The UK public sector outsourcing market recorded its highest quarterly performance since 2016 in the third quarter of 2018, as government departments focused on securing deals for IT and tech services, according to the Arvato UK Outsourcing Index.

The research, compiled by business outsourcing partner Arvato and industry analyst NelsonHall, found that the strong performance of the public sector pushed the overall UK outsourcing market to an 18-month high between July and September. Organisations signed contracts worth £2.93 billion, up from the £1.05 billion recorded in the same period last year, according to the findings.

Government organisations signed contracts with third parties worth £1.42 billion over the three-month period, with ITO agreements accounting for 90 per cent (£1.27 billion) of the total spend.

Central departments dominated the government ITO spend in Q3, signing deals worth £1.26 billion. Buyers focused on procuring deals for application management, infrastructure and cloud computing services secured through the G-Cloud framework.

The research revealed the number of deals signed by government bodies rose sharply in Q3 with 48 deals signed between July and September, more than double the number agreed in the first six months of the year (22). Overall, this represented a drop in average public sector deal value from £38.8 million to £29.6 million year-on-year.

The local government market accounted for just £1 million of public sector spend in the third quarter of 2018.

Debra Maxwell, CEO of Arvato UK and Ireland, said “Our quarterly findings highlight the growing shift towards smaller, more product-focused deals, specifically for new technologies and software, such as robotic process automation (RPA) and blockchain. This suggests that frameworks such as the G-Cloud programme are making it easier for government bodies to bring in the innovation needed to deliver real transformation. Looking at the year so far as a whole, it’s clear the public sector has ramped up new contract procurement, with spending across government up 55 per cent compared to same point in 2017. We have also seen a renewed focus on investment in outsourcing partnerships from the private sector, which indicates that uncertainty arising from new regulations like GDPR is beginning to shift.“

UK businesses signed outsourcing contracts worth £1.50 billion in Q3 2018, more than four times the value of deals agreed in the same period last year. Professional services firms were the most active buyers, agreeing deals worth £1.15 billion, primarily driven by demand for HR services.

Business process outsourcing (BPO) spending was strongest in the private sector, with total deal value reaching £1.33 billion. This is again more than four times the spend in the same period last year, which stood at £286 million.

Customer services and HR outsourcing were the most frequently procured BPO service lines by UK businesses, with customer services alone accounting for 42 per cent of all private sector deals signed in Q3, with contract value reaching £162 million.

The Arvato UK Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm NelsonHall, in partnership with Arvato UK. The research is based on an analysis of outsourcing contracts procured in the UK market between July and September 2018.

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