UK outsourcing spend continues to grow, but contracting bodies must ensure value for money, says expert

Out-Law News | 10 Jul 2014 | 9:44 am | 2 min. read

Public sector bodies must ensure that outsourced contracts are delivering the best value for money for taxpayers, an expert has said, as new research showed that the public sector spent £51 billion on outsourced services in the past two years.

The figures, published by sourcing company Information Services Group (ISG), showed that the public sector spent almost twice as much under 585 contracts as the £30bn that commercial firms spent on 726 lower value contracts over the same period. The number of outsourced contracts awarded by public bodies since 2012 was almost triple the number of contracts awarded between 2006 and 2007, just before the recession, ISG said.

It contracts and technology law expert David Isaac of Pinsent Masons, the law firm behind Out-Law.com, said that the increasing outsourcing spend by both public bodies and commercial firms was unsurprising, given the economic climate in recent years and pressure on finances.

"It is not surprising that outsourcing contract spend continues to grow in the UK as there is an ever-increasing dependency on outsourcing companies to deliver both business as usual services and major change programmes," he said.

"The challenge for customers is to ensure that these contracts deliver best value for money and are properly managed. This is especially the case in the public sector where the coalition government has delivered some improvements. However, there is still a lot to be done to ensure full value is delivered for taxpayers," he said.

Over the past two years, commercial firms have tended to outsource smaller pieces of work. At the same time, the number of small contracts awarded by the public sector has shrunk, from 46% of the market in 2010-11 to 40% of the market in the period since 2012. Much of the increase in contractual spend by public bodies was in the 'mid-market' range, on contracts between £15 million and £30m. The number of large contracts at over £30m had also remained relatively steady, ISG said.

Luke Mansell at ISG said that much of the increase in the number and value of contracts awarded by the public sector was a result of "the complexity of the services required and the lack of appetite to utilise cheaper, offshore resources" to deliver public services.

"It will be interesting to see, over the next two years, whether the drive to procure services from small to medium enterprises via the G-Cloud will cause a shift to smaller contracts," he said.

The G-Cloud programme allows public sector bodies to gain access to cloud-based IT services being offered by a selected list of pre-approved suppliers during a set period. It includes cloud infrastructure, platform, software and specialist services. The fifth version of the G-Cloud framework was made available to contractors in May. Among the stated objectives of the programme are offering a platform for public sector IT buyers to procure commoditised services more easily, while at the same time encouraging innovation and improved supplied performance.

According to ISG, central government accounts for the largest proportion of public sector outsourcing spend by value, at 42%; followed by local government at 30% and healthcare at 13%. During the pre-recession 2007 to 2008 survey period, these three segments each accounted for around 28% of the total market. The overall increase in public sector outsourcing spending meant that the total amount spent in each segment increased, despite the fall in healthcare spending as a proportion of the total, ISG said.

"The UK public sector is a significant market in its own right and is the largest public sector market outside of the United States," Mansell said. "Looking ahead, we expect to see continuing growth in public sector outsourcing activity as initiatives like Value for Money make outsourcing a more attractive proposition, while the government's G-Cloud initiative opens the market to a greater number of specialist service providers."