The Hindu Business Line : Citi set to close `Take or Pay' deal with Indian vendors

CITIGROUP, the global financial services giant, is in the advanced stages of signing a mega multi-million dollar five-year contract with multiple Indian vendors, of which Tata Consultancy Services is likely to bag a significant chunk.

The global competitive bidding for this contract is said to be complete and the contract is in the last stages of being finalised.

Spelling out the broad contours of the deal, Mr Mitchell Habib, CIO, Citigroup North American Consumer Business, said the initial engagement would involve a manpower requirement of 2,200 people in a year, which could be scaled up at a later date. The back of the envelope estimate placed the value of the contract at about $100 million a year.

At present, Citigroup's North American Consumer business, which employs 8,000 people, has an ongoing outsourcing relationship with a clutch of top-tier Indian vendors.

The interesting part is the innovative structure that has been finalised for this deal by Citigroup. Instead of the traditional time and material contracts in which vendors charge on a per-hour basis, this deal will create a long term partnership and risk sharing between the client and the vendor. The scope of the engagement is likely to be predominantly application development and maintenance. Called a "Take or Pay" deal by Mr Mitchell, he said it would be a collaborative long-term partnership, wherein Citigroup would define the overall size of the project and the Indian vendors would commit the resources, in terms of manpower, quality and processes upfront. This partnership approach with risk sharing is expected to ensure that greater value is delivered to the end-consumer of Citigroup in the consumer finance business. Currently, `Take or Pay deals' are common in the petroleum industry, and a similar idea is being adapted to the software services arena.