The Great IT Managed Service Recontracting Wave

The Great IT Managed Service Recontracting Wave

Why IT Outsourcing Deals are due for Redesign

Over the years, we’ve been working closely with a range of Australian organisations to revisit and reframe IT managed outsourcing agreements that, quite honestly, no longer match the needs of the business.

Many of the contracts we are looking at were signed during COVID, when continuity was the main concern and choices were limited. The intent back then was clear: keep the lights on, stabilise remote operations, and avoid disruption. But now, in 2025, those same agreements are still in place — and they’re starting to show their age.

If you haven’t reviewed your IT service contract since then, chances are it was built for resilience, not reinvention. And that’s becoming a problem.

Why Contracts from 2020-22 are not getting you the value you need

We’re now operating in a different environment:

• Hybrid work is business-as-usual COVID led to some quick solutions to enable remote work. While successful, it was a stopgap for many organisations that became a permanent fixture in enterprise operating models. Contracts from this period often didn’t include the right support models, endpoint security provisions, or flexible support coverage.
  

• Cloud-native is no longer a future state — it’s the baseline Older contracts (well before Covid) were structured around on-prem or hybrid solutions, with cloud services treated as add-ons. Today, businesses are deeply reliant on multi-cloud and SaaS ecosystems. Legacy contracts often fail to reflect the shared-responsibility model of cloud, under-allocate support across platform layers, and don’t account for dynamic usage-based pricing models.
  

• AI and automation are influencing everything from helpdesk to cybersecurity Generative AI, ML-based monitoring, and RPA (Robotic Process Automation) are now standard in IT operations. Suppliers are using automation to scale down their labour costs and boost margins — yet many of the contracts signed in earlier years still lock clients into FTE-based or transaction-based pricing, leaving no room to transparently share the benefits of automation or to hold vendors accountable for continual innovation.
  

• Cybersecurity and monitoring are not in scope or have been added as a CR to the contract.

  The number of threats is significantly increasing every year, and security has shifted from being an IT concern to a boardroom issue. For many older contracts, security responsibility is fragmented or bolted on as change requests. This creates gaps in coverage, misaligned accountability, and a false sense of compliance. Proactive monitoring, threat modelling, and incident response readiness must be built in — not retrofitted.
  

• Talent markets have shifted, with skilled IT professionals harder and more expensive to secure Labour shortages and the rise of niche tech stacks has changed the labour market. In many cases, suppliers are also struggling to maintain the calibre of talent they once promised — and you may still be paying for roles that are now automated, offshored, or significantly diluted. Contracts that don’t tie to delivery quality are leaving you exposed to degradation.
  

• Boards, owners and regulators are expecting more accountability from suppliers Meeting standards like CPS 234, GDPR, and SOC 2 is no longer a differentiator. They are the bare minimum of any credible organisation. Suppliers must be able to demonstrate not just capability, but auditable controls and response playbooks. Contracts signed before this shift are often missing formalised accountability, right-to-audit clauses, or modern governance structures.
  

Contracts written between 2020 and 2022 were fit for a different time. They were often reactive, constrained by crisis-era limitations, and had outdated delivery models. As technology and the risk landscape has evolved, these contracts limit your ability to drive value, hold suppliers to account, and flex with market and regulatory demands.

If your contract doesn’t reflect today’s operating environment, it’s not protecting your business, enabling it to grow or setting the tone for the partnership you need tomorrow.

It’s Time to Move Beyond FTE-Pricing and Contract for the Right Outcomes

Traditional models built around headcount (FTE) or transaction volumes are often favoured for their simplicity. They're easier to benchmark, negotiate, and manage. But they no longer reflect how services are actually delivered. This is because they don’t incentivise the outcomes you care about.

To fix this, the contract needs to be constructed differently. Today, suppliers are using a mix of automation, AI, and lower-cost delivery centres to deliver what used to take a full team. That shift isn't inherently bad, but without contractual transparency, clients are left in the dark. If a supplier is now delivering a service with 70% of the labour they used to, and quietly supplementing it with AI or automation, the client should understand:

• How compliance obligations are being met

• Whether service quality has changed

• What portion of the efficiency gain is being retained by the vendor versus shared with the client

An example would be a financial services client whose IT support provider had rolled out a chatbot-led helpdesk triage. It halved call volumes to human agents and reduced costs internally, but the client was still paying the same transaction rate per incident. Once uncovered, this opened the door to restructure the contract with a performance-based model, including automated handling thresholds and shared savings from AI-led resolution.

