India’s largest information technology (IT) services companies including Infosys Ltd and Cognizant Technology Solutions Corp are getting more work contracts based on fixed prices and outcomes as the use of AI-driven automation tools increases.
This marks a shift from the traditional ‘time and material’ (T&M) billing model where IT services companies bill clients for the number of hours spent on work like coding, software development and maintenance. The change in pricing contracts follows the rise of automation tools that allow fewer people to handle IT projects.
With fixed pricing, IT services companies and their clients determine prices for the work done regardless of the time spent or the outcome achieved. Outcome-based pricing, which links payment to output rather than the costs incurred, is also gaining traction.
Nasdaq-listed Cognizant’s share of fixed-price revenue increased from 43% at the end of December 2022 to 47% at the end of last year, translating to $10 billion in revenue. The company ended last year with $21.1 billion in revenue, up 7%. Cognizant’s T&M revenue declined by 4% over the past three years to $9.1 billion, or about 43% of its revenue.
Cognizant follows a January-December financial calendar whereas Indian IT companies follow an April-March calendar.
For Infosys, the second-largest Indian IT services company, the share of fixed-price contracts increased to 54% of revenue at the end of March 2025, or about $10.4 billion, from 53% three years ago.
Infosys ended FY25 with $19.28 billion in revenue, up 3.9%. Its share of T&M revenue fell 1% to $8.87 billion, or 46% of revenue, during this period. The company is yet to disclose its annual filing for FY26.
Last month, the Infosys management hinted at more outcome-based contracts in the future.
Outcome-based solutions
“There is lot of discussion now that can we look at some things, because the AI is transformative, that can we look at something which is outcome-based,” Salil Parekh, chief executive officer of Infosys, said in response to Mint’s question during the company’s post-earnings press conference on 23 April.
HCL Tech, the third-largest Indian IT services company, is also pushing clients to adopt output-based pricing models.
“Because of AI, there is more of a shift towards output and outcome-based pricing than input-based pricing. Right now, I have nothing to report on the revenue impact, positively or negatively, but that is a trend, and we are also very strongly advocating and providing solutions which are more outcome-based solutions for our clients,” C Vijayakumar, CEO of HCL Tech, said at the company’s post-earnings press conference on 21 April.
Analysts said tech outsourcers stand to gain from outcome-based pricing models.
“There will gradually be a shift from fixed-price contracts to outcome-based contracts where, if IT outsourcers are able to save costs for their clients in doing certain tech work, a percentage of those savings will be given to the tech vendors,” said Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities.
“The transition for IT services providers driven by AI will also include working with customers to adjust pricing models toward fixed-price or outcome-driven constructs versus time-and-materials as it becomes increasingly difficult to sustain hours-based economics in a higher-productivity delivery environment,” Keith Bachman, an analyst at BMO Capital Markets, said in a note dated 20 April.
On the other hand, Tech Mahindra’s chief financial officer, Rohit Anand, said fixed-price projects were more of an opportunity from a profitability perspective as the gap in operating margins between fixed-price projects and T&M is close to 8%.
“Now the improvement is going to be happening most in the fixed-price project because we've done the foundation in most of it. So, that's where the margin improvement next year… is the biggest lever for us,” Anand said during the company’s post-earnings analyst call on 22 April.
“Most of the improvement (in operating margins) is expected from gross margin, delivery efficiencies and pricing. Fixed-price contracts carry ~8% higher margins than T&M and remain a key lever,” Motilal Oswal analysts Abhishek Pathak and Keval Bhagat said in a note dated 22 April.
