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Government drives surge in outsourcing spend

Back-office transformation is a key area of focus for the government as new deals continue to flow despite economic uncertainty, according to research

The public sector prompted a surge in UK outsourcing in the second quarter of 2019, with transformation of legacy back-office portfolios being a key area of focus, according to research.

A total of £938m in outsourcing deals was agreed overall in the UK between April and June, according to the UK outsourcing index. Government deals represented £489m of that total and central departments spent £470m.

This compares with £51m spent by public sector bodies in the first quarter, according to the study, which was carried out by technology firm Arvato and compiled by research firm Nelson Hall.

“Although heightened economic uncertainty is affecting client demand and outsourcers’ appetite to invest, it is encouraging to see that there remain some areas where growth is continuing and new contracts are being signed,” said Chris Sood-Nicholls, managing director of services at Lloyds Bank Commercial Banking.

Most of the deals (88%) were procured for services which haven’t been outsourced before, the study noted, with central departments using specialist partners to drive efforts around transformation across the back office, be it through new processes or innovative technologies.

The majority (63%) of government contracts procured in the second quarter of 2019 were for enterprise resource planning (ERP) systems, according to the research.

Eliminating ageing legacy IT back-office systems is a key area of  debates around government digitisation – even though there are no specific standards on how this should be handled or mandates to enforce that modernisation be carried out.

Government departments are focusing on investing in services that deliver long-term cost savings and efficiency gains, the study pointed out, streamlining key back-office processes through technology to boost service quality and obtain value for money.

“While still at an early stage of deploymentm the direction of travel of the government’s new Outsourcing Playbook looks encouraging, and is clearly trying to put more of a focus on long-term partnerships and value for stakeholders, rather than an absolute focus on cost alone,” Sood-Nicholls said.

 “For now, the effect of that shift in focus is being subdued by the challenges affecting outsourcers’ ability to plan, but we would hope to see the sector begin to shake off its current cautious approach as those other pressures begin to lift, which they hopefully will in the next few quarters,” he added.

The Outsourcing Playbook, published in Feburary 2019, aims to balance risk between the government and suppliers to avoid suppliers capitulating under strain. The rules followed the collapse of construction and business services giant Carillion in January 2018 as a result of the supplier taking on too much.

A Public Accounts Committee (PAC) report last year warned that the government would have to introduce better contracting practices if it were to achieve anything beyond lowest price.

“Outsourcing is at a significant crossroads,” the PAC said at the time. “The collapse of Carillion has brought to a head concerns about the government’s approach – both from a policy and a practical perspective.”

Public sector organisations in the UK spent £2.9bn on IT and business process outsourcing (BPO) in 2018, with IT services accounting for the lion’s share, according to Nelson Hall research.

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