The axing of IT projects at Essex County Council are a sign that local government will not be immune to budget cuts that central government is facing, an industry analyst has said.
Essex County Council recently cancelled contract tenders for IT projects worth over £1m in total due to unforseen changes in "budget" and "circumstances".
Georgina O’Toole, research director at industry analyst TechMarketView, said: “Most of the focus to date has been on how Whitehall is going to cut 25 per cent to 40 per cent from its expenditure. However, local authorities are also facing budgetary pressures.
“While we don’t envisage a decline in the local government SITS (IT services) market, we do believe growth will be flat or very low single digits over the next couple of years.”
Despite this pressure, however, O’Toole said that if local councils are serious about cutting their IT costs. “One million here and one million there is not going to cut it," she said, describing the Essex case as an example of a local authority “picking the low-hanging fruit”.
“In both the example contracts, it would be very hard to prove any clear cashable savings for the authority from embarking on these projects,” said O’Toole.
“This just goes to support our view that IT projects are unlikely to go ahead unless they can prove a swift return on investment, to support the cost-cutting agenda, preferably within 12 months.”
O’Toole also believes that the main difference between central and local government was that on the whole, local government appears to see ICT as an enabler of cost-cutting rather than just a cost to cut.
“That’s not to say things won’t be tough for suppliers. As budget cuts begin to seriously bite, we may see local authorities considering more radical approaches to ICT provision, even considering, for example, the use of central government ‘shared services’ solutions, such as datacentres.”
Meanwhile, specialist recruitment company Reed Technology, believes that the Essex cuts is part of a trend that will have an increasing impact on IT jobs in the public sector.
“The cancellation of large-scale projects will undoubtedly impact on public sector recruitment as public bodies will need developers that can manage existing systems and keep pace with technology,” said Andrew Gardner, operations director of Reed Technology.
“Inevitably IT jobs will go as part of the widespread public sector cuts and quick cost reductions may come in the form of outsourcing support staff, but there will still be a need to retain certain skills within the public sector.”
Essex County Council has been under fire for its multi-billion-pound outsourcing deal with IBM. The deal was championed by Lord Hanningfield, the council leader who was forced to resign amidst the MPs expenses scandal.
In December 2009, Essex County Council signed an eight-year agreement with IBM to transform its operations and services, and slash costs. It is expected to eventually cost between £2.3bn and £5.4bn, dependent upon the services procured.
Essex last November suggested it had learnt lessons from previous outsourcing contracts, possibly including an aborted deal with BT, and that flexibility and clear break clauses were built-in to the IBM deal.