Sharp growth in technology investment saw private sector spending reach £4.93 billion last year, according to the Arvato UK Outsourcing Index.
“This shift towards greater complexity is contributing to more outsourced services being delivered here in the UK. Just two per cent of private sector deals procured last year will be delivered offshore, compared to 12 per cent in 2016, as outsourcing continues to move up the value chain.”
Overall, fewer deals were agreed across the UK outsourcing market last year, with 98 procured compared to 165 in the 12 months previous, according to the research.
The rise in spending in the private sector market comes as activity across the government market fell year-on-year. Central government departments and councils signed contracts worth £1.82 billion in 2017 compared with £2.59 billion in 2016 – a 30 per cent drop.
Excluding work procured for healthcare, the data shows that the average value of deals signed across government was down 42 per cent year-on-year in 2017
Debra Maxwell added, “In line with calls for a review of the government outsourcing model, the findings show the public sector is already moving away from procuring long-term, high value outsourcing contracts.
“Councils and central government departments are now accessing the technology and expertise they need to deliver a range of functions, from digital service transformation to cyber security, through smaller contracts for productised services.”
Financial Services Leads Private Sector Growth
The analysis shows that a sharp rise in the value of outsourcing contracts procured by financial services businesses was behind the growth in private sector spend last year.
Companies across financial services agreed deals worth £3.26 billion in 2017, more than treble the total value of contracts agreed in the previous year (£829 million).
According to the research, the growth can be attributed to a sharp increase in ITO spending as firms turned their attention to deals in application management, application hosting and end user computing. The findings show ITO contracts worth £2.70 billion were signed across the sector last year, up from £208 million in 2016.
Pat Quinn, CEO of Arvato Financial Solutions UK & Ireland, said: “Financial services businesses are under pressure to transform, particularly in the wake of high profile security threats and the upcoming GDPR obligations.
“The findings show that a growing number of companies see outsourcing as key to addressing the challenge, delivering the resilient infrastructure and architecture they need to protect against cyber attacks, keep their data safe and comply with new privacy legislation.”
Alongside financial services, telecoms & media and energy & utilities were the most active sectors in the UK outsourcing market, procuring deals worth £1.08 billion and £279 million respectively, according to the findings.
The research showed that the average value of contracts signed across the private sector more than doubled to £91 million in 2017, from £36 million in the previous year.
The Arvato UK Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with Arvato UK. The research is based on an analysis of all outsourcing contracts procured in the UK market during 2017.