Public sector outsourcing spend increased sharply in the first six months of 2018 despite a backdrop of Brexit uncertainty, according to the Arvato UK Outsourcing Index.
Clients signed a total of £2.61 billion of outsourcing deals between January and June, of which £998 million were government contracts. The total value of public sector spending was up 39 per cent year-on-year.
The research, compiled by business outsourcing partner Arvato and industry analyst NelsonHall, found that IT outsourcing (ITO) contracts accounted for more than three quarters (79 per cent) of public sector spend between January and June, with cloud computing, application management and multi-scope infrastructure the most frequently procured services.
Despite the rise in government spending, the total value of UK contracts signed in H1 2018 (£2.61 billion) fell by a half on the same period last year. The market softening was triggered by a slowdown in the private sector, which saw deals worth £1.61 billion agreed between January and June, down from £4.53 billion in the first half of 2017.
Debra Maxwell, CEO, CRM Solutions UK & Ireland, Arvato, said:
“The public sector market is showing signs of recovery as government organisations take the brakes off the tendering process. More than two thirds (68 per cent) of contracts signed across the sector this year represent new relationships, showing outsourcing remains a key strategy for delivering new technologies, such as cyber security and automation, to drive efficiency and service improvements.
“A subdued private sector comes as no surprise given the lingering uncertainty surrounding the Brexit process and GDPR implementation, which is causing many businesses to pause and review their margins and contingency plans.”
Financial services firms largest spenders in outsourcing market
Businesses across financial services spent more on outsourcing contracts in the first half of 2018 than any other UK sector, with firms agreeing deals worth £933 million.
Despite the overall fall in private sector spending, financial services firms were responsible for the highest proportion of outsourcing procurement in the UK market, representing 36 per cent of total deal value between January and June.
The findings show the total value of Business Process Outsourcing (BPO) contracts signed across all sectors was up 66 per cent year-on-year to £1.48 billion, as organisations partnered with third parties to deliver customer services, HR and payment processing.
Customer services was the most frequently procured BPO service line, with eight deals worth £203 million signed over the period. Three quarters of these contracts involved integrating traditional and digital channels, with half incorporating webchat support.
Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, said: “While events of earlier this year will have made both public and private sector organisations draw breath and review the financial stability of counterparties, these figures show that that process hasn’t prevented central government in particular from committing to new contracts.
“In fact, despite the uncertainty, the economic backdrop is relatively robust and both central government and financial services businesses in particular are knuckling down and getting on with the job in hand.
“The good news is that organisations in a variety of sectors still see outsourcing both as a long-term strategic tool, and as a tactical means of delivering much-needed cost savings. Where that continues, these figures suggest there is little to fear during the second half of this year at least.”