Clients nudge IT firms to redo contracts as AI spells savings

Fortune 500 clients are moving away from fixed-price pacts to capture Al-driven efficiencies

- Jas Bardia [e-mail]

AI is prompting companies to have a relook at existing contracts with their IT vendors and are expecting more AI-led savings.

(REUTERS)

Artificial intelligence (AI) is rewriting India’s $283 billion IT industry, affecting not just new deals but also existing contracts.

Jatin Dalal, chief financial officer (CFO) of Cognizant Technology Solutions Corp., is the latest to call out AI's impact on the sector. In a conversation with Nomura analysts on 16-I7 September, Dalal said that AI is pushing clients to revisit their deals and demand greater Al-led savings.

“The CFO (Dalal) noted that historically the company has seen -15-20% of contracts come up for renegotiations annually where -15-20% has been the usual discounts/productivity benefits passed on to customers,” said Nomura analysts Abhishek Bhandari and Karan Nain in a note dated 23 September. “In the AI world, given visible savings, he expects renegotiations to inch up towards 25% and productivity-led savings expectations from clients to increase to -20-25%,” the note added.

Dalal said companies would need to spend more on IT services to capture AI and hardware benefits, though current investments remain subdued.

“Subdued spending on IT services currently is driven both by Al-led deflation and tariff-led uncertainty,” said Nomura analysts.