 "IT outsourcing")
The era of mega outsourcing contracts in the information technology (IT) industry is entering a reset. As artificial intelligence (AI) reshapes how services are delivered and measured, large, long-tenure agreements are giving way to smaller, faster, AI-led contracts, with enterprises opting to test value and productivity gains before committing to scale.
The share of traditional large and mega deals, classified as those with a total contract value (TCV) of more than $75 million, fell to 18 per cent of the total number of deals signed through September 2025, from 20 per cent in 2024 and a peak of 25 per cent in 2023, according to data from HfS Research. Buyers are increasingly breaking multi-tower renewals into modular, AI-assisted components and micro-waves of modernisation.
“CY25 was the year when the industry started pioneering deal constructs and became a testing ground for how to make them work. CY26 will be an exponential drive and a make-or-break year. Will clients sign on for the same extension for another two to three years, or look for a productivity reset?” said Saurabh Gupta, president of research and advisory at HfS Research.
AI and generative AI (GenAI) are expected to play a critical role in deal renewals, as clients seek to build greater efficiency into operations and reduce costs. According to industry experts, enterprises need to cut costs, but unlike in the past, they are not banking those savings. Instead, the savings are being redeployed to fund AI-driven transformation programmes, which are shaping the contours of current contracts.
By contrast, deals with a TCV of less than $30 million have edged up to 48 per cent from 45 per cent over the aforementioned period. This signals a shift towards contracts built around outcome assurance rather than time and headcount -- the model that helped Indian IT firms grow into global heavyweights over the past three decades.
“Deals will not reduce, but there will be pricing pressure of around 30 to 40 per cent,” said Biswajeet Mahapatra, principal analyst at Forrester. “IT companies have been very bold in talking about their AI adoption and AI-enabled service-delivery platforms. Clients now understand the model and realise that the logic of having so many full-time equivalents goes out of the window. They are looking for a leaner and faster model, which will have a direct impact on pricing.”
That shift does not, however, signal the demise of large deals. HfS data shows that about 300 large IT and business-process outsourcing contracts, worth more than $20 billion, are due for renewal over the next two years. The renewals are unlikely to be straightforward, with clients expected to scrutinise value more closely before signing.
Many of these contracts were signed during the pandemic. While enterprises may pursue vendor consolidation, they could also invite competitive bids if service providers such as Tata Consultancy Services and Infosys do not demonstrate a significant productivity upside.
“There is demand for AI-led deals. This year, two to three deals out of 10 were AI-led, but in 2026 it will certainly be four-five. Large customers have already gone through traditional offshoring, cost arbitrage and savings, and renewals are a good testing ground for all this,” said another analyst.
Nitesh Banga, chief executive and president of mid-tier IT services firm Virtusa, said that while some green shoots are visible, the overall demand environment remains muted. Enterprises continue to constrain spending on traditional IT services even as they invest heavily in new technologies and infrastructure - a shift that could take 12- 18 months to translate into stronger services demand.
“Vendor consolidation is another trend, and it will not be in the form of long-term deals. Instead of having 70 partners, enterprises want to work with 5-15 partners. More companies also want to take control and insource, which will lead to the breakdown of large deals,” he added.
