OVUM. John O`Brien
In the first deal, BT, in partnership with Liberata, has been awarded preferred bidder status on a £300 million IT and business process outsourcing (BPO) contract at Sandwell Metropolitan Borough Council, which will see it perform a range of IT and business services for the council, including new IT infrastructure, finance, HR, payroll and customer services. Expected to create 450 new jobs in the Sandwell area, the contract is due to begin in April 2007.
The second deal sees BT winning a five-year £380 million extension to its flagship local government deal at Liverpool City Council. BT will continue running the joint venture Liverpool Direct Ltd and its call centre, revenues and benefits, HR and IT services operations from the end of the current contract in 2012 through to 2017.
We believe that BT's key strength is its willingness to be a true partner to its clients and invest considerable sums of money in helping transform their organisations. This is particularly important since local authority aspirations around economic regeneration and social inclusion are often dependent on new investment, while such financial commitments from the supplier clearly suggest a long-term partner relationship.
Liverpool is a good example of this. BT has already invested some £50 million since 2001 in new IT systems and services for the council, and this will grow a further £41 million through investments proposed in the extension contract. Not many other local government suppliers can afford such significant investment for their clients, but to say that this is the only reason for BT's success would be to do it a disservice.
The company has a proven track record in delivering outsourcing services to the local government market, with similar major programmes at Rotherham, Suffolk, Essex and Edinburgh. Suffolk has helped pioneer the shared services model to the local government sector, while Liverpool has proved one of the most successful local government transformation programmes to date. It has reduced costs for the council by over £100 million since its launch, and improved various services.
Going forward, we believe BT is well-placed to continue expanding its footprint in local government mega-deals, although we are concerned that it may overstretch itself in doing so. An obvious opportunity on the horizon lies at Somerset and Taunton Deane Councils, where BT is in the final bidding stage against Capita and IBM on a potential £360 million outsourcing deal. This is already late in reaching preferred supplier status, but we expect an announcement sometime in early 2007.