Study shows rise in value of HR outsourcing contracts

Nick Elvin

The average value of HR outsourcing contracts rose by 24% year-on-year in the third quarter of 2014, according to research from arvato UK.

The third arvato UK Quarterly Outsourcing Index shows the average value increased from just over £8 million in Q3 2013 to £10 million in Q3 2014.

arvato says this year-on-year growth reflects a healthy, on-going demand for services such as recruitment, benefits administration and payroll outsourcing, and the continued development of more sophisticated partnerships between clients and outsourcers.

The latest data also shows that HR services represent a quarter of all UK outsourcing deals agreed so far in 2014. The study found that private sector clients were behind 92% of all HR outsourcing contracts signed since January, with companies that provide business services – including professional, property and people services – the most active buyers, accounting for 39% of deals. They were followed by manufacturers, which accounted for 22% of contracts.

The most popular HR service lines procured in 2014 so far are benefits administration, with 48% of deals, followed by recruitment (36%) and learning and development services (8%).

The study also found year-on-year growth in onshore deals in Q3 2014. In total 76% of agreements were signed for services being delivered entirely from the UK, compared with 60% in the same period last year.

The local government sector remained a significant growth market, with a 164% increase in deal value during the third quarter of 2014 compared to the same period last year.

Debra Maxwell, managing director of arvato UK said: “While the outsourcing industry has not yet matched the high levels of activity seen at the start of the year, our analysis of the third quarter of 2014 holds some promising signs for its health and contribution to the UK economy, in the sustained growth of first time outsourcing and onshore delivery.

“The local government sector, in particular, has bucked wider trends this quarter with continued growth in deal values compared to the same point in 2013. This shows that the outsourcing sector remains an essential partner to local authorities as they continue to deal with ongoing budget challenges.

“Meanwhile, in HR services, larger contract values reflect growing maturity in the sector, with outsourcing moving up the value chain to deliver more sophisticated solutions, beyond transactional services. The popularity of recruitment process outsourcing is a good example – with outsourcers increasingly involved in more judgement-based activities including candidate vetting and shortlisting.”