Savings from outsourcing may not prove all they are cracked up to be, according to a study by TPI.
The sourcing advisory firm said research, examining contracts awarded between 2003 and 2005, disproved widespread market claims that it could reduce costs by more than 60 per cent.
In reality, savings net of professional fees, severance pay and governance costs averaged 15 per cent and ranged between ten per cent at the bottom end and 39 per cent at the top.
Fifteen per cent is also the average level of savings anticipated when contracts are first let.
Duncan Aitchison, managing director of TPI, said: "Opinions vary widely about the cost savings to be gained from outsourcing.
"This research proves that the promise of massive operational savings is unrealistic when you take into account the costs of procurement and ongoing contract management.
"In our experience, outsourcing arrangements which focus solely on delivering huge savings often fail to meet client expectations.
"Fifteen per cent is not only a realistic saving, but also a significant one."
Cost is still the main driver for the majority of outsourcing contracts however an increasing number of companies are outsourcing primarily in order to improve quality, up from 11 per cent in 2004 to 21 per cent today.
Mr Aitchison said: "Although, clients continue to view outsourcing as a means of achieving cost savings, they are also increasingly concerned with improving the quality of their services.
"We are seeing an evergrowing number of clients using outsourcing as a way of introducing innovation into their business."
TPI said it had been the strongest first quarter ever for outsourcing contracts.
So far in 2006, 83 contracts had been signed valued at more than £18 billion compared with 76 deals valued at just over £13 billion at this point last year.
Mr Aitchison went on: "This strong quarter is due in part to the rise in the number of contracts being restructured.
"However, even when we exclude restructurings, the number of contracts signed so far this year is still a first quarter record.
"Although historically most outsourcing restructurings have been renegotiated with the incumbent service provider, it can no longer be taken as read that the existing provider will retain all or even part of the original deal through a restructuring.
"Client retention will increasingly depend on an incumbent's ability to offer a competitive proposition for every facet of the service.
"This will often require significant changes in price, contractual terms, scope and delivery approach from the original agreement."