UK’s IT outsourcing (ITO) market has been more resilient to the downturn during the first half of 2009 than previously expected states a new report by global advisory and consulting firm Ovum.

Deals signed by HP-EDS (Aviva and the Ministry of Defence), BT (National Health Service), CSC and IBM (UK Identity and Passport Service), and Fujitsu Services (Marks & Spencer) since January 2009 are expected to add over £2 billion of new ITO spend into the market over the lifetime of the deals – which range between six and ten years.

However, most suppliers, particularly the tier-2 and tier-3 players, are finding life very tough in the current climate, while those at the top end are clearly benefiting from significant contract wins.

The ten biggest UK ITO providers (HP-EDS, Fujitsu, IBM, CSC, Capgemini, BT, Atos Origin, Logica, Computacenter and Siemens) saw their total contract value (TCV) of ITO deals signed grow an impressive 31% in 1H09, even though the total number of deals was down 17%. This shows that it is a far more difficult market environment in which to do business, but those that do come through are bigger and potentially more lucrative at the top end of the market.

The key beneficiaries of this trend are the big guys such as HP-EDS, BTGS and IBM, which have seen a sharp increase in their TCV of deals signed in H109; others such as Capgemini, Atos Origin and Logica are seeing new orders come through and a strong pipeline of deals going forward, which should benefit them over the coming quarters.

Of the vertical sectors, the public sector is by far the biggest opportunity area in 1H09, and it too is accelerating cost-reduction programmes to respond to the challenging economic conditions. Retail too is under enormous pressure to cut costs and improve profitability as spending falls. Insurance meanwhile is also showing a strong appetite for outsourcing – for example, Aviva’s decision to engage HP-EDS for a $1 billion ITO programme aims to reduce its IT costs by a planned 20% per year. Capita’s recent good form in the commercial sector can also be attributed to big wins in the UK insurance sector.