Public sector outspends private sector on outsourcing by 70%

The UK public sector spent about 70% more than UK businesses on IT and business process outsourcing over the last two years, according to Information Services Group (ISG)

The UK public sector has spent about 70% more than UK businesses on IT outsourcing and business process outsourcing (BPO) over the last two years, with growth driven by mid-sized deals, according to research from Information Services Group (ISG).

The total value of public sector IT and BPO outsourcing in the period was £51bn, compared with £30bn in the private sector. The business sector saw a greater number of deals, with a total of 726 signed compared with 585 in the public sector.

In the public sector IT outsourcing accounted for 46% of the total and BPO 54%. In the commercial sector IT outsourcing was 53% and BPO 47%.

Mid-sized deals in the public sector, worth between £15m and £30m accounted for 22% of contracts compared with 18% in the previous two years. The number of large deals and small deals has fallen. By contrast ISG revealed that the number of small deals in the commercial sector has increased.

As government sets tough cost-cutting targets, public sector organisations are turning to IT outsourcing and BPO service providers to take on services at a lower cost.

John Keppel, president Northern Europe at ISG, told Computer Weekly in October that such was the size of the public sector outsourcing spend now that the research company would for the first time issue a report focused specifically on global public sector spending. 

ISG partner Luke Mansell said: “The recession and the subsequent focus by the public sector on cost reduction and value for money has driven a renewed interest in outsourcing and its role in helping deliver efficient, cost-effective services. While the commercial sector has moved to smaller contracts over the past two years, the public sector has seen a rise in mid-market contracts, mainly as a result of the complexity of the services required and the lack of appetite to utilise cheaper, offshore resources. It will be interesting to see, over the next two years, whether the drive to procure services from small to medium enterprises via the G-Cloud will cause a shift to smaller contracts.”

According to ISG, central government accounts for 42% of public sector spending, local government 30%, and healthcare 13%. It revealed that in the two years prior to the start of the recession in 2007 these three segments had each accounted for around 28%.

Mansell said: “The UK public sector is a significant market in its own right and is the largest public sector market outside of the US. Looking ahead, we expect to see continuing growth in public sector outsourcing activity as initiatives like Value for Money make outsourcing a more attractive proposition, while the government’s G-Cloud initiative opens the market to a greater number of specialist service providers.”

Just how difficult it is to change buying habits in the public sector was made clear by a recent Freedom of Information (FOI) request by an IT supplier that led to the revelation that less than 1% of the £440m spent on IT by 26 county councils was invested in services on the G-Cloud public sector app store.

The largest public sector contracts awarded since 2012:

Client Service provider Total value Scope
Staffordshire Council Capita £600m+ Industry-specific BPO
Birmingham Council Carillion £600m+ Industry-specific BPO
Department of Energy Telefonica £600m+ Infrastructure
Ministry of Defence CSC £600m+ ADM and HR
Oxfordshire Council Carillion £600m+ Facilities management
Lancashire Council BT £600m+ Infrastructure
Leicestershire NHS Trusts Interserve £600m+ Facilities management
Ministry of Justice Capita £300m–£599m Industry-specific BPO
Criminal Records Bureau TCS £300m–£599m Industry-specific BPO
Foreign Office Computacenter £300m–£599m Infrastructure

Source ISG

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