The outsourcing industry has come of age in the UK, at least where the market is growing at a rate of 45% and the range of activities deemed suitable for contracting out has broadened exponentially in both private and public sectors.

Some companies' initial experiences of outsourcing contacts were not happy ones, but as the market has grown more mature, lessons have been learned and the pitfalls become easier to predict. This is reflected in the growing sophistication of the contractual basis on which outsourced operations are based.

This analysis may come as a surprise to some that saw the results of the Legal Director/Wragge & Co Benchmarker survey published in December last year. This found, among other things, that 35% of outsourcing contracts had required substantial mid-term revision and that a quarter of companies polled terminated a contract early.

Similar surprise at this thesis was expressed at the two subsequent roundtable seminars Wragge & Co and Legal Director conducted with senior in-house lawyers and other representatives of both contractors and their clients, all of whom had expected a lower figure.

However, one aspect of outsourcing contracts that most delegates agreed has seen marked improvement in recent years is the ability of clients to identify and express their expectations of the arrangement and to reflect that in the contract. Indeed, the contract drafting and negotiation process is very helpful itself in identifying what both sides expect to achieve, and how they hope to do it.

While some complained about the length of time that contracts take to negotiate, especially when trying to come to an agreement about what happens should problems arise, getting this latter aspect right is one of the most important elements of negotiating a successful contract. In my view, rather than being a sign of problems in the outsourcing market, the high number of contracts being successfully renegotiated is a sign of the flexibility of the contracts that are now being drawn up and the willingness to adapt to changed circumstances.

The over-rigidity of some of the earlier outsourcing contracts was a major weakness and one factor in injecting more practicality into agreements is the increasing involvement in the negotiations of the people who are directly involved in the operations process.

The fact that so many contracts are being successfully amended, and therefore continued, is also demonstrative of the increasingly realistic attitude being adopted by the management teams on both sides of outsourcing relationships and augers well for future arrangements. Successful contracts are as much a state of mind as anything else and most delegates agreed that there is less evidence now of the 'them and us' attitude that blighted many early contracts and that a more open 'partnering' approach was becoming more common in negotiations which, where genuine, is to everyone's benefit.

A further reason for the number of successful renegotiations is the shortening length of contracts, the average length of which has fallen to little over three years. Some delegates at the roundtable expressed the opinion that 'short and sharp' contracts were less likely to be successful, partly because of the timescale for the benefits of the outsourcing arrangement to become apparent.

However, shorter contracts allow clients to retain more control and service providers will be more amenable to renegotiate contracts if they know they could lose the contract when it expires in, say, 18 months' time rather than several years down the line. And as renegotiations also often lead to an extension of the contract, it is clearly in the interests of the outsourcing contractor to agree to renegotiation.

It is a testament to the growing success of outsourcing as a concept that just 12% of those surveyed said they would be bringing outsourced services in-house again at the end of their contracts and, tellingly, 66% of those who had experienced failed contracts had still outsourced the same operations elsewhere.

These often hard-learned lessons can be applied when looking at outsourcing contacts abroad. The Benchmarker survey demonstrates that much of the future growth in the outsourcing market is likely be overseas, with India taking the lion's share.

Sixty-five percent of those with overseas operations have outsourced them to India, a leap of 40% from the equivalent figure of 25% in last year's survey, while the number of companies with outsourced operations in Western Europe fell from 48% to 35%. Other popular destinations are Eastern Europe (20%), the US (20%) and the Far East (15%).

According to the survey, the most important criteria when deciding which country to outsource operations to are, in order, the ability to repatriate profits, adequate data protection arrangements, political stability, a tax-efficient regime and the protection of intellectual property rights. India scores well on these criteria, although companies do need to be aware that it does have a different set of business rules and assumptions. Contract negotiations can be pretty hard-nosed and there are also issues over the ability and speed at which companies can enforce contracts in the local courts.

Consequently the additional costs involved in management time, IT and infrastructure development associated with overseas outsourcing ventures means that, as a rule of thumb, although wage costs may be 10% of those in the UK, the overall savings will not be 90%, but more in the region of 30%-40%. This can be even less as overseas operations often have a higher churn rate for employees.

Nevertheless, these savings remain substantial and it is difficult for a company to resist outsourcing operations overseas if its competitors are clearly enjoying the benefits. It is little surprise then, to quote Bill Gates, that so many companies have got the outsourcing religion.

David Hamlett is head of the outsourcing team at Wragge & Co.