Management Toolkit

Outsourcing mega-deals double in 2003

Munir Kotadia ZDNet.co.uk

Published: 21 Jan 2004 12:45 GMT

The outsourcing market received a massive boost on Wednesday with news that the number of outsourcing deals worth in excess of $1bn (£546m) doubled in 2003. The market has been driven by increased spending on managed IT services by the UK and US governments, according to market analysis firm Datamonitor.

According to Datamonitor's IT Services Contract Tracker -- which monitors all new outsourcing, systems integration and consulting deals that are worth more than $1m -- the number of deals with a value greater than $100m increased by 49 percent to 244 and deals worth in excess of $1bn more than doubled to 29.

Datamonitor attributed the increase to new contract awards by the UK's National Health Service and the US Department of Defence. Both organisations have signed up outsourcers to upgrade their technology infrastructures.

The total value of all large IT services contracts in 2003 amounted to $119bn, which represents a 44 percent increase over the previous year. Total government spending more than doubled in 2003, with central governments in the UK and US signing contracts worth $18.5bn. The defence sector came second with outsourcing deals worth $18.2bn, the company said.

IBM Global Services was the biggest winner, taking 21 percent of all contracts, while Computer Sciences Co. and Hewlett-Packard were reported to be making "significant gains" compared to their 2003 numbers.

Nick Mayes, a managing analyst for Datamonitor's technology practice and responsible for the IT Services Contract Tracker, said that although there was a "big surge" in the number of mega-deals during 2003, they will not be as profitable as the deals signed during the dot-com boom.

"The majority of large deals will not be as profitable for the services providers as those long-term contracts that they signed in the 1990s. Clients have been able to squeeze some big cost reductions out of their incumbent suppliers, which are also being held to increasingly tight performance targets," Mayes said in a statement.