Q1 2014

1.5bn

£1.5bn of public sector deals agreed 

65%

65% year-on-year rise in total outsourcing spend

75%

75% of contracts are onshore agreements 

> 50%

More than half of contracts are first-time outsourcing deals.

The value of UK public sector outsourcing contracts increased by 168% year-on-year in the first quarter of 2014, a new study of the outsourcing market has revealed.

According to the first Arvato UK Quarterly Outsourcing Index, the public sector dominated deal activity accounting for 74% of total spend in the first three months of the year. The local government sector alone saw a 58% year-on-year increase in deal values. In contrast, the value of private sector deals decreased by 20% in the same period.

The data was compiled by business process outsourcing (BPO) provider Arvato, in partnership with industry analyst, Nelson Hall. It reveals that 39 new contracts worth a total of £2.1bn were agreed in the period, representing a 65% increase on figures from the first quarter of 2013.

The data includes encouraging news for the outsourcing industry’s performance and contribution to the UK economy. Three quarters (75%) of the contracts were completely onshore agreements, with all work being delivered in the UK. In more than half (59%) of deals, the services in question were being outsourced for the first time, representing new work for businesses in the sector, rather than contract renewals or work transferring between vendors.

Back-office BPO services were most in demand (38% of contracts), with HR outsourcing - which includes services such as payroll, benefits administration and recruitment process outsourcing - accounting for 93% of back office BPO agreements.

Debra Maxwell, Managing Director of Arvato UK, said: “The outsourcing industry is in good health at the start of 2014. A rise in total spend coupled with a high proportion of first-time outsourcing partnerships proves there is a clear business case for outsourcing, and smart organisations continue to use it as a means to achieve their objectives.

“This is particularly true for the public sector, where the strong performance suggests that outsourcing remains a key strategy to reduce costs while protecting front-line services.

“There’s also a positive to be taken from the high proportion of onshore deals. While there remains a place for offshore work in the private sector, more contracts delivered in the UK is good news for the outsourcing industry’s contribution to the economy and the UK’s status as a leading global outsourcing hub.”

Other headlines from the Index included:

Financial services companies were the most active outsourcers in the private sector in Q1 with contracts worth £92m.

Business Process Outsourcing (BPO) represented 71% of deals and £1.3bn of spend, compared with IT Outsourcing (ITO), which accounted for 29% of deals and £798 million spend. 

The quarter’s biggest proportion of spend (34%) came from industry-specific BPO, thanks to some large deals in the transport industry.

The Arvato UK Quarterly Outsourcing Index was compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with Arvato. The research is based on an analysis of contracts completed in Q1 2014.