We’ve now had official confirmation that Germany-based BPS giant arvato has won its first major UK central government BPS deal with the Department for Transport (DfT), a shared services contract we estimate could be worth c£750m over its seven year duration.
For new kid on the block arvato this is a major coup. It beat off competition from ususal suspect HP (see FCO framework procurement supports Oracle ERP), and in terms of size will be by far the largest BPO/BPS deal it has won in the UK to date, dwarfing other local government and private sector deals with the likes of Chesterfield, Slough and Sefton councils (see arvato emerging in UK BPS).
The agreement, which includes an optional three-year extension, will see arvato acquire DfT’s shared service centre in Swansea, and then take on responsibility for HR, procurement, payroll and finance services to the DfT and its executive agencies and arms-length bodies including the Driving Standards Agency, the Vehicle Certification Agency, the Highways Agency and the Driver and Vehicle Licensing Agency.
This Independent Shared Service Centre One (ISSC1) is the first central government SSC to be outsourced to the private sector, and includes a framework contract under which arvato will be able to compete for additional outsourced central government business.
The deal forms a key element of the Cabinet Office’s Strategic Plan for Next Generation Shared Services (see Cabinet Office shared services ‘vision’ revealed) under which the present number of departmental SSCs is expected to be reduced from 8 to 5 - 2 of which will be independent i.e. outsourced (ISSC1 and ISSC2) and three standalone i.e. remain in house (MoD, HMRC and MoJ). By pursuing this strategy in which there is a market for shared services within central government, the CO aims to achieve back office savings of £400m to £600m per annum. We suspect it will take some time to achieve these figures however. Arvato’s contract doesn’t provide specifics on its ‘significant savings’.
The Cabinet Office said the other independent shared service centre (ISSC2), which is centred on DWP and DfE, is now expected to ‘come on line’ in early 2014 – by this we can assume it means that a contract will be let by this point. HP is also in the running here.
ISSC1 will provide an ‘alternative’ for government from the usual ERP suspects. Arvato is partnering with tier two player UNIT4 for its Agresso central government ERP platform, which will replace the DfT's existing SAP platform as part of a phased migration. ISSC2 meanwhile will use Oracle as its ERP. This leaves SAP locked-out of both ISSC1 and 2, and depending on the success of the ISSC initiatives, could prove a real dent in SAP's ambitions across central government.