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  • UK Government Outsourcing Contracts Fear Sword of Damocles Overhead 0 comments
    May 24, 2010 8:21 PM | about stocks: ACN, CAI, INFY, RTN, WIT

    By: Audrey B.

    Following the UK elections and subsequently, the naming of the country’s new Prime Minister David Cameron and Chancellor George Osborne has pushed government outsourcing contracts in limbo, as companies anticipate the stance the new government will enforce.

    When the news broke out on the 17th of May that the new UK government would be splitting large outsourcing orders into smaller deals in order to cut government spending by as much as 9 billion this year, it was Indian company Tata Consultancy Services (NSE:TCS), who suffered negative feedback as its stock fell as much as 2.6%. TCS currently has a £600 million contract with the Personal Accounts Delivery Authority (PADA) for the NEST scheme administration services. The NEST deal had already seen its fair share of controversy before, when fellow bidders of the deal such as Logica (LON:LOG) suddenly withdrew from the bidding, leaving TCS as sole bidder.

    According to John O’Brien, senior analyst at UK-based research firm Ovum, “this contract has been singled out by George Osborne as the last mega deal to be signed under the former Labour administration. Mr. Osborne wants to cap all future IT contracts at £100 million, so this £600-million deal falls way outside his comfort zone”.

    It is not however, just the NEST deal that sits with a sword of Damocles above. According to news reports, contracts such as the 12.7-billion National Health Service IT program, which has already been treading on thin ice these past few months as it has been plagued with numerous delays, is also under the government’s eye. Other contracts named are a 13 billion defence program, 420 million school building contracts, and a 1.2-billion E-borders immigration service project being delivered by the Trusted Borders consortium led by Raytheon (NYSE:RTN) and includes company’s Accenture (NYSE:ACN), Detica, Serco, QinetiQ (LON:QQ), Steria, Capgemini (EURONEXT:CAP) and DAON.

    At this point it becomes difficult to believe that just a little over a year ago, companies such as TCS, Infosys (NASDAQ:INFY) and Wipro (NYSE:WIT), had been angling for UK outsourcing deals worth about 3 billion dollars from state owned departments.

    For now, as the UK strives to reach its target of reduced government spending, multi-million dollar government contracts in the UK will be a thing of the past. Although there might be more contracts to expect from the government as struggles to reform IT are ongoing, payouts will be less, and may likely go to smaller outsourcing companies in an effort to drive down cost.

    Disclosure: No Position
    Stocks: ACN, CAI, INFY, RTN, WIT
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