Local and regional deals outnumber national programs. The U.K. continues to lead in number of deals executed in past year.

by Andy Teng

When you think large enterprise HRO deals you probably envision international companies outsourcing HR functions. Increasingly, however, it’s not just private organizations looking to leverage the economies of HRO. In fact, the public sector is getting in on the act as well.

Well why not? After all, government agencies and non-profits have been some of the biggest buyers of HRO to date. All you have to do is look across the Atlantic to see outsourcing hard at work for American taxpayers. Through entities such as the states of Florida and Texas and the U.S. Transportation Security Administration (TSA), outsourcing is flourishing in the public sector in the U.S.

Although European governments have been less enthusiastic about HRO, they still have signed numerous contracts as well, most notably on the regional and local level. Few European blockbuster deals such as those seen in the U.S. have been executed to date, but nevertheless the number of European public-sector contracts is on the rise. This is happening even as more authorities are looking to reap savings through outsourcing and shared services, according to Jemima Fitzgerald, a specialist at sourcing advisory firm Morgan Chambers in the U.K.

She explained that following the 2004 recommendations of Sir Peter Gershon on public sector cost savings, the U.K. launched a number of initiatives aimed at keeping government spending down at all levels. Although resistance to shared services and outsourcing continues, Fitzgerald said she believes the pressure on bureaucrats to lower spending will lead to more outsourcing.

“Morgan Chambers sees the adoption of all forms of outsourcing accelerating in the public sector along with shared-services centers and other cost reduction and efficiency measures. This is being driven by scrutiny of all forms of public-sector spend, budget reforms, transparency requirements, and general public understanding of public-sector spending,” she said. “Given the economic climate today, government at all levels knows that spending and efficiency must be brought under greater control—the counter-intuitive solutions of the past replaced by modern solutions that are more economically sustainable.”

Indeed there have been some notable contracts in the past year, including a massive outsourcing deal signed by the U.K.’s BBC. Of course the U.K. has been on the forefront of public-sector outsourcing, with fewer barriers standing in the way. While nations such as France, Germany, and Spain continue to restrict outsourcing through strict employment laws, markets with fewer labor regulations are enabling HRO to grow.

Furthermore, it’s not just national agencies taking advantage of outsourcing. Many local and regional governments are seizing the opportunity to garner savings through either a shares-services center or from an outsourcing service provider.

“Localized HRO and shared services are happening in the governmental sector across Europe mainly because there is little or no room for cooperation on a wider scale between local authorities, regions, departments, or agencies,” she said. “Gershon has tried in the U.K. to force this, but local politics will continue to resist shared solutions where this is perceived as a loss of status or control.

Still, some public-sector buyers have been sizable, including the U.K.’s Land Registry and the Armed Forces Personnel Administration Agency, both of which have signed very large deals in the past. And a number of industry observers are keeping an eye on the U.K.’s Royal Mail to possibly enter into a multi-year, multi-tower buy in the near future. Also in this list is the first public-sector HRO deal announced in France by Steria for Issy-les-Moulineaux. These and other deals clearly point to greater acceptance of outsourcing among European governments.

In putting together this report, we would like to acknowledge the input of advisory firms EquaTerra and Morgan Chambers. They were instrumental in helping us track down the biggest deals in the past year.

Although a greater stigma exists in public-sector outsourcing than with the private sector, attitudes are changing, and you can be sure that more and bigger deals will be forthcoming throughout Europe.

CLICK HERE FOR THE LATEST EUROPEAN PUBLIC-SECTOR HRO DEALS (PDF)