Better the outsourcer you know

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Outsourcers are heavily discounting to retain contracts with existing customers as Australian companies and government agencies are reducing the scope of projects, according to MetaGroup analysts.

About 70 percent of Australian companies and government agencies are sticking with their IT outsourcing partners when reviewing contracts to avoid the cost and “pain” of forging a new relationship with a new partner, analysts speaking at a MetaGroup conference claimed. However customers are reducing the scope and duration of these new contracts.

Many large-scale government outsourcing contracts signed on during the days of government's mandated outsourcing policy are now winding to a close and government agencies are reassessing their outsourcing contracts. However, since the Humphrey Report into government outsourcing practices, the nature of contracts have changed.

Speaking at the annual METAmorphosis 2003 conference, MetaGroup senior program director service management services, Dr Wissam Raffoul, said most government departments in the midst of renewing contracts are sticking with their original outsourcer, but are limiting the scope and duration of the projects.

Only 20 per cent of government clients change vendors when contracts expire, while the remaining 10 per cent choose to bring it back in-house, according to Raffoul.

"Government departments think it is better to fix what they have. There is more risk and money in changing vendors. There is a lot of pain in trying to get the relationship working, so many are sticking with that contractor but changing the scope,” Raffoul said. Raffoul cited Australian Customs Service and the Australian Taxation Office as examples of government agencies that have stuck to original outsourcer EDS, but limited the scope of the new contract by removing their communications services from their computer outsourcing contracts.

Dean Davison, Meta Group vice president service management strategies agreed: “It takes a lot to create a relationship. It's easier to fix an existing relationship than it is to start a new one.”

Failure to effectively benchmark costs at the outset also puts an element of risk into the contract, the analysts said.

"Government attitude is that now they are more experienced at selecting vendors and their ability to benchmark," said Raffoul. "They expect that contract prices should be going down."

However enterprise's history in estimating costs is “outstandingly abysmal,” according to Carole Macpherson, Meta Group's vice president data services and publications. “It's going to be one of the first things to get looked at. Did we make the budget?”

Macpherson, who manages Meta Group's Predictive Cost Modeling product, said controlling the cost of IT projects was a “great concern”.


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