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The organisation predicts that this sector of the market will account for 22% of the overall IT software and services market in the UK by 2004.
The sector's growth rate is more than double that of the rest of the services market and is fuelled largely by the push towards e-government.
"Both local and central government will be placing IT high on their agenda," said Peter Foster, a principal analyst at Ovum. "Companies servicing this market can rest assured that the funding will continue or even increase."
Central government accounts for the bulk of contracts, generating £1.5bn of the public sector's £3.4bn annual IT software and services spend. Ovum predicts this figure will increase by 56% to £4.5bn in 2004.
EDS is the clear market leader, generating some £850m a year. Capita comes in second with £284m, closely followed by ICL with £278m. On average, companies operating services contracts in the sector have seen their revenue grow by 15% in 2001, almost double the 8.5% rate witnessed in 2000.
While Ovum said the public sector is one of the safest markets to be operating in, it warned services organisations to ensure that they understand the needs of government bodies.
"Propositions must be considered for their true business case, rather than because they fit in with high-level policies," Foster said. "This will mean accommodating policy changes, and fundamentally understanding the intricacies of government objectives and practices."