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European public sectors turn to outsourcing.

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LONDON: Public sector budget pressures are driving a shift to outsourcing as a strategy to improve operational excellence in Continental Europe and a wave of contract renegotiations in the UK, according to TPI, the Information Services Group company.

TPI says the number of public sector outsourcing contracts awarded in Continental Europe jumped by more than 70 per cent in the first half of the year; the public sector's total contract value (TCV) on the continent grew 40 percent.

For service providers this will mean placing a greater emphasis on forging close working partnerships with public sector bodies. Duncan Aitchison, Partner and President, EMEA, TPI, said: "Understanding the difficult path the government now has to take and negotiating the balance between providing a value proposition, with services that help governments achieve often complex goals in a streamlined way will be key for outsourcers moving forward."

This surge is taking place across Continental Europe, including Germany, the Benelux and Nordic countries, as central and local governments are adopting outsourcing at an increased pace.

TPI's sister consulting company, Compass, reports that the shift is especially evident in France. For the first time, the country's largest IT outsourcing projects are in the public sector due to efforts to consolidate the government's extensive telecommunications network.

"The public sector in France has not heavily relied on outsourcing in the past," said Lyonel Roüast, President, EMEA, Compass. "The cost of IT was not considered a main priority for the government. However, now that the need for cost reductions and more efficient services is being recognized, attitudes are beginning to change."

In the UK, which has historically outpaced Continental Europe in outsourcing penetration, the number of public sector outsourcing contracts awarded also rose 70 percent during the first half of 2011, according to TPI. However, public sector TCV in the UK fell 47 percent as authorities sought to restructure existing agreements to reflect changed priorities.

"With the recent change in government in the UK and accompanying public sector funding shifts, outsourcing activity has been re-evaluated," explained Steve Tuppen, UK President of Compass. "Service providers now recognise the need for providing better value for money. Although these same providers have previously offered cost reduction and changes to their delivery models, it is only now that pressure to reduce costs across the public sector has heightened that authorities are taking a step back to evaluate outsourcing activity and have the clarity to review the objectives, targets and outcomes."

Tuppen predicts that the extensive restructuring of outsourcing contracts in the public sector will result in more innovative agreements and service integration. "Looking ahead, we expect to see an increase in the standardization of public sector outsourcing contracts and increased use of multi-sourcing, both of which will result in a strengthening of service as well as greater flexibility," he said.

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