Big IT Outsourcing Deals On The Rise

The number of so-called IT outsourcing megadeals--contracts valued in excess of $1 billion--may be on the rise in 2004 as more big companies look to hand off routine computer and business-process work to third parties, according to an industry survey released Tuesday.

The survey by outsourcing advisory firm Technology Partners International says the second quarter of 2004 saw five such megadeals worth, in terms of total contract value, about $9.2 billion. That represents an increase of 35% in contract values compared with the second quarter of 2003, TPI says. What's more, TPI officials say, is that worldwide, 18 to 20 additional outsourcing megadeals are under consideration. "We expect to see sizeable deals in the coming months," TPI managing director Peter Allen said during a conference call.

Helping to fuel the demand for big outsourcing contracts, analysts say, is the pickup in mergers and acquisitions, particularly in the financial sector. On Monday, Bank of America Corp. awarded EDS an eight-year, $1.1 billion contract to help it integrate and manage the voice and data networks of FleetBoston Financial Corp. Bank of America acquired FleetBoston in April.

TPI's survey also indicates that demand is rising sharply for business-process-outsourcing services, under which a vendor takes over the operation of an entire business function within a company. "2004 will be a breakthrough year for BPO," Allen said. Business-process-outsourcing deals also are increasing in size. The average contract awarded so far in 2004 is worth $418 million, compared with an average of $220 million last year. TPI says more businesses are awarding contracts that cover more than one business process.