Government IT contracts a £4bn opportunity

The UK public sector could spend nearly £4 billion on software and IT services for shared services programmes by 2012, according to a new report by analyst group Ovum.

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The UK public sector could spend nearly £4 billion on software and IT services for shared services programmes by 2012, according to a new report by analyst group Ovum.

But the growing use of framework agreements by the government could drive more outsourcing activity, the advisory firm said.

Ovum forecasts the software and IT services shared services opportunity to reach £3.910 billion between 2007 and 2012. The market will grow at a compound annual growth rate (CAGR) of eight percent, from £489 million in 2007 to £729 million in 2012.

Project services work – such as systems integration, training and maintenance - will be the biggest area of opportunity for software and IT service firms, according to Ovum, and will account for £1.82 billion of spend.

Spend on transformational consultancy will decline by a CAGR of 8% during the period as most early programmes complete their design and strategy phases.

Outsourcing is the smallest, but fastest growing opportunity, as the market accelerates at a CAGR of 24 percent, "albeit from a low base".

But the market is slower than Ovum previously expected.

“We remain convinced of the opportunities for software and IT services suppliers delivering shared services to the UK public sector over the long term,” said Ovum analyst John O’Brien, who authored the report 'UK public sector shared services: a market emerging'. "Although we believe the market will evolve at a slower pace than previously expected."

Suppliers are benefiting from massive government IT programmes, such as those at the Department for Work and Pensions, Home Office, HM Revenue and Customs and Department for Transport. There is also an increase in outsourced programmes among local authorities such as Somerset and Taunton Deane, Suffolk, Liverpool, Glasgow and Worcestershire councils.

"Suppliers that have been lucky enough to be involved in these programmes have got a head start," said O’Brien. "However the market is shifting as more innovation is brought in to the contractual process. The growing use of frameworks could drive both further internal provision and also more outsourcing activity."

Multiple suppliers will be able to club together and share in the benefits of new technology and lower costs of delivery in areas such as desktop services, ICT and corporate services. At the local level, this will bring in locally-governed organisations such as emergency services, NHS trusts and education institutions.

O’Brien continues, “There is a real sense that momentum has been established, and this will be embedded in project services work such as systems integration, training and maintenance over the next few years.”

The Government will enter a new spending cycle during 2012 that will create more challenges. "By 2012, Government will be looking at where it can drive further efficiencies from these shared service programmes. This should mark the next phase in the evolution of the market. One outcome of this next phase could be a shift from internal to outsourced shared services models, and a renewed growth in transformational consulting."

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