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Hope for outsourcers

TIP UPDATE: There are growing signs that outsourcers may pull out of their post-election funk.
May 11, 2011

Outsourcers may finally be coming out of their post-election funk. Heading into last year's election, many saw the prospect of austerity as presenting major opportunities for outsourcers to win contracts that would help save the government money, while protecting core services. But a protracted order hiatus in the run up to and since the election along with some noteworthy corporate disasters has soured the mood towards these erstwhile defensive-growth darlings.

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While the sector's 2011 performance will bear the scars of last year's weak order intake, there are now signs from the biggest listed outsourcers that the market may be thawing. Trading updates over the last week from both Serco and Capita looked distinctly upbeat.

Capita, which is UK-focused, has now won £313m worth of work in the first four months of the year compared with £272m in the whole of its dismal second half of 2010. From a historical perspective, these are hardly sales levels to get the pulse racing, but public sector tenders are now reported to be back at pre-election levels.

And Capita also reported a recent 'busy sales period' along with the prospect of some big contracts coming through from its record bid pipeline in the second half. The group has seen most activity in the life and pensions, and local government sectors, but increased opportunities in central government have also begun to emerge.

Meanwhile, Serco expressed its confidence that recent short-term headwinds in the UK, caused by the austerity push, will change into bidding opportunities. Management says the government is showing 'determination and pace' in enacting policies that will bring it more work.

But the outlook for outsourcers is somewhat muddied by the impending publication of the Open Public Services White Paper later this month. And recent comments by government, and actions by councils, suggest there will be a limit to how wholeheartedly outsourcing is being embraced as a way to achieve savings targets.