Public sector going mad for outsourced IT spend

New research shows that public-sector buying of outsourcing is concentrated more on IT outsourcing than business processes.

The latest research from Kable has highlighted a massive increase in public sector outsourcing, with IT contracts driving the increase in value.

Kable's report reveals that by 2005 to 2006, the total value of all UK public sector IT and business outsourcing will reach £46.5bn. This represents a growth of 228 per cent in the market since 2000 to 2001.

IT has increased as a proportion of the total spend on outsourcing. In 2003 to 2004, IT accounted for 56 per cent of the total market, followed by communications outsourcing and business process outsourcing, each of which account for 19 per cent of the market. Managed services has the lowest proportion of spending, at just over £2bn.

Karen Swinden, Kable's head of forecasting, said: "There seems to be a general consensus that BPO is fuelling the outsourcing market, but Kable's analysis of public sector contracts clearly demonstrates IT is playing the leading role. This is forecast to continue for the next few years."

The London Borough of Harrow has provided a recent example of this trend. On 17 June, 2004, the borough went to tender for a strategic partner to help it enhance its ICT services in a 10-year deal worth £100m.

The council said it regards a strategic partner as an "essential element" in the delivery of its ICT strategy. It plans to develop an enterprise resource planning environment, implement a customer relationship management system and introduce standardised management information systems.

In February, Birmingham City Council embarked on the largest local authority IT outsourcing programme in the UK, with a scheme worth more than £500m to cover business transformation, the running of a contact centre and other IT services.

Kable's research shows that the biggest rise in outsourcing has been in the health service, where outsourcing contracts rose by 54 per cent from 2002-03 to reach just under £35.5bn by the end of 2003 to 2004, mainly as a result of the National Programme for IT.