Services

Carillion, Capita and Corbyn: UK outsourcing’s triad of troubles

Jessica Figueras Published 12 February 2018

Jessica Figueras argues the pressure for transformation around outsourcing has never been higher, and those who succeed in this market in future will be tech-savvy and focused, not generalists

 

Capita's precipitous plunge this week does not seem to signal genuine fears that it is in imminent danger. Still, Cabinet Office's statement that it "did not believe that any of our strategic suppliers are in a comparable position to Carillion" is not exactly a vote of confidence.

Assuming that CEO Jonathan Lewis gets the cash injection he's seeking, all eyes will be on his strategic review of Capita's sprawling empire to see which businesses and contracts the behemoth may look to exit. Barnet Council won't be the only public sector customer in contingency planning mode; GlobalData's outsourcing database counts 72 live Capita contracts, which only serves to demonstrate the spread of the company's public sector business.

It's no secret that UK outsourcing plc has a problem with profitability and focus. We're likely to see more no-bid situations as suppliers increasingly refuse to accept the risk of underpriced contracts. Public sector buyers will be forced to stump up more cash, or take services in-house. (With the Corbyn wolf at the door, this will be referred to as 'in-sourcing' and not 'nationalisation'.)

The pressure for transformation has never been higher, and those who succeed in this market will be tech-savvy and focused, not generalists. Capita's peers and competitors will have noted its CEO's confession of "underinvestment in IT". So, if some are facing their own dark night of the soul, others will have a spring in their step.

Atos has good tech-centric BPO credentials at NS&I; and even if it and Fujitsu are dependent on legacy business which is likely to disappear at some point, both are focused and winning new contracts. The trend towards insourcing opens up the market for a range of different suppliers to work directly with the buyer. And that is a much more contestable market. Smaller rivals are well positioned. Computacenter achieved around the same public sector outsourcing sales as Capita last year, with a decent spread of sectors, and all new-style, focused contracts. Civica is much smaller but planning expansion on the back of public sector digitisation, funded by its new private equity parent. Liberata won more local government deals than Capita last year; although let's keep an eye on those customers to see how the contracts themselves pan out. Specialist staffing agencies, such as LA International, are worth watching, as are highly focused BPO players such as Engie Services.

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