1A. Driving profitable organic growth

Major new contracts and extensions secured in 2007: £1.89bn (2006: £1.37bn)

Critical selection factors include:

• Defined bid process with clear decision criteria, set by clients with whom we can build a strong relationship
• Fit with our core competencies in service transformation
• Limited requirement for capital investment, unless there is a real value proposition for the Group
• Fair risk/reward balance
• Acceptable contractual obligations.

If we feel, at any point during the bid process, that any of these factors has significantly changed and become unacceptable we will withdraw from the process. It is essential that we maintain our discipline of securing contracts that will generate value for both our clients and the Group over the term of the contract.

Maintaining competitive differentiation

Our clients are highly selective when choosing to engage an outsourcing partner.

Outsourcing has evolved rapidly over the past 10 years, from delivering cost driven, single service solutions to creating complex transformational partnerships. These partnerships between outsourcer and client are focused on fundamentally changing the client’s operational model to increase effectiveness, maintain competitiveness and add real value to both parties.

We have built up an unrivalled set of skills and infrastructure and have consistently led and helped shape the market by developing our outsourcing offering. We are able not only to respond to clients’ unique requirements but also to propose alternative service models that can deliver even greater benefits.

When clients outsource large scale functions or services they want to partner with an organisation with a solid financial and performance record. Our knowledge base and geographical and technical infrastructure have taken over 20 years to build. Our strong balance sheet and cash flow provide reassurance that their service is in safe hands. Our proven record of ethical and socially responsible behaviour and strong governance is also a competitive strength. Together, these elements clearly differentiate us from our competitors and are significant barriers to entry for new participants in all our markets.

We consistently provide:

• Market expertise
• Financial strength and stability
• Depth and flexibility of expert resources
• Extensive and flexible infrastructure
• A wide range of ICT solutions
• Onshore, nearshore and offshore delivery options.

We have an established track record of delivering:

• Business process efficiencies
• Consistent service delivery
• Step changes in service quality improvement
• Practical application of innovation
• Economies of scale
• Cost savings
• Added value services.

Maintaining bid process disciplines to secure appropriate pricing and contract terms

Our major contracts are long term commitments. On average they last nine years, so we need to get our pricing and contract terms right to deliver value to both the Group and our clients.

As part of the bid process, we make detailed risk assessments of the contract requirements and our service delivery proposals. We build in flexibility and make provision for changing needs where possible. Our extensive experience in measuring and accounting for risks is a valuable benefit. Where we identify risks we build them into our model and price accordingly. We will not accept responsibility for risk that is outside our control.

To ensure prudent pricing, we clearly separate responsibilities. Sales teams are responsible for client relationships; sales support teams develop pricing and risk models. On all major bids, pricing is agreed by the Group Board

Tracking success and future opportunities

One measure of our success in finding and securing significant opportunities is the bid pipeline. It contains contracts of £10m or above, where we have been shortlisted to the last four or fewer: all bids are capped at £500m to prevent very large individual contracts from distorting the total.

Because our bid success rate is one in three over the long term - and currently one in two - the sales pipeline is a useful indicator of future sales growth. We report the pipeline in our full and half year results, providing a snapshot of the size and progress of bids. Once a bidding process is completed, the contract moves out of the pipeline - which is replenished as other bids progress to a shortlist stage.

The bid pipeline is backed by an active ‘prospect list’ of opportunities where we are working on bids which are yet to reach a shortlist or final bidding stage. In turn, this is backed by a list of ‘suspects’ and relationships which we are nurturing to generate future bid opportunities.

In February 2008, our bid pipeline was £2.5bn (February 2007: £2.6bn).

Prudential

Growing client relationships

We deliver a range of life and pension sales and administration services for Prudential UK's business. We’ve been successfully providing a full range of services for Prudential's international cross border life assurance portfolio of new and existing business since 2003, and in 2006 we signed an outsourcing agreement to deliver end-to-end support for Prudential's UK life and pensions business from their Belfast operation. In November 2007 we signed a contract to administer 7 million mature life and pensions policies including group and individual pensions, investment bonds and life and endowment policies. The contract is worth approximately £722m over 15 years.

Retaining and expanding contracts through client satisfaction

Renewing or expanding existing client relationships is the most efficient way to win business.

We concentrate on generating client satisfaction by meeting expectations and delivering value. We share thinking and expertise across our operations to ensure that we can provide clients with the highest standards of service. As a result we are well placed for clients to extend and expand their relationships with us.

We successfully renew the great majority of our contracts when they come up for renewal. In our 24 year history we have only failed to renew three of our material contracts (defined as generating more than 1% of the previous year’s revenue). These were contracts to deliver the Driving Theory Test, Office Services for the Department of Work and Pensions and the London Congestion Charging Scheme. We face no material rebids until 2010.

Impending rebids of existing material contracts*

*Defined as generating more than 1% of previous year’s revenue

To measure the improvement in service to clients and their customers we agree detailed service standards and key performance indicators. On our largest contracts, strategic partnership boards help both parties understand each other’s needs better. As a result, clients find that outsourcing gives them more control over support operations, not less.

We aim not just to keep existing relationships, but to grow them. Many of our clients have awarded us additional work, once they have experienced the quality service and added value we deliver. We not only broaden existing contracts, we are also successful in winning additional contracts to support further areas of our clients’ operations. By delivering operational excellence and adding value for our clients and their customers we achieve high client retention rates. We also create a pool of positive referees who provide powerful support to new sales initiatives.