Compass Management Consulting has analysed the cost of IT outsourcing contracts within central government over the past five years.

It says it reached the $8.8 billion figure after comparing the prices paid by government departments for their outsourced contracts with the market prices paid by the private sector for a comparable bundle of services.

Gary Bettis, Compass's UK president, says the public sector is paying 40% or more above the market rate for outsourced services. It could cut $ 8.8 billion a year from the cost of IT outsourced services without damaging the frontline, says Bettis.

A government report last year put the total cost of public sector IT at between $18 billion and $27 billion a year. The estimate is wide ranging because the government does not collect any audited figures on its annual IT spend.

Compass estimates that most of the IT spend is paid to suppliers of outsourcing services - about $20 billion. Up to $8.8 billion a year is spent unnecessarily, in part because value-for-money initiatives are "far too timid", says Bettis.

Each department has separate IT systems and datacentres. Bettis says that if radical changes are supported by permanent secretaries and ministers, the datacentres and IT infrastructures of departments could be brought together.

Although every department has different systems, "Most have a 90%-plus commonality of need from their IT services," says Bettis.

He adds: "Standardisation reduces costs dramatically by allowing service providers to deliver economies of scale as they deliver utility IT services to a range of clients using the same delivery infrastructure."

Compass also argues that poor management of suppliers and contracts leads to large extra charges from IT outsourcing companies.

But ministers who advocate major change to cut IT-related costs could face a battle with permanent secretaries who may resist a merger with other departments, even an IT merger, because removing the engines of their administration could weaken their domains.

Source: computerweekly