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Capita up, Capgemini down: Is the market still strong?
We’ve used the open spend data published by government bodies for calendar years 2012 to 2016, available as of March 2017, to create a comprehensive picture of the growing IT professional services market in the public sector.
The market is growing by an average of 5% a year and spend across government now averages around £50m a month. The rise is due to the increase in spending with key suppliers in central government, which reached £4.7bn in 2016, compared to £3.6bn in 2012.
About the Suppliers
Capita has, over the last five years, taken the lead over Capgemini as the biggest supplier in the market. While Capgemini gets most of its business from central government, Capita, having grown out of providing services to local government, is much stronger in local government and is also making gains in central government.
Part of Capita’s strength is its flexibility to enter diverse contracts, from a ‘digital marketplace’ for social care launched with Barnet council to managing hospital IT networks in Gloucestershire. This last deal was achieved by acquiring Updata, a specialist business, and is an example of the strategy Capita often uses to expand into new areas of supply.
Capgemini’s fall in revenues comes with HMRC’s ‘phased exit’ from the £10 billion Aspire deal which will come to an end this year. As a subcontractor on Aspire, Fujitsu will also lose out, but our research shows that it has increased its revenues from the public sector over the last two years.
For both Capita and Capgemini, their performance in Government is in direct contrast to their wider fortunes. Capita released its first ever profit warning in December following Brexit, whereas Capgemini, which has less of a UK focus, continues to grow.
Although Capita’s profit warning was blamed on Brexit, delivery problems in its public sector contracts are also causing issues. For example, it incurred a penalty of between £20m and £25m for issues encountered in administering TfL’s congestion charge. With increasing focus on contract management in the public sector, large firms will need to be wary of their capacity to deliver, as a dominant position now may not hold if a firm loses its reputation for delivering on contracts.
CGI, the third biggest supplier across the five years, is also losing ground although it retains some important contracts such as the Home Office’s Police National Database (PND) and is the biggest supplier to the DWP and MOJ. Like Capgemini, its focus is almost entirely in Central Government.
The fourth and fifth largest suppliers, Atos and Mouchel, are both holding steady over five years, with only a slight decline. IBM was in decline from 2012 to 2015, but showed a resurgence in 2016.
BAE Systems, the eighth biggest supplier after Fujitsu (discussed above), is making annual gains. It’s worth noting however, that BAE Systems is a complex provider and it is not always possible to distinguish when spend with this supplier is in aerospace, manufacturing or outsourcing. Despite this, we've included them due to the importance of their role as a central supplier.
The top ten is rounded off by CSC and BT Global Systems, both now in showing a downturn.
About the Buyers
Central government spend is increasing but local government spend is going down slightly. In these slides ‘Central Government’ refers to the 17 ministerial departments existing before July 2016 as well as arms length bodies.
Since July 2016, the Department for Energy and Climate Change and the Department for Business, Innovation and Skills merged to form the Department for Business, Energy and Industrial Strategy, and the Department for Existing the European Union and the Department for International Trade have been created. The new departments have yet to publish spending data so they are not included in this report.
We’ve created ‘DNA charts’ to show the split of suppliers for DWP, HMRC, MOD the Home Office and MOJ, the five largest central government buyers. These charts reveal the importance of the Aspire contract, with the bulk of the Home Office’s spend going to Capgemini and Fujitsu.
In local government, Essex County Council is the largest buyer, owing to a large outsourcing contract with Capita. It is the only council to have spent over £300m in this period, an amount that exceeds seven central government buyers. Only two other councils had spend over £200m on outsourcing contracts: Tameside and Barnet.
Central government spend is ever-increasing, but the key players aren’t always growingAlthough central government spending is increasing and remains by far the largest factor in this market, focusing on central government can create risk for companies, who see their revenues fall when when large contracts fail or end. The best-performing supplier in this field, Capita, has a more diverse portfolio and gets over a third of business from local government.