The first quarter of 2012 showed a slowdown in the value and number of outsourcing contracts awarded globally, according to the quarterly Global TPI Index, which tracks contracts valued at $25 million or more. Total contract value across functions was $18.7 billion, a decline of 22 percent from the same quarter a year ago and 35 percent from the previous quarter. \n\nWhile services activity at the beginning of the year is always more sluggish than during the year-end rush to get deals done, this decrease in the number and value of IT and business process services deals was more pronounced than usual. IT contract values fell 20 percent year-over-year and 37 percent quarter-over-quarter while BPO values dropped 27 percent year-over-year and 30 percent sequentially. Typically, first quarters sink an average of 13 percent from the previous quarter.The IT Outsourcing Morning After\n\nCall it an outsourcing hangover, says John Keppel, partner and president of research and managed services for ISG, which produces the research. The deal deceleration comes on the heels of the strongest half-year of outsourcing contracts in more than a decade, according to ISG, when global total contract value rose 29 percent year-over-year to a record $55.8 billion. And the hangover effect is not without precedent. Buyers took a similar breather in early 2010 and early 2006 after robust late-year signings.\n\nJust one mega deal, valued at $1.5 billion, was inked during this most recent period, although buyers cemented seven of what ISG calls mega relationships \u2014contracts with an average annual contract value of $100 million or more.\n\nMuch of the sourcing activity taking place during the first three months of the year involved restructuring existing relationships. Such activity, which can take the form of renegotiation, extension or contract renewal, rose a dramatic 82 percent over last year.\n\n"While the 82 percent may be a bit of a short-term anomaly, restructuring has indeed increased over the past five years," says Keppel. Around 33 percent of outsourcing activity was in fact a restructuring in 2010 and 2011.\n\nThat level of contract reworking is likely to continue at a higher rate as outsourcing deals have gotten much shorter. An ISG analysis of historic market data found the number of outsourcing transactions has increased dramatically over time even as the average duration of contracts has declined. \nAs a result, contract expirations are now occurring at twice the rate they did five years ago. A record 570 outsourcing contracts worth at least $25 million were scheduled to expire in 2011, and another record 690 will wind down this year, according to TPI. Five yeas ago, just 310 deals reach their end date.Party time for IT Outsourcing Customers?\n\nThe upside for customers is the increased opportunity to lower costs, improve service levels or introduce innovation, says Keppel. "But to realize those opportunities, clients need to be sure that they have a detailed understanding of market dynamics, competitive pricing and technology trends when they undertake a restructuring."\n\nClients will also need hardy procurement and vendor management practices in place to keep pace. "Clients and their vendor management infrastructure have definitely matured over the past decade," says Keppel. "Still, it can be challenging for companies to keep up with the moving targets of new technologies, new provider offerings and new contract and pricing dynamics, and changing negotiation strategies."\n\nWhile restructuring activity does little to add to the total outsourcing market size the way new contractsdo, service providers will have more opportunities to either win or extend a portion of the scope of any, says Keppel. \nIf you apply what ISG calls the 80\/80 rule, around 80 percent of service provider incumbents can expect to retain at least 80 percent of their existing work during a restructuring. That leaves 20 percent for other providers to get a foot in the door at a new client. "To compensate, we often see incumbent service providers try to renegotiate before term in order to keep competitors out and retain the a little bit more scope," Keppel says.\nStephanie Overby is regular contributor to CIO.com's IT Outsourcing section.