Local government spend boosts 'subdued' UK outsourcing market

27 May 2015

Local government outsourcing deals worth £350 million were signed in the first quarter of 2015, boosting the subdued UK outsourcing market.

According to figures from the latest arvato UK Outsourcing Index, local government spend is the highest in five quarters and represents almost a quarter of all UK outsourcing spend.

However the overall UK outsourcing market dropped 42 per cent year on year to £1.48 billion with 38 deals signed, figures compiled by arvato and industry analyst NelsonHall revealed. The slowdown was attributed to clients postponing spending until after the general election.

An analysis of the contracts agreed in this period also revealed positive signs. The number of first time deals – representing new work entering the market – accounted for more than half (58 per cent) of contracts signed in the first quarter of 2015. This was an increase from 48 per cent in the final quarter of 2014. Also, 97 per cent of agreements included services being delivered in the UK, a quarter-on-quarter rise of 5 per cent.

The biggest spender was the transport industry, which signed deals worth £287 million between January and March - mainly on IT services, including service desk and infrastructure management contracts. This compared to £119 million worth of deals in the financial services market, 2014's biggest spender.

The manufacturing sector spent 64 per cent more quarter-on-quarter and within local government, the average contract length of deals increased by 70 per cent, from 58 months to 99 months year-on-year. According to arvato this further signalled local government's "belief in outsourcing as a proven strategy for tackling the sector’s challenges”.

The authorities’ spend was centred around multi-process BPO contracts focused on HR, finance and IT, together with asset and building management, pointing to an “ongoing trend for forming larger, integrated outsourcing relationships”, arvato said.

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