Outsourcing spend more than trebled in July to September compared to the second quarter of 2015
Outsourcing contracts worth £2.21 billion were signed between July and September, more than trebling the value of deals agreed in the previous quarter as market confidence grew following May’s general election.
The new data highlights a steep rise in average contract value of 269 per cent when compared with the second quarter, suggesting private and public sector organisations were awaiting the election result before signing large deals.
The UK Quarterly Outsourcing Index, compiled by business process outsourcing (BPO) provider Arvato in partnership with industry analyst Nelson Hall, shows that longer-term agreements were signed in Q3, with average contract lengths rising 38 per cent compared with the second quarter of the year.
The figures also reveal significant year-on-year growth in total UK outsourcing spend, with the value of contracts signed between July and September rising 69 per cent when compared with the same period last year.
Bryan Mouat, CEO of Arvato Financial Solutions in the UK & Ireland, commented: “Political certainty following the general election has clearly had a positive impact on the outsourcing industry. With market confidence returning, organisations across the private and public sectors are continuing to turn to outsourcing partners for the expertise and technology to help them achieve their objectives.”
Growth fuelled by public sector deals
Government organisations are the driving force behind the surge in outsourcing, with deals worth £2 billion signed in the third quarter – the largest public sector spend since the first quarter of 2012, according to the research. This represents significant growth from the £105 million spent in the second quarter of this year, and the £275 million agreed in July to September 2014.
The majority of the spend came from central government, with departments agreeing seven contracts worth a total of £1.73 billion for a mixture of multi-scope IT infrastructure deals and shared service agreements for back-office services, such as HR, payroll and finance.
There was also growth in local government, with the total value of agreements signed by authorities increasing by 67 per cent year-on-year, demonstrating that outsourcing remains a key enabler for councils in realising efficiency savings. In addition, the findings highlighted a 200 per cent rise in average contract values and 70 per cent growth in deal lengths compared with the third quarter of last year.
According to the research, authorities have largely procured a mixture of multi-scope IT outsourcing contracts focussing on new infrastructure, and BPO deals for revenues and benefits, customer services and payroll.
Debra Maxwell, CEO of CRM & Public Sector, Arvato UK & Ireland, commented: “The government has been particularly vocal about the need for greater efficiency savings, and with much of the low-hanging fruit already picked, it’s clear the private sector will have a big role to play in delivering the bolder, braver changes needed across central and local government.
“With even greater cuts to funding expected in this month’s Spending Review, the growth seen across local government will only continue. Councils are increasingly looking to change how they operate and deliver services to leverage significant savings.”
Outsourcing continues to be a fundamental strategy in HR
HR outsourcing was the most popular BPO service line in the period July to September, with the total value of contracts rising by 193 per cent year-on-year, according to the findings. The average deal value rose almost five-fold when compared with the third quarter of 2014, with contract lengths growing by 38 per cent.
The public sector was responsible for 60 per cent of HR outsourcing contracts agreed in the third quarter, which included multi-process deals for benefits administration, learning and development, payroll and recruitment.
Growth in telecoms and retail sectors
The telecoms industry was the most active outsourcer outside the public sector in the third quarter, accounting for contracts worth £133 million. The figure represents significant year-on-year growth of 224 per cent, with firms across the sector focusing on BPO deals involving customer service management and pension administration.
With only £5 million spent on outsourcing contracts between July and September in 2014, the retail sector saw a steep increase in activity year-on-year, with £42 million in contracts agreed. The rise is accounted for by several large, multi-process IT deals, focusing on cloud computing, security, application management and customer support.
Other headlines from the most recent Outsourcing Index include:
- Business Process Outsourcing (BPO) represented 45.8 per cent of the deals with £406 million spend
- IT Outsourcing (ITO) made up 50 per cent of the contracts agreed, with a total value of £1.77 billion
- Combined BPO and ITO deals represented 4 per cent of deals, worth £34 million combined.
The Arvato UK Quarterly Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with Arvato UK. The research is based on an analysis of contracts secured in the UK market during July to September 2015.