Introduction

As the market continues to expand and mature, the FAO contract characteristics are changing – in the way contracts are being signed and executed.

The focus of this study is to identify and document the evolving FAO contract characteristics along the following parameters:

• Contract profiles – size and term of FAO contracts
• Solution design – process scope, offshoring, and technology trends
• Contract agreement – pricing structures, service levels, and people transition

The objective is to assist key stakeholders in understanding the changing characteristics of the FAO contracts and help them identify value creation opportunities as well as identify potential risks involved.

Scope

The scope of analysis includes:

• Third-party F&A outsourcing contracts and not shared services or captives
• Multi-process FAO contracts with a minimum of two F&A processes, over US$1 million in Annual Contract Value (ACV), and a minimum contract term of three years
• 290+ multi-process FAO contracts signed as of November 2007

Contents

This report examines the FAO contract characteristics and provides insights, detailed analyses and implications for stakeholders along three key dimensions: contract profiles – size and term; solution design – scope, offshoring and technology, and contract agreement – pricing, service levels, and people transition. Each dimension is discussed in detail (and illustrated with supporting data and analysis) to provide the reader an in-depth and accurate overview with clear identification of the trends observed. For example, throughout the report key findings are shared, including the following, among others:

• Increased preference for “phased approach” and increasing influence of mid-market has resulted in a steady decline of contract sizes and engagement team sizes
• Over the next three years, contracts worth US$5 billion are up for renewal and US and the large buyers are the biggest contributors to the renewals
• FTE based pricing remains the dominant model but volume based pricing is increasing. Interest in utilizing business-impact pricing along with a base fee is also rising
• FAO metrics tend to focus on timeliness and accuracy. The focus of service levels is shifting from diagnostic metrics to business-oriented metrics.