Govt IT contracts from US, Europe to shrink: Gartner

Written by Rachana Khanzode | Mumbai | Updated: Dec 28 2010, 05:03am hrs
Even as the technology industry is quite optimistic about the demand environment, public sector contracts from the US and Europe are expected to shrink in the coming year. This could impact companies which have public sector exposure in these geographies like Tata Consultancy Services (TCS) and Wipro Technologies, or firms like Infosys Technologies, that recently started focusing on these geographies for government contracts.

Gartner V-P Stephen Prentice pointed out that there is a lot of pressure in the US and Europe to create jobs and cut costs. The European governments are still negotiating on competitive austerity, which means there is competition among the governments as to who can cut most. Therefore, public sector spending is going to shrink because we have not seen the end of cuts, he said.

This is also because large scale public sector technology projects in the UK have had bad history, he added. The government has spent billions and yet they have not delivered, because these projects were mismanaged and were not conceived and executed properly. So many of these contracts are half way through. They have to cut and it is inevitable. Also, governments have to spend on technology without borrowing as it has become unacceptable. This is going to bring much more scrutiny before contracts are given, Prentice adds.

This approach by various governments is just expected to push the time line for top Indian IT firms to get through public sector contracts. For instance, Infosys has been trying to focus on the US government contracts and earlier this year, had appointed Eric Paternoster as CEO for Infosys Public Services, US. However, Infosys CEO S Gopalkrishnan said, We are not going to be impacted by any such moves by governments of these countries.

Wipro, that already has a nine-year $407 million outsourcing contract from the State of Missouri for delivering health care services to US citizens, too echoed similar sentiments. Suresh Senapaty, CFO & ED at Wipro, said, We are going to be insulated to these developments because we hardly have any exposure to these contracts.

While, TCS refused to comment on the story. BPO providers such as Firstsource and WNS too are looking at bagging government contracts in the healthcare space, which is expected to open up over the next two years in the US. Multinational rivals, such as Fujitsu and EDS and CSC, have also had their share of troubles while dealing with government contracts.

Andrew Bartels, vice president, Forrester Research, in his recent report points out that there could be sharp cutbacks in government spending. Newly elected US Republican senators and representatives as well as state governors are interpreting their election as a mandate to cut all forms of government spending now, with some threatening to vote against an increase in the federal debt limit.