High UK exposure may turn out to be risky for TCS

Mumbai/Bangalore: With the UK government's contracts worth over $1 billion in the pipeline, Tata Consultancy Services (TCS) is exposed to substantial risks of project delays and anti-offshoring sentiments, according to local experts and rivals. These projects, which bring along single-digit margins could impact profitability, unless there is significant work delivered from offshore, reports Economic Times.

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Last week, the UK Personal Accounts Delivery said it decided to award a deal estimated at $600 million to TCS to administer the National Employee Savings Trust (NEST) scheme, a pensions scheme, for a 10-year-period in two phases. This decision has attracted sharp criticism from the Conservative party, which is opposing the decision taken close to the general elections.

"Our review of NEST (should we win the elections) will not be constrained in any way by contracts that have been signed," Nigel Waterson, Shadow Minister for pensions, who is leading the opposition against the decision, said in an e-mail reply to Economic Times.

The UK Personal Accounts Delivery Authority (PADA) also responded to an e-mail indicating it proposes to go ahead with signing the contract after the requisite waiting period, known as the 'standstill period.' "PADA has found a supplier that will deliver a great service to NEST members at a great price. Signing the contract now provides value for money by securing the terms and conditions established during competitive dialogue. The government made a commitment not to enter into long term commitments at this point in the electoral cycle. The contract we are proposing is entirely consistent with that," the e-mail said.

According to analysts TCS has the highest exposure to government projects among its Indian peers. "Globally, government contracts are awarded on an E1-L1 basis, which means that the best terms and the lowest prices. Returns are lower but the good news is that these are usually long-term contracts," said Siddharth Pai, Partner and Managing Director, TPI India. TPI, which acts as sourcing advisor to a large number of IT deals globally, is also hired by governments and public sector undertakings to advise on sourcing strategies.