Co-operative Financial Services (CFS) is in the final stages of negotiating an extension to an outsourcing deal that will double the number of its external IT development staff.

CFS signed a £22m seven-year contract with Xansa in 1994 which has already been extended twice, most recently in 2003.

This latest extension, expected to be finalised in March, is part of a wider review of the Co-operative Group’s sourcing model, and will include the outsourcing of software development for Co-operative Insurance Services.

‘The rebuilding is going to involve a much higher outsourcing component and we are in negotiations at the moment,’ said Co-operative Group chief information officer Gerry Pennell.

Pennell expects the number of outsourced staff to rise from 150 today to between 300 and 400 when the contract is in place. He says the main motivation is fast access to increased capability.

‘Attempting to modernise rapidly requires access to a broad set of skills, so attempting to do that solely in-house would be very expensive and slow,’ he said.

Other benefits include improved career and training opportunities and greater flexibility in IT spending.

Outsourcing remains a popular model for IT services. Research published last month by outsourcing expert Morgan Chambers says £7bn worth of contracts are up for renewal before 2008 (Computing, 14 December).

As well as access to expensive skillsets, the model also mitigates risks to the business, says Ovum principal analyst Phil Codling.

‘One of the advantages is that you can tap into the benefits of global sourcing with the risk and challenge falling on the supplier,’ he said.

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Further reading:

Co-op automates banking