Managing Director of TPI, said, “The TPI Index for the first quarter of 2009 delivered a profile of contract awards that reflected the pace set at the end of 2008, and which conformed to the pace experienced prior to the unusual surge of nine to 15 months ago. Looking forward, we anticipate a sustained pace of smaller contracts not unlike that before and after the ‘surge’ of 2008 contracts.”

The first quarter index also provided some telling industry sector and geographical trends. The media, retail, utilities and telecom sectors have all increased their outsourcing activity amidst the current economic downturn.

Tom Lang, Partner & Managing Director of Americas industry verticals at TPI, commented, “With pressure to reduce costs, it is no surprise that some sectors are looking to outsourcing as a strategic driver to help meet those goals.”

The TPI Index also revealed a “tale of two regions” when analysing geographic differences. By number of contracts and TCV, EMEA accounted for the majority of the global market in the first quarter of 2009. The Americas region contributed the greatest ACV in the quarter, at $1.6 billion, demonstrating that the durations of contracts awarded there have tended to be materially shorter than contracts awarded in EMEA.

Peter Allen, summarised, “The pace of outsourcing contract awards has returned to the levels seen prior to the EMEA-driven surge of a year ago, overall, there’s no appreciable upward movement in outsourcing awards. The comparisons tell the story of a relatively soft market for outsourcing compared to this time last year, although some industries are adopting outsourcing at a more rapid pace to better manage the current economic conditions.”