Sourcing Update: Q2 2009

Industry Developments

The economic downturn continues to have an impact on the

outsourcing sector. The clearest trend has been a reduction in

pricing of outsourced services due to the restricted budgets of

customers as well as suppliers seeking to stay ahead of their

competitors and customers seeking to renegotiate contracts. This

has been borne out in the Gartner report entitled "Potential

Impact of Economic Downturn on IT Infrastructure Outsourcing

Prices, Q109" which has forecast that IT outsourcing services

will drop between 5% - 20% through 2010.

Following on from our last update, the Satyam scandal continues

to have a negative affect on the Indian outsourcing industry.

However, there is now a silver lining: Tech Mahindra, the joint

venture between British Telecom and Indian automobile firm,

Mahindra and Mahindra, has emerged as the top bidder for Satyam.

Tech Mahindara was initiated by the Government and NASSCOM, Indian

outsourcing's industry body, and it has created some hope that

Indian outsourcing will recover from the scandal, or Tech Mahindra

will at least alleviate some of the negative impact of the scandal.

Whether it will achieve this aim remains to be seen though given

the relatively small size of Tech Mahindra, the long term strategy

of BT in relation to Tech Mahindra and the sheer scale of the

Satyam scandal.

In another trend, it appears companies are increasingly looking

at using managed security service providers or other forms of

outsourced security. This was borne out in a study by Symantec on

the practices of companies with a median size of 10,000 to 25,000

employees in relation to outsourcing security and their proposed

future strategies in relation to security. The study indicated this

may have been due to increased reporting in threats and actual

attacks over the past two years as well as reporting of actual

losses (such as lost revenue and staff productivity). The benefits

of outsourcing included reducing costs, mitigating security risks,

the burden of regulatory requirements and engaging suppliers with

specialist security skills.

Financial Services

Following on from our last update in relation to the FSA

consultation on changes to the depositor compensation arrangements

available under the Financial Services Compensation Scheme

("FSCS"), the date for providing

comments on the proposals set out in the FSA's consultation

paper (CP09/3) has now passed. It is proposed that the rules in

relation to fast FSCS payouts will be implemented from 31 December

2010 which means that firms will need to set up and maintain new IT

systems to support fast processing by that date.

Also, from 1 April, the FSA has extended the outsourcing rules

for common platform firms to apply to firms such as insurance

intermediaries who were not previously subject to similar rules.

The purpose of the extension is to create a common set of

high-level provisions for all firms to be applied flexibly and

proportionately bearing in mind the nature, scale and complexity of

their businesses. Existing material outsourcing contracts will not

be affected (unless they are renegotiated) as these have been

exempted by the FSA.

Public Sector

A procurement policy note ("PPN") has

been published by the Office of Government Commerce

("OGC") in relation to ensuring that a

contracting authority's published...