South Tyneside closes outsourcing mega-deal

BT wants to win business from local authorities

South Tyneside Council has agreed a 10-year outsourcing deal with BT for the provision of back-office IT services, estimated to be worth around £300m.

The contract will cover the human resources, procurement and financial services functions of the authority, and could lead to provision of similar services to other councils across the UK in the future.

Some 450 South Tyneside Council employees will move to the new BT local government services division as a result.

BT expects to create about 250 new job vacancies in the region following conclusion of the deal, which is part of a £50m attempt from the telecoms giant to sell its back-office support services to local authorities, via the investment in South Tyneside and the set up of a local government headquarters in Harton Staithes within the next three years.

Although the value of the deal has not been disclosed, industry sources believe that the BT contract could be worth approximately £300m over a 10-year period.

“This programme clearly shows how authorities embarking for the first time on major long-term programmes now expect their private sector partners to deliver more and more in return,” said Ovum senior analyst John O’ Brien.

“For example, South Tyneside requires BT to show tangible financial investment in the region, but also ways to promote and encourage further inward investment and regeneration,” he said.

But broad-ranging programmes such as the South Tyneside-BT deal can potentially draw suppliers away from their key strengths, such as IT and business process outsourcing, said O'Brien.

“Without a clear understanding of the roles and responsibilities in such deals there is a real risk that they will not deliver on all the areas that are now in scope,” he said.

“Suppliers therefore need to be aware of the potential pitfalls of getting in too deep with their customers, and consider where their strengths lie, if they are to get the best out of their partner relationships."