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Outsource magazine: thought-leadership and outsourcing strategy | August 22, 2017

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A new political dawn, a new era for UK public sector outsourcing?

A new political dawn, a new era for UK public sector outsourcing?
ISG
  • On May 26, 2015
  • http://www.isg-one.com/

Between 2010 and 2015, the Coalition government spent almost double the amount on outsourced public services compared to the previous Labour government (£110bn, up from £59bn). If we take a look at the number of contracts awarded, this spend becomes even clearer as the number of contracts awarded with a total contract value (TCV) of above £3million rose from 526 to 1,185, highlighting how far the outsourcing market has matured over the past 5–10 years.

Indeed, these figures are not wholly surprising given the potential cost savings to be had from well managed outsourcing and the push by government to cut the budget deficit in recent years. However, this trend is also reflected in the commercial sector as, in the UK, the market grew by 60% in terms of the number of contracts and 40% in value, suggesting this is not purely a deficit-slashing strategy.

Moving back to the public sector, when we broke down the data by Central Government, Local and Regional Government, Healthcare and Education there are some substantial differences, although the trends of increased contract count and value remains. The figures were particularly stark in education and healthcare, where contract counts almost trebled, 64 to 214 and 39 to 95 contracts respectively.

Meanwhile, TCV at a local and regional government level rose from £15bn to £30bn whilst contract counts increased 148%, indicating a reduction in the size of the average contract. This also suggests that taxpayers were getting more bang for their buck as the sharp spike in the number of deals suggests better value for money.

So who has gained from the shift in the market?

UK-heritage companies are overwhelmingly the winners in terms of outsourcing gains, with very significant increases in public sector award value. The jobs and the revenues are concentrated in the UK, and a number of firms enjoyed bumper growth of over 88% during the coalition period, including Capita, Computacenter, Hays Specialist Recruitment, Interserve, Serco and Tata Consultancy Services.

Whilst it is early days, it seems likely that the increased popularity in outsourcing public services is likely to continue under the new government and it will be interesting to see how the Conservative party manifesto pledge to allocate a third of central government procurement to small and medium enterprises plays out in the coming months.

What is certain, however, is that, done well, outsourcing can deliver plenty of the savings and efficiency gains which George Osborne will be seeking to make in the coming years. In fact, by our estimates, net operating savings generated through outsourcing average around 16.7%. Savings from BPO contracts tend to be higher still – and the UK public sector is heavily BPO-focussed, accounting for more than 60% of the market since 2010.


 

About the Author

John KeppelJohn Keppel is Partner and President, ISG North Europe.

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