UK Public Sector outsourcing – signs that things are looking up?

All the recent furore in the UK public sector around some of the major outsourcers (Serco and G4S actually facing court appearances, A4E similarly in trouble, IBM and the Southwest One events in Somerset)  have led us to ask whether we have actually seen the high water mark for major public sector outsourcing. Has the bubble burst, we wonder?  But last week was confusing for any analysts trying to consider that question. We had a coupe of positives and a couple of negatives to consider. Let’s look today at the positive side of things.

Serco appointed a new MD, Rupert Soames, Winston Churchill’s grandson, and currently chief executive of Aggreko, the power firm, where he is perceived to have done a very good job for some years. The interesting point was the jump in Serco’s share price on that announcement, up over 10% - a massive jump for a large firm.  Based on that response the market appears to perceive that Serco’s problems don’t run too deep – the sort of issues that an effective CEO can sort out fairly quickly.

And there was further good news for Serco when they were announced as preferred bidder for a back office (and possibly customer facing work as well) contract with Lincolnshire Council. They will take over from the long-serving supplier, Mouchel, who have been in place for 15 years. Serco just pipped Agilisys, who are becoming a real force in local government, but will be disappointed to have lost out here apparently on commercial grounds – “Serco delivered a better deal with more savings”, a councillor said.  We suspect Serco were very keen to win this one given their recent problems.

Then Capita announced their financial results, and pretty impressive they were too. shares hit an all-time high, and the firm has a bid pipeline of £5.5 billion. They tactfully didn’t comment on whether the problems for Serco and G4S have helped them but the answer to that is of course they have! Winning the Ministry of Justice tagging contract is a clear indication of that, and they may well gain also from the recent Department of Work and Pensions and Atos falling out (see here).

Do we deduce that all is well in the public outsourcing world? Well, not necessarily. There are some negative goings-on too..  so more tomorrow.

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