Business process outsourcing (BPO) firm arvato has secured a seven year contract to operate the government's first Independent Shared Service Centre (ISSC1), which will provide back office services to the Department for Transport (DfT) and its executive agencies.
The centre will also be able to compete for additional outsourced central government business.
ISSC1 is the first government shared service centre to be operated by the private sector, and forms a key element of the Cabinet Office's strategic plan for next generation shared services, which aims to make savings of up to £600 million a year.
Last year the National Audit Office had said that the government had failed in its attempts to make departments share back office functions and had in fact created 'complex services tailored to individual departments', which had 'increased costs and reduced flexibility'.
The Cabinet Office is reducing the number of planned service centres from eight to five, two of which will be independent and run by the private sector. arvato's announcement today is the first of those private sector centres.
"Our solution provides a new operating model for back office functions, using industry best practice, economies of scale and standardised processes to deliver improved value for money and service quality," said Matthias Mierisch, CEO & Chairman of arvato UK & Ireland.
"This is a significant milestone in arvato's BPO growth strategy in the UK, where we have extensive experience in delivering continued improvements, efficiency savings and better outcomes for the public and private sector."
He added: "The acquisition also complements our existing UK footprint with a flagship Shared Service Centre in an important economic region."
DfT's centre, which is based in Swansea, had been using an SAP ERP platform. However, this will be replaced with the Agresso Central Government ERP platfor, which is provided by UNIT4.
UNIT4's managing director of business software, Anwen Robinson (@anwenrobinson), tweeted earlier today that it was a "momentous day for UNIT4".
The remaining standalone shared service centres will be operated by the Ministry of Defence, HM Revenue and Customs and the Ministry of Justice.
However, despite the unwavering optimism in the Cabinet Office, the strategic plan itself recognises that the £600 million figure is very much at the upper end of what savings can be expected. It says: "Key to the success of the programme is the positive involvement of the departments which will benefit from the strategy."
Depending on this engagement from departments, the lower end of the savings spectrum could be just £128 million - not the £400 million to £600 million quoted frequently elsewhere. In fact, to reach £300 million to £400 million of savings per year the Cabinet Office "assumes that all ISSCs (independent shared service centres) and departments using them reach upper quartile performance across transactional and retained functions".
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