ComputerWire’s IT Services Contract Database tracks every new outsourcing, systems integration and consulting deal with a value greater than $1m signed by major IT services vendors, and contains information on more than 6,500 contracts signed since 1998.

ComputerWire tracked 1,814 deals in 2004, which represented a 4.4% increase over the 1,738 logged in the previous year. The combined value of the deals rose 37% to $163bn from $118.9bn in the previous year.

Interestingly, there were fewer mega-billion-dollar deals in 2004 than in 2003 (25 versus 29). This seems to tally with the belief of many in the services sector that clients are adopting selective sourcing models, where they outsource specific IT and back-office functions to specialist outsourcing vendors rather than hand over their entire IT department to a single supplier.

However, the days of the mega-deal are not yet numbered. The value of the 20 largest contracts announced during the year rose from $38.3bn in 2003 to $53.6bn in 2004, although the picture differs greatly between the public and private sectors.

The 20 largest contracts announced by government and defense agencies during 2004 were worth a combined $45bn, which represented a huge 61% increase over the $27.9bn figure for 2003. Further major government sector contracts are expected in 2005, with the UK Ministry of Defence poised to award a $7.6bn IT infrastructure overhaul project to one of two consortia headed by EDS and CSC respectively.

But in the private sector, the value of the 20 largest deals actually declined between 2003 and 2004 from $28.1bn to $27bn, which suggests that clients are shying away from far-reaching contracts with single suppliers. The best example of this is financial services giant JP Morgan, which in September 2004 reversed its decision to outsource to IBM Global Services in a previously agreed $5bn deal.

One striking feature of the services market in 2004 was that the deals were shared out between a larger number of vendors than in previous years.

The 10 vendors with the largest single market shares of the contracts tracked in 2004 by value, accounted for 57% of the total. This compares to 68.1% in 2003 and 70.4% in 2002. Moreover, the 100 largest contracts announced in 2004 were shared out between a total of 37 different lead suppliers.

Michel Janssen, president, supplier solutions, at outsourcing advisory firm Everest Group, commented: We are seeing increasing competition from a variety of firms like ACS, Hewitt, and Perot that are beginning to win deals that were traditionally won by those in the top 10 vendors. Looking further down the road, we are also seeing the top-tier offshore vendors such as TCS, Infosys, and Wipro compete, and win, in head-to-head deals against top-tier Western vendors, and the wins are increasingly larger in size.

IBM Global Services had the largest single share of the contract awards for the fourth year running, although its slice of the market has consistently fallen during this period. ComputerWire tracked $17.4bn of IBM contracts in 2004, which gave it a 10.7% share of the $163bn total. However, its share almost halved from 21% in 2003 and 25% in 2002.

The Datamonitor report also found a 39.8% decrease in the average contract value for pure BPO deals. This drop in average value was driven by a 51% increase in the total number of these deals in the $20m-$200m range. There were almost six times of deals in the $20m-$200m compared the $200m+ range.

Janssen also noted that for the first time, mid-large versus the large-very-large businesses dominated human resources outsourcing. 2005 will be the year that BPO goes mainstream, and it will be driven by mid-size client organizations, he said. He also said companies with between 5,000 and 25,000 workers signed more of these broad-scoped HRO deals. In the past, companies with more than 25,000 employees were the ones inking HR outsourcing deals.