European outsourcing spend hits highest level in four years - report

LONDON (REUTERS) - The value of commercial and public service contracts awarded to outsourcing firms in Europe has hit its highest level of growth in four years, as cash-strapped governments and companies attempt to cut costs, despite a string of high profile contract failures in recent years.

A report by industry analyst ISG said on Tuesday the annual contract value (ACV) for outsourcing in the first quarter across

Europe, Middle East and Africa (EMEA) rose by 29 per cent on a year ago, amounting to a total spend of 2.4 billion euros (S$4.15 billion).

This is the second highest level of spending seen in the region since the start of the financial crisis, when the equivalent spend stood at over 3 billion euros before falling back to 1.8 billion in 2009, rising to 2.69 billion in the first quarter of 2010 and falling back to 2.3 billion in 2011, 2.1 billion in 2012 and 1.8 billion euros in 2013.

"Although this year looks a fair way below the 3 billion-euro figure, that (year) was a real outlier," ISG's president John Keppel told Reuters, explaining that there had been a strong backlog of orders in 2008. "(Before that) the market was delivering less than 2 billion euros typically, so this is a pretty good first-quarter performance, it's a nice pick-up and good start to the year," he added.

Britain has moved to outsource large parts of its public sector services over the last 30 years, a practice which has been heavily criticised in recent months after contractors such as G4S and Serco were found to have overcharged the government on contracts concerned with the electronic tagging of criminals.

Among the services the government has outsourced recently is a 7 billion-pound contract, awarded to engineering contractors Babcock and Fluor, to manage the decomissioning of nearly half of its nuclear sites and one of the largest UK government contracts put out to tender.

Britain's Nuclear Decomissioning Authority said the contract should bring a saving of at least 1 billion pounds from the previous contract, which was handled by EnergySolutions.

The report said first quarter growth in the region was largely driven by re-emergence of so-called "mega" deals - where contracts are valued at more than 80 million euros a year - in countries like Britain, France and the Nordics.

The study, of both commercial and public sector work, also reported 59 out of 165 contracts were awarded in Britain - the highest number since 2011 when there were 60 such awards.

The majority of contracts won in the EMEA region were new requirements, accounting for 76 per cent of all contract values, driven by a rise in demand for IT services.