A total of 35 major government IT outsourcing contracts are potentially at risk of renegotiation in the coming years, warns an industry analyst – but it’s not all ‘doom and gloom’.
The Conservative-Lib Dem coalition has imposed a £100m cap on government IT contracts as it seeks to cut spending and reduce the budget deficit. But it need not be all gloom and IT service suppliers should be quietly optimistic about whether they are able to successfully navigate this difficult period.
According to a new Ovum report, a total of 35 IT and business process outsourcing (BPO) contracts in UK central government are valued in excess of this limit and are therefore at risk – in theory at least. John O’ Brien, senior analyst at Ovum and report author, said that while it is highly unlikely that each of the 35 £100m+ contracts will be changed, there is ample room for the new administration to make significant cost savings.
He said, “Cutting expenditure on these major deals by 10-15% over the next few years would amount to between £270 million and £408 million being removed from current central government IT spending annually.”
Ovum believes the new government will seek ‘quick wins’ where possible. TCS’ record £600m contract with the Pensions Administration and Delivery Agency (PADA), signed with the previous Labour administration just weeks before the general election, will be one of the first facing renegotiation.
Beyond this and the controversial National Identity Register (NIS), the government can be expected to begin targeting existing IT programs that are perceived to provide limited value, or return on investment, such as Serco’s £100m+ BusinessLink contract with HMRC.
Despite the new ‘age of austerity’ in government, Ovum believes that significant opportunities remain for IT outsourcing and BPO suppliers which are able to understand and respond to new demands.
“There is no getting away from the fact that the new government has made winning new IT business more difficult”, conceded O’Brien. “This is going to make life far tougher for many suppliers over the next few years. Some will undoubtedly turn away from the market, and look to sources of opportunity in other verticals.
“For those prepared to stay the course, however, new opportunities will emerge. David Cameron has thrown down the gauntlet to the private sector to assist Britain’s economy return to growth. This means that the new government will be seeking ideas and solutions from the private sector.”
He added: “A key message to IT services suppliers is that it is not all doom and gloom. The government has not waged war with the IT industry – just with programs that are perceived to be poor value for money, too risky, and which do not meet its political aims.
“Therefore, we do not believe these new policies will spell an end to the £8.5 billion a year public sector IT service market. In fact there is quite a lot for IT service suppliers to be quietly optimistic about if they are able to successfully navigate this difficult period, and look to the medium to long term.”
Source:http://www.ukauthority.com/Headlines/tabid/36/NewsArticle/tabid/64/Default.aspx?id=2856
