Outsourcing Down 11% and Contract Value Down 22%

IndustryWeek (7/28, IW Staff) – The TPI Index, which measures commercial outsourcing contracts valued at $25 million or more, found that the total number of contract awards fell 7.5% from the first quarter to the second quarter. While total contract value (TCV) rose about 5% sequentially to $20.5 billion, Annualized Contract Value (ACV) -- TCV divided by the duration of the contracts -- fell 5% from the previous quarter to $3.6 billion.

Compared with the first six months of 2008, which saw record levels of sourcing activity, the market in the first half of 2009 awarded 11% fewer contracts with 22% lower TCV and 28% lower ACV. Driving the declines were a reduction in mega-deals in Europe as well as lower spending globally on business process outsourcing (BPO).

Not surprisingly, the banking sector, traditionally a heavy adopter of outsourcing services, has slowed its activity significantly in the wake of last year’s financial crisis. Oil &Gas, Food & Drink and Consumer Durables, to name a few, have also slumped in 2009. But at the same time, the Diversified Financials, Transportation, Retailing and Telecom sectors have been increasing their adoption of sourcing strategies.