With over $35 billion in software managed services Annual Contract Value due for renewal over the next couple of years, IT companies will have an uphill task in continuing with the cost-of-living-adjustment (COLA) clause.
Prateek Gupta, Practice Director at Everest Group, says there was a decline in contracts with the COLA clause between 2018 and 2020 because of buyers’ pressure back then. During the peak of COVID, many buyers either got the clause removed from contracts or at least got temporary COLA waivers. In a few contracts, a stringent cap was being applied on COLA indexation. Operating costs for providers were largely stable during this period, which enabled providers to give in to pressure from buyers.