Spending on IT consulting will drop by 4.6 per cent this year from 2002, according to a recent survey of CIOs by the research department of investment bank Merrill Lynch & Co. Inc.

One reason for the drop is that CIOs are being very careful with their overall IT spending, and IT consulting specifically is very dependent on discretionary spending, which is extremely tight, the report says.

Other factors affecting consulting vendors include increasing competition, especially from offshore companies, and the resulting decline in prices. IT consulting pricing is down 13 per cent compared with last year, according to the report.

In slightly better shape is the outsourcing sector, where spending is expected to grow 1 per cent this year, while its pricing is down 4 per cent. The outsourcing industry is in disarray as it comes off a year with essentially no revenue growth. Outsourcing vendors will have to watch costs very carefully with spending remaining almost flat and prices falling.

In IT services in general, many CIOs are taking advantage of the pricing crunch: 25 per cent of those polled are “demanding early contract negotiations to extract price concessions,” according to the report.