Analysis of information technology (IT) outsourcing contracts in the UK has shown that the public sector is paying 40% or more above the market rate for outsourced services.

According to Compass Management Consulting, which has analysed contracts within central government over the past 5 years, this means the public sector could save up to £6bn on its annual IT spend of around £14bn without affecting front line services. Compass arrived at the 40% figure after comparing the prices paid by government departments in their outsourced contracts with the market price paid by the private sector for a comparable bundle of services.

“There has been heavy criticism of public sector IT for the problems that have occurred in a series of high profile projects such as the National Programme for IT in the National Health Service. However, it is not just development initiatives which are costing too much and delivering too little, there is significant scope for savings – of 40% or more - in day-to-day IT service delivery. Currently, savings of around £6bn are being left on the table and whilst the initial target of £95m this year is a start we are hoping larger more aggressive targets will be set sooner rather than later. A number of reviews and studies on value for money have been completed in the last three years which prove the £6bn to be accurate.” said Gary Bettis, UK president for Compass Management Consulting.

Compass claims that the approach taken in past value for money initiatives in government IT services were “far too timid” and that instead of savings of 35% or more in year one of a transformation project, the public sector benchmarks are set at 5-15%.

“This poor performance reflects a combination of questionable procurement practices and inadequate management of the demands that public sector clients make on the service provider for extra services and customisation which drive up costs,” said Gary Bettis.

“Government departments are still far too timid in their thinking and too cautious about transforming both sides of an outsourcing deal, through demand management and the introduction of standard services,” he said.”

“Standardisation reduces costs dramatically by allowing service providers to deliver economies of scale as they deliver utility IT services to a range of clients using the same delivery infrastructure.”

Compass says that the Treasury’s announcement that it had identified only £95m of achievable savings from the £1bn pool of potential economies which were suggested before the election (in the reports produced by Sir Peter Gershon and Dr Martin Read) is confirmation of the difficulties in implementing cross-department projects and the low figures achieved by savings initiatives.

“There are constraints on making the sorts of transformations which the public finances need” said Gary Bettis of Compass. “There is often limited funding for these types of projects in the public sector. Perhaps, more seriously, there is a very limited pool of people who are capable of leading the initiative who have the skills, processes and tools to make the transformations happen.”


Source: SourceWire