By Arselia Gales

Last year marked the worst IT services contract activity since 2002 and performance in the last three months of 2012 fell below the levels seen in the last quarter of 2011.

It was the fewest number of IT services contracts, both in terms of total contract value (TCV) and deal volume, in the past 10 years, according to Ovum.

Ovum’s latest analysis of the IT services market shows the TCV of deals announced in the fourth quarter of 2012 was $20.8 billion, down 34 percent on the same period in 2011. The number of deals in the same period fell 17 percent with a lack of megadeals (contracts valued at $1 billion or more). Despite some improvement in activity during the fourth quarter of 2012, annual TCV was down on the previous 12 months across both the public and private sector, with the private sector enduring its worst year since 1998 in TCV terms.

The ongoing economic uncertainty afflicting key markets for IT services such as the U.S. and Europe was a major factor behind the weak performance of the industry in 2012,” said Ed Thomas, senior analyst in the Ovum IT Services team. Our research suggests that many enterprises remain wary of committing to major projects, with issues such as the Eurozone crisis having a particularly significant impact. In addition, public sector activity has reduced as many governments come under pressure to cut public spending in the face of high debt levels, leading to a general reluctance to get involved in large-scale IT services deals.”

Thomas also added that the last quarter of 2012 saw notable awards from North American firms but it is too early to tell if that represents a significant shift in approach by enterprises in the region, which have been wary of committing to major projects in recent years due to the economic turmoil.