Chief information officers (CIOs) have been warned of an impending shake-up in IT outsourcing relationships triggered by today’s unsettled business climate.

The global economic downturn is making business leaders more cautious, said National Outsourcing Associaton (NOA) board director Mark Kobayashi-Hillary. In some cases, this means that decisions on IT outsourcing projects are being delayed, he added.

This argument was backed by Duncan Aitchison, European president of sourcing advisory firm TPI, which tracks outsourcing deals signed by large enterprises. “The firms that have been taking action have only been cutting projects so far,” he said.

Christian Hesselhoj from outsourcing consultancy Global Outsourcing eXchange said he had noticed businesses are taking longer in their decisions to offshore. “Where a decision used to take three months, it is now taking about six,” he said.

While Aitchison said most outsourcing activity would pick up again in the near future, he predicted the level of application development outsourcing was likely to be much reduced.

He added that UK firms are now more likely to go down the offshoring route than opt for UK-based outsourcing providers.

By eliminating the need to transfer staff, firms are able to sign shorter contracts and reduce their overall liability, Aitchison said. The average length of outsourcing contracts signed by UK companies “is now five years rather than seven”, he added.

The choice of offshoring destinations is also increasing, with new entrants such as Egypt spending millions of dollars in an effort to compete with India as the outsourcing destination of choice, Kobayashi-Hillary said.

Egyptian government body The Information Technology Industry Development Agency said Egypt has 31,000 science and engineering graduates and the costs to do business with an Egyptian service provider are 10 per cent lower than with an Indian provider.

Meanwhile, the UK government is planning an overhaul of the rules governing public-sector IT sourcing. A statement from the Cabinet Office issued this week advised that future government outsourcing contracts should only be awarded to providers that guarantee to preserve trade union recognition.