Number two ranked UK business process services provider Xchanging has secured a much needed vote of confidence from its original anchor client BAE Systems. This time Xchanging won a $150m seven-year procurement services contract with BAE in the US, which commences on 1 August 2011 and runs to 31 July 2018, with an option to extend for an additional three years. In April Xchanging extended its procurement services contract with BAE in Australia for three years until the end of 2013. Investors were pleased by the latest announcement pushing Xchanging’s shares up 10%.
As we noted here, Xchanging is now changing its strategy to move away from the large joint venture enterprise partnerships (EPs), which it build its business model around under former CE and founder David Andrews. BAE was the first such EP that it set up back in 2001, when it took over responsibility for managing BAE’s procurement and HR services in the UK, including the transfer of some 400 people over to the company under a ten-year £800m deal. Xchanging now has full ownership of that EP, and the associated contract is now up for renewal in 2012 (see here).
This is good news for Xchanging for a couple of important reasons. Firstly, this is all new business – and it will see Xchanging manage US$800m of annual indirect procurement spend for BAE in the US across IT, telecoms, transportation, industrial supplies & services, contract labour, professional services and procurement management. Secondly, it is an important endorsement of new CE Ken Lever’s turnaround strategy for Xchanging, during a particularly difficult year, from one of its largest clients. This all bodes well for Xchanging’s key renewal with BAE in the UK next year.