‘Outcome-based’ contracts risk revenue growth for tech firms

As the rise of AI pushes Indian IT companies and clients to focus on creating ‘outcome-based’ contracts, the change comes with increased risk to revenue for IT companies and greater chances of litigation, industry experts and experts say.

The rise of AI is creating more conversations around outcome-led deals because clients believe that can actually be measured now, and IT service providers view it as a way to improve client stickiness. For example, in its latest conference call, Cognizant talked about outcome-based models 17 times.

IT companies have long-touted the shift to ‘fixed-price’ and ‘outcome-based’ deals as a sign that they have progressed beyond ‘per person deployed’ pricing which limits their ability to scale revenue without a corresponding increase in headcount.


But truly impacting ‘outcomes’ such as growing a client’s revenue or increasing customer satisfaction scores is not just a result of better technology and attribution becomes complicated.

“This talk about outcome-based deals has been around for a long time but AI has increased the focus. The problem for outcomes is how they are measured and defined, because IT is not solely responsible, the business is too. Here you would have greater risk of legal complications,” Pareekh Jain, CEO of Pareekh Consulting, told ET.