This shift is driven by significant productivity boosts from AI, forcing a re-evaluation of traditional pricing.
Corporates are increasingly renegotiating IT services contracts within 24 months of signing them, rather than wait for renewals, as AI-driven productivity gains force a rethink of traditional pricing models, industry executives and analysts said.
While contract renegotiations have typically taken place just ahead of the time of renewal across the $315 billion software services industry, clients are now reopening even ongoing engagements to capture AI-led efficiencies sooner.
According to analysts, large contracts with annual contract values of more than $50 million are facing the greatest renegotiation pressure. Although specific contracts could not be identified, industry executives said the discussions largely involve long-tenure, pandemic-era annuity deals that are now considered mispriced relative to the rapid advances in AI-assisted software delivery.
Most large outsourcing contracts signed in 2024 and early 2025 were priced before agentic AI fundamentally changed delivery economics, said Phil Fersht, CEO and chief analyst at US-based technology analyst and advisory firm HFS Group. With clients aware of service providers now achieving productivity improvements that weren’t contemplated when those contracts were signed, they’re reopening them rather than waiting for the next renewal cycle.
“The discussions are moving away from FTEs (full-time equivalents), rate cards and offshore ratios towards productivity commitments, outcome-based pricing and gain-sharing,” Fersht said.
He added that such discussions are taking place across banking, insurance, manufacturing and consumer goods, although most are being conducted quietly through bilateral renegotiations rather than public announcements.
“AI capabilities, especially around AI-based application delivery and management have moved faster than the pricing models built into long running contracts,” said Gaurav Parab, principal research analyst at NelsonHall. “AI is showing productivity gains within quarters, while in the past automation gains due to new technology took years to show up.”
“So clients aren’t waiting for renewal, they are going back mid-contract because the gap in their view between what they’re paying and what it now costs to deliver has opened up faster than the contract anticipated,” said Parab.
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