Bill for re-tendering government IT outsourcing could be £200 million

27 October 2010
27 October 2010 | Lindsay Clark

The UK government’s efforts to reduce spend on IT outsourcing could cost £200 million, according to research firm ProBenchmark.

The costs associated with re-tendering and negotiating new deals would in many cases outweigh the benefits, the company found.

Analysis of major central government IT contracts suggests that when existing contracts are re-tendered, up to 80 per cent of buyers have no preference for changing supplier because of the complexity of the existing arrangements and the costs of making a change.

“Market testing sounds right in principle but has huge costs in practice because of the types of services being delivered by outsourcers,” said Probenchmark director Simon Scarrott. “We are seeing re-bid processes take 18 months or more to complete and costs to both parties of up to £8 million – even before transition and redundancy costs are accounted for. That is too big a burden on buyers and sellers of outsourcing services and is not economic. The tendering process in its current form costs more than the savings it delivers – and that is not sustainable.”

According to ProBenchmark, while the total number of public sector sourcing contracts is around 220, the priority target for re-negotiation in the next 24 months is the 90 deals valued at £5 million or more a year. Statistics from previous re-tender exercises suggest that the cost of internal work and external advisers for each one of these deals will be £250,000, on average. This figure rises to £1.5 million or more for deals worth over £50 million a year. The company estimates that the total cost of re-tendering in the current round of public sector cuts will be at least £200 million.

The government, however, said it would be able to reduce costs by as much as £800 million by negotiating with its largest suppliers, a huge chunk of which addresses IT spending.

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