Monday, 16 March 2009

Wipro scoops £40m contract with Friends Provident – or is it £8m?

(By Anthony Miller – Monday, 13th March 2009 3:20pm). India-based global SI Wipro has won a new application development and support contract with long-time client, UK insurer Friends Provident. The ‘fixed price, outcome-based’ deal runs for three years with a two-year extension option. Wipro says that if they get the full 5-years, it will be worth £40m over the period.

But that’s a reasonably big ‘if’. I spoke to Friends and found out that there is actually no minimum commitment to Wipro for the new services. This is in fact a framework agreement where the fee rates for different service activities are fixed (not the same as ‘fixed price’, folks) with agreed SLAs. Friends can then call on Wipro on an ‘as needs’ basis. However, I got the sense that Wipro should see at least the first year’s revenues (£8m).

Friends has been a Wipro client for some eight years both for IT services and BPO (customer administration services) but mainly on a time-and-materials basis. Curently Wipro is achieving a 60%/40% offshore/onshore workload mix at Friends, but they have aspirations to drive this to 80%/20%. That's a pretty aggressive increase in offshore delivery mix and would obviously improve Wipro's margins on the contract if they can get there. Wipro is Friends’ only India-based IT/BPO services supplier, though IBM, which recently won the contract to manage Friends’ IT infrastructure, is expected to deliver some of its services from India too.

So really this new contract appears to be a form of staff augmentation model but at fixed fee rates. It’s not entirely clear to me, then, how the ‘outcome-based’ bit will work in this context and I will try to dig a little deeper. But it looks good from Friends’ point of view as they can ‘eat’ as much – or as little – as they like and always know the price. Perfect for a cost-constrained IT budget!

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