To drive the right behaviours, modern contracts must do more than shift pricing mechanisms — they must align incentives, effort models, and innovation agendas.

That means:

• Incentivising better continuity and uptime, not just uptime SLAs

• Focusing on the resolution of real business issues, not the easy tick box metrics

• Linking performance to customer and employee experience outcomes

• Embedding expectations around cyber resilience, automation and continuous improvement

When suppliers are rewarded only for activity, you’re paying for motion and not progress. Contracts need to evolve to ensure your business sees both the transparency and the value it deserves.

The Hidden Costs of Outdated Agreements

Holding on to an old contract may feel easier in the short term, but it usually comes at a cost:

• SLAs that are technically met but miss the mark in practice

• Pricing structures that don’t adjust as needs evolve

• Missed opportunities to automate or streamline, causing a tech debt over time

• Lack of visibility into where value is really being delivered

• Governance models that are too passive or inflexible to manage change

Inflation, global logistics, and Access to talent have all been given as reasons for service delivery cost increases over the last few years. As a result, the average spend per employee on IT services has been increasing. Putting increased pressure on IT executives to ensure they're maximising value for money.

What a Fit-for-Purpose IT Contract Looks Like in 2025

When we work with organisations to review their IT strategy and outsourcing arrangements, we focus on a few key shifts:

• Define SLAs that measure outcomes, not just effort

• Embed security ownership across both client and provider

• Make space for AI, automation and new delivery models

• Built-in pricing and service flexibility that supports change

• Establish proper governance that’s not just about policing but encourages partnership and opens the door for the supplier to innovate and share the benefits

• Includes a clear commitment to innovation and ongoing efficiency

These aren’t just best practices. They’re what modern IT operating models require to remain competitive and resilient.

Case in Point: Wealth Management, Rewired

A good example of this came from a recent client in the financial services industry. They had renegotiated their IT services contract in late 2020, in the thick of the pandemic. At the time, they were forced to absorb a 20% cost increase with no real uplift in scope, service or quality.

Fast forward to 2024. Their IT needs had evolved, their ambitions had grown, but the contract hadn’t kept pace. Ben supported them through a supplier review and sourcing process, selecting a new partner who was better aligned to the strategic direction of the business. More importantly, we helped them reframe the contract to focus on measurable outcomes, shared accountability and meaningful innovation.

The result was a partnership that was not only more cost-effective but also supported the growth and resilience agenda of the business.

Recontracting Is a Strategic Lever

Too often, contract refreshes are treated as administrative exercises. In reality, they’re one of the best levers you have to reset expectations, align incentives and make sure your external partners are truly enabling your internal priorities.

That’s the approach we take at ValueKnox. We don’t just negotiate. We help you redesign your commercial relationships so they support the kind of transformation your business is aiming for.

That includes:

• Re-architecting contracts to reflect today’s delivery models

• Modernising SLAs and performance measures

• Benchmarking commercial models and supplier performance

• Understanding the impacts of AI on the way your supplier is providing your IT services

• Embedding governance structures that actually work

Note: Generative AI and other related technologies have the potential to automate work activities that currently consume 60% to 70% of staff time. The potential for AI to improve business processes, help desk, customer support, and other commonly outsourced functions is enormous. AI also accelerates the time required to conceptualise a software product, resulting in significant cost savings.

Final Thoughts

If your IT partner is still billing for people but not delivering progress, now is the time to take a closer look.

You’re not alone — this is something we’re seeing across sectors. The good news is that recontracting, done well, gives you the chance to get ahead. It’s not just about cost or compliance. It’s about shaping a model that works for the business you are now, and the business you want to become.

If you’re considering modernising your IT supplier relationships, let’s discuss how we can help. We’re always happy to share what we’ve seen, what’s working, and how to make it real in your context. www.valueknox.com.au

contact@valueknox.com.au