One of three customers of Business Process Outsourcing (BPO) services ended their offshoring deals prematurely in the last 12 months, reveals a recent study by Diamond Management and Technology Consultants. 

Interestingly, of all those that terminated their offshore BPO deals last year, 39 percent customers prematurely ended more than one BPO deal, according to the study. But why did so many terminations formalize? Some reasons that were pointed out by customers for such abrupt contract terminations include unattained cost savings (15 percent), change in strategic directions (14 percent), movement of functions in-house (12 percent), poor provider performance (6 percent) and contract breach (5 percent). At the same time, “26 percent of offshore providers that admitted to having a contract abnormally terminated also did not agree with their buyers when it came to the primary cause of these terminations. They failed to identify unrealized cost savings as the key buyer rationale,” says the study.

While not many companies disclose deal terminations publicly, one such terminated deal that made it to the news headlines early this year was that between Texas Health and Human Services Commission (HHSC) and Accenture. In Mar. ’07, the HHSC announced to transition back its health- and human-services eligibility programs that were outsourced to Accenture in a five-year, $840 million BPO contract. HHSC also declared that the contract would be fully terminated in Nov. ’07. Under the deal, Maximus, a government services contractor, was selected as a subcontractor to Accenture, with an estimated deal value of $370 million.This deal contract came under fire by Texas officials in 2006 allegedly for poor performance and being over budget. By the end of the year, the state decided to reduce the scope of the contract and take certain parts of the deal back in-house, and Maximus agreed to transfer some of its work over to Accenture. Maximus still performs certain services for HHSC under separate contracts. In fact, the company expects the new deal to extend this work through 2010.

This is just one example — there are many other that don’t even make it to the public domain.