Industry news

Times are tough, it goes without saying. The Cabinet Minister’s decision to meet with the Government’s biggest suppliers to ask them what they can do to help cut the cost of their services is just the most recent example.

When news broke that Cabinet Minister Francis Maude had requested the meeting with the likes of IBM, BT, Hewlett Packard, Serco, Capita, Capgemini and Steria the idea of contract re-negotiation started to loom in people’s minds.

The matter is not black and white. While the coverage has tended to look at the matter as though the Government were in a position of dominance, the reality is otherwise.

To begin with, it is unlikely that the Government wants to engage in litigation disputes and pay termination fees left, right, and centre. Also, suppliers may be being asked to revise their pricing but where they do, they will most certainly receive something in exchange like a contract extension for example.

But more importantly the Government needs to consider the reasons for which it has decided to outsource – which may include capacity along with cost.

"What the Government fails to understand is that the main benefit of an outsourcing relationship enables them to focus on the work that is core to their value proposition,” says Ferenc Szelenyi, Dell Services' VP EMEA, public sector services.

The relationship between the Government and its suppliers is a symbiotic one, but it is also one that evolves over time. Every private/public partnership is cemented on the belief that the work being outsourced is unique and must be managed uniquely.

“The Government expects its outsourcing service providers to maintain the complexity rather than to simplify and standardise the work processes. [For example, when] processes and people are moved to the provider in their existing state and are independently managed next to countless similar processes of other companies, the cost and service benefits of standardisation and simplification are lost," observes Szelenyi

Similarly, if we look at the existing relationships between various Government bodies and private suppliers (i.e. Capgemini’s handling of tax collection or more recently the award of a £415m contract by the Ministry of Justice to Serco to manage prisons), it is clear the Government cannot extirpate its relationships from suppliers. In the end is in the best interest of both parties to collaborate for mutually beneficial gain.

“Just as the Government seeks to save money, reduce risk, and/or enhance the quality of its operations, the service provider seeks to earn a profit, build on its service capabilities, and leverage its growing expertise for the future. The most successful outsourcing relationships are those that lead to long- term value creation for both parties. It is critical that the Government never loses sight of the fact that the relationship is a bilateral one,” concludes Szelenyi.

Law firm Morrison & Foerster LLP (MoFo) has named Christopher Ford, a partner in the firm's Washington DC office, to the position of chair of Global Sourcing Group.

Chris focuses on advising customers on the full life cycle of their complex information technology and business process outsourcing transactions.

He has advised on many substantial transactions in recent years, including in relation to a $1.4bn IT outsourcing for one of the largest US states, a $600m renegotiation of a global manufacturing company's IT outsourcing agreement, and a $450m transaction whereby a major transportation company outsourced its IT infrastructure and managed voice and data networks.

Ford succeeds Alistair Maughan, a partner in the firm's London office, who has taken on a new role as co-chair of the firm's Technology Transactions Group, alongside Paul Jahn, who is based in San Francisco.

DLA Piper was awarded Adviser of the Year at the inaugural European Outsourcing Association (EOA) Awards, set up to reward best practice in pan-European outsourcing.

The DLA Piper’s European team regularly undertakes project work spanning international borders. Examples of recent cross-border deals include: COLT (in Belgium on a major data centre outsource project), UCB Pharmaceuticals (on both ITO and BPO projects), National Bank of Greece (on its card processing outsource deal), the National Bank of Georgia, and for HCL Technologies (in respect of major outsourcing projects in the UK, Scandinavia and continental Europe).

Other major clients the law firm has worked with on outsourcing projects include UBS, Lloyds Banking Group, RBS, Tesco Personal Finance, Investec, Accenture, Cognizant, Sodexo, Verizon and the Department of Work and Pensions.

DLA Piper’s public sector focused team is dominant in the UK and is the predominant advisor to Government departments which account for over a third of the total public sector spend on IT/outsourcing (including NHS Connecting for Health, DWP, Ofsted, PADA, King's College Hospital, the Northern Ireland Department of Health and related bodies, the British Council, the Foreign & Commonwealth Office, WCA, the Pensions Regulator, and the OGC itself).

The ceremony was held at the 2010 EOA Summit in Brussels, an event that brings together the world’s leading outsourcing suppliers, end users and support service providers for a two-day conference focusing on the latest innovations, trends and developments in outsourcing.

BASF IT Services, a subsidiary of German chemicals company BASF Group has awarded Mahindra Satyam a three-year outsourcing contract.

The deal, awarded to Mahindra Satyam following a competitive bidding process aims to enhance BASF’s capacity to provide managed services for the company’s extensive installed base of SAP, messaging and groupware as well as user administration.

The contract, based on a 100% outcome oriented model, is for a three-year period with a two times one year extension option.

Swiss bank UBS has selected US technology group CSC to carry out a five-year voice and data network, security and telecommunication services outsourcing contract.

The total contract value of the deal is estimated to be up to $580m for the entire contract’s duration.

The contract is a master services agreement, a type of deal that is highly detailed and establishes clear expectations on rates, responsibilities and services provided.

All of the agreements are subject to regulatory and other approvals and notifications, including consultation of relevant workers councils.

Outsourcing firm Mphasis is opening a centre in Colombo which will offer legal, finance and accounting services.

