Everest Research Institutes’ study of FAO contracts showed that the average size of the contracts has been declining steadily to $35 million in 2007 compared with $86 million in 2002.

“This indicates that there is an increasing preference of a ‘phased’ approach over a ‘big-bang’ approach. It also indicates increasing adoption by the mid-market (relatively smaller companies handing out FAO contracts), made possible by increased standardisation of the FAO value proposition,” said Saurabh Gupta, Research Director, Everest Research Institute and co-author of the report.

The FTE-based pricing remains the dominant model, but business-impact pricing is showing signs of increasing, he pointed out.

FAO typically involves managing process-driven functions, including general ledger, fixed assets, accounts payable, accounts receivable, billing, payroll, and benefits administration.

According to Everest, the total third-party serviced FAO market is currently pegged at $20 billion, growing at 22 percent (contracts with minimum size of $4-5 million).

“The India-based players have cornered roughly 30 per of the FAO market,” he added.

More new contracts for outsourced finance and accounting services include management reporting and analytics, although outsourcing buyers continue to focus on transactional, segmented approaches for accounts payable, accounts receivable and general accounting services.

Elaborating on the contracts that are coming up for renewal, Gupta said, “Renewals of FAO contracts also present significant value opportunities for both buyers and suppliers. Where on one hand, renewals enable buyers to expand their FAO benefits, on the other, they also help suppliers expand the scope of the current engagements.

“Some suppliers are looking for ‘smart deals,’ others for ‘growth accounts,’ while others are looking for ‘anchor accounts’.

“In such a scenario, it is imperative that the buyers update themselves about the changing supplier landscape in order to understand the strategic objectives of the different suppliers.”