India’s IT industry faces tougher contract conditions amid heightened competition and reduced demand in the global economy. Major players like Tata Consultancy Services, Infosys, and HCLTech are compelled to agree to stringent terms, including guaranteed cost savings, billing based on achieved goals, and managing cost overruns, to secure substantial contracts.
Economic uncertainties have led clients to negotiate for more favorable terms, pushing for clauses like capped pricing and outcome-based deals. Over 80% of tracked IT deals in 2023 involved committed-savings clauses, a significant increase from previous years. Such conditions are integrated into pricing structures, risking fee reductions if savings targets aren’t met.
Recent prominent contracts, such as HCLTech’s $2.1-billion deal with Verizon and Infosys’ $454-million agreement with Danske Bank, exemplify these stringent terms. These deals involve digitization, operations takeover, and tech partnerships, lasting multiple years.
The industry’s giants are feeling the pressure, with Infosys predicting its slowest sales growth in a decade. Large IT firms define deals over $100 million as significant and over $500 million as mega-deals, typically occurring during low-demand periods.
While TCS, Infosys, and HCLTech have secured mega deals recently, the trend of tougher contract terms is evident, reflecting clients’ efforts to mitigate economic uncertainty. There’s a notable increase in clauses securing cost savings, reaching 50-60% compared to just 20% a decade ago, indicating heightened client awareness and a desire for shared risk and reward in deals.
