Leading IT outsourcing providers have hit back at suggestions the sector is slowing down after a report from sourcing advisory firm TPI claimed that the market had shrunk for the first time since records began.

The quarterly index report claimed that the value of outsourcing contracts signed in the first three quarters of the year slipped 2 percent year-on-year. The report predicted a one percent fall in the 2006 revenue of outsourcers as a result of the slowdown.

However, leading outsourcing providers such as Accenture and Wipro said that reports on the back of the research suggesting the growth of the outsourcing market had stalled were inaccurate. "We are seeing a steady and growing outsourcing opportunity," said an Accenture spokesman.

Patrick O'Brien of analyst firm Datamonitor agreed that interest in IT outsourcing was continuing to grow, albeit at a slower rate than in the past. " I don’t think these latest figures should be seen as a crisis for outsourcing," he said.

Duncan Aitchison, managing director of TPI, felt that the outsourcing market remained in "pretty healthy" shape despite the report's suggestion that it had stalled.

He explained that the fall in the size of the market was simply because firms are signing shorter outsourcing contracts, with the average contract length now under six years. "If you look at the annualised contract value the market is still growing, which suggests a broader scope of services are being outsourced all the time," he added. "The market is in much better fettle than the fall in total contracts value suggests."

This shift towards shorter contracts does give customers more flexibility, but also requires them to improve their governance of outsourcing contracts, Aitchison said. "If you are going to market more frequently your governance needs to be more sophisticated than used to be the case," he added.

The report also found that any slowdown in the growth of IT outsourcing (ITO) deals was being offset by an increase in demand for business process outsourcing (BPO). "We are seeing more of the largest deals include both ITO and BPO elements," said Kees Ten Nijenhuis, head of Europe at Indian outsourcer Wipro.

Meanwhile, pan-European firms that outsource work to the subcontinent will be watching the upcoming French Presidential election with interest after presidential hopeful Ségolène Royal pledged to combat the practice if she is elected. "We have to prevent this wildcat outsourcing," she said.