2002: Year of the bad outsourcing deal

Increased pressure on IT directors to cut costs is leading to companies entering into long-term outsourcing deals that are likely to fail, according to analyst company Gartner.

Speaking at the IT Services and Sourcing 2002 symposium in London this week, Roger Cox, vice president of strategic sourcing at Gartner, said 2002 and 2003 will see record numbers of outsourcing deals that go bad.

"Companies need to ask themselves if the 'good deal' they are signing in 2002 or 2003 is likely to be a 'good deal' in 2004. Many will not be," he said.

Users will establish long-term arrangements based on current short-term cost-cutting demands, only later to find themselves trapped in a highly dependent and inflexible agreement, said Cox. This will end up costing businesses more in the long-term, he added.

"Companies will need to take the majority of blame for signing bad deals. In many cases, the people who signed the deal, having achieved cost cutting objectives on paper, move on after 18 months and don't have to face up to the difficulties which usually occur," Cox said.

Buyers should approach big deals with caution, especially if the supplier is offering a heavily discounted contract, was the advice from Gartner.

The services market in Europe will grow at just 2.3 per cent in 2002 - the lowest for ten years, according to Gartner's latest figures released at the symposium.