Public sector outsourcing grew more than 50% in second half of 2015

IT outsourcing in the UK public sector accelerated in the second half of 2015, according to research

In the last six months of 2015, government spending on IT and business process outsourcing was 55% higher than the during the first half of the year, according to research.

The study by Nelson Hall for Arvato also revealed that private sector outsourcing spending went in the opposite direction, with a 42% fall in the second half of the year compared to the first.

There was a total of £5.67bn worth of deals across the UK public and private sector in 2015 with a 26% increase in public sector spending compared to 2014, reaching £3.8bn.

According to the study findings, from July to December public sector organisations agreed deals worth £2.31bn compared to £688m in private sector spending. Central government accounted for £1.77bn of that figure during the period.

The research highlighted a government outsourcing focus on HR, document management and multi-scope IT infrastructure agreements.  

“The surge in activity across the public sector comes as no surprise as the market rallied following the general election,” said Debra Maxwell, CEO, CRM & public sector at Arvato UK.

“It’s clear from the research findings that an increasing number of departments and authorities are turning to the private sector to help them with the service transformation needed to address the new targets introduced in November’s Spending Review,” she added. 

The Cabinet Office is conducting a review of government IT contract strategy after acknowledging that many existing outsourcing deals have proved bad for taxpayers. The review aims to establish new principles to help manage the move away from the billions of pounds worth of long-term outsourcing contracts that are due to expire during the current parliament.

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The amount of money UK organisations spent on IT and business process outsourcing fell sharply in 2015, compared to the previous year

Local government outsourcing spending increased 23% in 2015, with a total of £756m invested. According to the research, local authorities spent heavily on back-office outsourcing, with contracts focusing on revenues and benefits, HR and multi-process customer management services. 

But it is not plain sailing for outsourcers targeting local government. Some local authorities are looking at in-house alternatives to IT outsourcing.

For example Bournemouth Council could soon bring outsourced services including IT back in-house after the government cut its grant by £14m. As other councils look to outsourcing as a way of cutting costs, Bournemouth is considering insourcing to gain better control over costs and increase its financial flexibility.

Cornwall Council and BT’s £160m outsourcing deal came to an end and the council transferred 270 staff back in-house. This followed the High Court decision in December to allow the Council to end the contract.

Meanwhile in December Dorset County Council rejected outsourcing as an option for its back-office services, including IT, because it would not provide the flexibility it required. The council’s cabinet rejected the outsourcing option, and will instead look at other options.

Similarly in central government, many departments are being encouraged to bring outsourced IT work back in-house. Vehicle licensing agency DVLA last year completed a project to bring its long-term outsourcing deal back in-house, saving £300m in the process.

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