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.