The centre will be operational from next year. The office will recruit 600 employees in the first year and expand to 2,000 within three years. The company is investing $2.5m in the first stage of operations.

The global business process outsourcing (BPO) industry has been hit by a global slump, with much of its green pastures in Europe and North America drying up due to inward looking policies forced upon the private sector by governments to save local jobs.

USAID Jordan Economic Development Program (SABEQ) partnered with DHL Express Jordan to promote the outsourcing sector and position the country regionally and globally.

The programme's mission is to support sectors and activities in alignment with King Abdullah's vision for a knowledge-based economy, by inserting Jordanian enterprises into global value chains, promoting investment, and improving the enabling environment to generate value added jobs, exports, foreign direct investment, and sector revenues as a powerful engine of economic growth.

The outsourcing campaign that has been running for the past couple of years is defined as a true Public Private Partnership. Partners include the Development Zones Commission (DZC), King Hussein Bin Talal Development area, Jordan Investment Board (JIB), the Information Technology Association of Jordan (Int@j), and the USAID Jordan Economic Development Program (SABEQ),as well as a number of rising private sector outsourcing companies.

The USAID Jordan Economic Development Program (SABEQ) is a five year broad economic development initiative implemented by Deloitte Consulting LLP and a sizeable team of international and Jordanian partner firms.

DHL Express sponsorship of this activity highlights the partnership that supports the outsourcing activities and promotes the sector globally.

Capgemini was awarded the IT Outsourcing Project of the Year award during the inaugural European Outsourcing Association (EOA) Awards.

The recognition was based on Capgemini’s work with the Welsh European Funding Office (WEFO) which is part of the Welsh Assembly Government.

The award highlighted how the Capgemini focus at WEFO is primarily on collaborative working to maximise WEFO business performance for the Welsh economy.

The WEFO Programme and Project Information Management System (PPIMS ) / WEFO Online system, an IT application designed, built and managed by Capgemini UK allows for the £3.9bn to be processed and paid out as structural funding in Wales.

The efficiency of PPIMS/ WEFO Online is critical to the stabilisation and growth of the Welsh economy and the overall reputation of the Welsh Assembly Government.

The WEFO project was notable for achieving success in improved customer services, efficiency savings and compatible for EU audit requirements.

The move to outsource strategic and operational activities is slower than expected according to The 2010 Indirect Procurement Study (IPS) published by global management consulting firm AT Kearney, and previously conducted in 2007.

The 2007 survey reported that executives expected significant growth in outsourcing strategic, tactical and operational activities by 2010, but the expectations have failed to materialise.

According to the results, outsourcing of strategic activities was projected to grow from 1% in 2007 to 12% in 2010; the actual figure is 5%.

Similarly, tactical activities were expected to reach 23% this year (up from 6% in 2007), however, the figure remained unchanged.

As for operational activity, it was predicted this would increase by 30 points from 10% in 2007; actual figures in 2010 is 14%.

“The figures definitely represent a change in direction from three years ago, however this is likely due to a multitude of factors.

“The global recession has impacted funding for new technology, procurement’s visibility in the organisation, the sense of urgency to control this type of spend, and risk aversion,” noted Jan Fokke van Den Bosch, vice president at AT Kearney Procurement and Analytics Solutions.

However, findings show that despite the shortfall of 2007 projections and actual 2010 figures, executives managing indirect procurement have gained substantial influence within their organisations, mostly owed to the financial crisis and recession.

This is positive and indicates that there is room for indirect procurement outsourcing to develop. While today IT and logistics are the categories in which procurement is most active– 68% and 66% of all related spend respectively – looking ahead, the most significant growth is expected in overhead and support with facilities and logistics narrowly behind.

“As with all outsourcing a decision to restructure using external service providers must be based on a valid and balanced business case.

“Factors which favour the development of indirect procurement outsourcing include: a) proven effectiveness and efficiency in a multinational environment b) increased maturity in the strategic level of the indirect procurement organisation and therefore improved management of outsourced operational and tactical activities and c) higher availability of knowledge and skills at providers’ side,” says van Den Bosch.

The survey was conducted among 94 multinational companies across the Americas, Europe and Asia.

The Ministry of Justice (MoJ) has awarded a Serco Group-led consortium a contract to provide and operate a new prison at Belmarsh West, London. The contract has a value to Serco of approximately £415m, and will run for 26 and a half years.

Serco will operate Belmarsh West, a local prison, under a Design, Construct, Manage and Finance contract.

The prison, which will be built to Category B standards by Serco's construction partner Skanska, will accommodate 900 adult male prisoners.

Construction works will begin immediately, with completion expected in the first half of 2012. Equity and debt finance has been secured from third parties.

This is the first prison contract to be awarded in the UK to an alliance of the private and voluntary sectors.

The prison is designed to be highly efficient and, as a local prison with a high remand population, Serco's focus will be to minimise the dislocation that short-term imprisonment can cause.

In conjunction with other providers Serco will also support the effective delivery of prison healthcare and other services, to ensure a safe, secure and decent environment for those in our care.

Serco had previously announced its selection, in June 2009, as the preferred bidder to provide and operate two new prisons at Belmarsh West, London and Maghull, Liverpool. It is intended that the contract to provide and operate the prison at Maghull will be signed later this year.