As the market for large scale IT outsourcing arrangements weakens due to the recession, Barclays has decided not to renew its deal with Accenture when it expires in June.

The $640 million contract, first signed in 2004, jobbed out application development and management of Barclay’s UK commercial and retail banking system. Barclays wanted to improve staff flexibility and lower costs of developing and maintaining software. While the bank hasn’t publicly said much about why it’s bringing IT back in house, the bank said it recently completed a standard process review before deciding not to extend Accenture’s deal.

After years of unfettered growth, the bad economy has taken its toll on IT outsourcing. Accenture, for example, recently said outsourcing demand is decreasing, and bookings were lower than expected—even though the number of actual signings is increasing, suggesting smaller and more narrowly focused terms for deals. Outsourcing and offshoring analysts have predicted a change in outsourcing toward initiative-specific and project management-type tasks, as the large labor-intensive IT outsourcing deals of the 1990s and 2000s start to loose their fiscal utility.

In statements, Barclays said the bank would continue to “engage with” Accenture to achieve its operational efficiency goals, while Accenture said it would continue to provide consulting and solutions services to Barclays.

(This story first appeared in Bank Technology News.)

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