By Vivienne Russell
8 October 2010
Any savings generated from re-letting Whitehall IT contracts are likely to be negated by the costs of the re-tendering process, according to industry experts.
Pressure is on the outsourcing industry after Cabinet Office
minister Francis Maude has repeatedly said he expects them to reduce their
prices. Around 90 deals, valued at £5m or more a year, are due to be negotiated
over the next two years.
But ProBenchmark, which provides market data to organisations looking to outsource, says renegotiating each deal could cost an average of £250,000. It adds that any desired commercial benefits from re-tendering are rarely made, even when contracts are re-let for a lower figure.
‘We are seeing re-bid processes take 18 months or more to complete and costs to both parties of up to £8m – even before transition and redundancy costs are accounted for,’ said Pro-Benchmark’s Simon Scarrott.
‘That is too big a burden on buyers and sellers of outsourcing services and is not economic. The tendering process in its current form costs more than the savings it delivers – and that is not sustainable.’
Scarrott added that a better approach for government would be to start contract renegotiations armed with information on current market rates.
‘The government is the UK’s biggest single buyer or outsourced services and should be paying the market rate – or at least understanding why not in the cases where it is overpaying,’ he said.
Maude this week told the Conservative Party conference in
Birmingham the government had been renegotiating contracts with its largest
suppliers. ‘We're entitled to get handsome discounts,’ he said.
