The local government market for software and ICT services grew by 1.2% in 2014, despite continued pressure on council budgets, according to new figures.
A report published by software and ICT services analyst TechMarketView said that the market grew for the second year running to reach a total of £2.29bn.
But the report warned that the growth in spending on software and ICT services was likely to slow in the coming year.
The report said: “Across the wider public sector, growth rates will be in positive territory across all subsectors in 2015.
“They will range from just 0.7% in the local government market, where growth rates remain subdued as first generation outsourcing contracts come to an end and are sometimes cancelled or reduced in size.”
According to TechMarketView, the ongoing decline in business process services deals led to a decline of 0.6% in this part of the market during 2014.
The report said: “New multi service deals are rare and existing contracts are often being re-negotiated or even cut short.”
However, software revenues grew by 1.6% to reach £320m, as local authorities remained loyal to commercial off-the-shelf software.
Infrastructure services (up 3.5%) and applications services (up 10.6%) were the top performers during the year.
“Property rationalisation programmes boosted infrastructure services demand as many local authorities pursued ITO after re-examining the IT provision for new premises,” the report concluded.
“Application services benefitted from local authorities investing in digital technologies; recognising the role of SITS suppliers in service transformation.”
Looking at the performance of individual suppliers, TechMarketView found that Capita, Agilisys and Civica all grew revenues thanks to contract extensions and digital transformation investment.
Local government revenues declined for Serco, Mouchel and BT, the report said.
Central government returned to growth (3.2% up in 2014) after year-on-year declines from 2009 to 2013.
The report concluded that much of the “low-hanging fruit” has now been picked by central government.
It said: “There is still room for the central government market to make more savings over the next couple of years, off the back of several other major IT outsourcing arrangements coming to their natural conclusion and transitioning to disaggregated procurement models.
“However, for longer-term savings, our view is that the focus must turn to radical civil service reform.”