Innovation and changeDigital TransformationGovernment outsourcing spend reaches highest level since 2015

Government outsourcing spend reaches highest level since 2015

Sharp growth in technology investment saw public sector spending climb to £2.9 billion last year, according to the Arvato UK Outsourcing Index.

The public sector outsourcing market soared to a three-year high in 2018 as government organisations signed contracts worth £2.9 billion, according to the Arvato UK Outsourcing Index.

The research, compiled by business outsourcing partner Arvato and industry analyst NelsonHall, showed that the total value of deals signed by public sector bodies rose 61 per cent year-on-year, from £1.8 billion in 2017 and £2.5 billion in 2016.

A surge in technology investment was behind the strong performance, with spending on IT outsourcing (ITO) agreements reaching £2 billion in 2018 – an 84 per cent year-on-year rise, according to the findings.

Central departments accounted for 95 per cent (£1.9 billion) of the ITO spend as they focused on procuring deals for data centres, cloud infrastructure and application management services.

The average value of central government contracts fell by eight per cent last year to £35.4 million, revealing that these organisations focused on smaller, more productised deals for technology.

Local government buyers remained less active in 2018, with total contract value falling to £176 million from £258 million in the previous year.

The strong performance in the public sector resulted in a sharp increase in the number of deals signed across the UK outsourcing market last year, with 148 procured compared to the 104 in the 12 months previous. Government departments accounted for more than half (58 per cent) of these.

The rise in public sector spending comes as the value of deals signed by private sector businesses fell year-on-year. Companies signed contracts worth £2.9 billion in 2018 compared with £5.1 billion in 2017, with the softening being driven by the uncertainty surrounding Brexit.

This dip in investment saw the overall UK market soften in 2018 with total deal value falling 16 per cent year-on-year to £5.8 billion.

Customer service dominates
The analysis shows that customer service outsourcing contracts accounted for 43 per cent of all BPO deals signed in the UK last year, as organisations focused on enhancing the customer experience.

Businesses and public sector bodies spent a total of £491 million on this type of contract, investing in webchat and online customer support systems, call centre facilities and social media customer management.

According to the research, energy and utilities firms were the most active buyers, signing five agreements worth £195 million.

Overall, 2018 was a strong year for the UK BPO market, with total spend reaching £2.7 billion, up 45 per cent year-on-year.

Debra Maxwell, CEO of Arvato UK and Ireland, said: “The government’s focus on technology investment marks an acceleration towards delivering digital by default, and demonstrates that public sector bodies recognise outsourcing as a key strategy to deliver much-needed efficiencies and to boost productivity.

“Our findings show that procurement teams are increasingly moving away from long-term, high-value contracts, choosing instead to access services through new government frameworks, such as G-cloud, to deliver the transformation they need at speed.”

Further information on the latest Index can be found here.

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