IT outsourcing in the public sector is increasingly becoming a necessity: with limited internal IT staffing resources, the growing demands of digitalisation in public administrations and enterprises are often no longer feasible. But how can IT outsourcing succeed when public clients are bound by strict governance requirements and the constraints of procurement law?
In the following, we outline an approach that leverages existing tools and frameworks available to the public sector — and, when applied correctly, can lead to successful outcomes.
IT Outsourcing – Initial Situation
The situation in IT departments of public institutions is generally no different from that in private companies: specialist departments increasingly require digitally optimised support for their processes and procedures. This calls for IT projects to be launched and IT experts to be provided who are familiar with the necessary new technologies and methods.
One example from public administration is the Online Access Act of 2017, which obliges federal, state, and local governments to offer their core administrative services electronically via appropriate portals by the end of 2022.
As specialist departments become more dependent on IT services, the stability and security of the required IT infrastructure—and consequently the maturity of its operation—must be improved. A key example of increased security requirements is the expanded provisions of the IT Security Act 2.0 (IT-Sig 2.0 from May 2021) for public critical infrastructure (KRITIS) operators.
IT Outsourcing – Challenges in the Public Sector
Growing IT demands are typically met with limited IT staffing resources—and often a pronounced shortage of skilled professionals in public institutions. Existing IT staff are under pressure to stay up to date with new technologies while simultaneously managing ongoing projects and maintaining legacy systems.
Due to rigid salary structures in the public sector, it is often difficult or impossible to recruit additional personnel with the required expertise.
IT outsourcing is therefore frequently the last viable option to escape this dilemma. External IT service providers often specialise in specific services and operate with experienced teams. In areas such as managed services and cloud services, they offer standardised solutions to multiple clients, enabling them to achieve economies of scale and offer competitive pricing.
IT Outsourcing – Approach
When considering IT outsourcing in the public sector, it is advisable to follow a structured methodology. In this respect, the public sector does not differ from private companies.
A useful foundation is the following outsourcing lifecycle:
Figure 1: Outsourcing Lifecycle
We will now examine the first three phases of this lifecycle in more detail, focusing on the necessary and possible methodological frameworks for public administrations and enterprises.
Phase 1: Strategy
Based on strategic objectives, sourcing options must be derived and evaluated. A business case should be developed to assess each option, including one-time transition costs, ongoing service costs, and vendor management efforts. In the public sector, the established WiBe (Economic Efficiency Assessment) concept can be used for such evaluations.
In addition to economic factors, risks must be analysed and assessed for each option. Public institutions in regulated sectors (especially KRITIS and finance) must comply with specific regulations. Risk management should be applied not only in this phase but throughout the entire outsourcing lifecycle.
Phase 2: Design
This phase involves defining and specifying the services to be outsourced. Process requirements and a governance framework must also be developed. Regulatory requirements must again be considered for institutions in regulated sectors.
Phase 3: RfP / Tendering
In the “Request for Proposal (RfP) / Tendering” phase, tender documents must be prepared to solicit bids. These documents primarily consist of service descriptions and contract materials. In the public sector, federal standard contracts (known as EVB-IT contracts) can be used for outsourced services. Various contract types are available and can be tailored to the specific outsourcing scenario. For IT outsourcing, EVB-IT Service and EVB-IT Cloud (available since March 2022) are particularly relevant.
Incoming bids must be evaluated and, if necessary, negotiated before awarding the most economically advantageous offer. Tendering in the public sector is governed by procurement law (e.g. the Act Against Restraints of Competition – GWB, and the Procurement Ordinance – VgV). Many public sector employees perceive this legal framework as restrictive, especially given the complexity of IT outsourcing. However, procurement law ensures a methodical and transparent process and offers flexibility throughout the procedure—provided its options are applied appropriately.
Choice of Procedure and Suitable Contract Duration
For IT outsourcing, it is not mandatory to use the open or restricted procedure—both standard options that do not allow for bid negotiations. Often, valid reasons justify the use of the competitive dialogue or negotiated procedure with prior competition, which allows for identifying, evaluating, and selecting suitable bidders. After this process, bids can be negotiated in terms of content and price.
Another example is contract duration: IT outsourcing typically involves framework agreements. According to VgV, such contracts may not exceed four years unless a justified exception applies. In IT outsourcing, valid reasons for exceptions are often present, allowing for longer contract terms.
IT Outsourcing – Conclusion
Due to rising IT demands and limited staffing resources, IT outsourcing is becoming increasingly indispensable in public administrations and enterprises. The regulatory requirements in the public sector—such as procurement law and sector-specific rules for critical infrastructure and finance—provide sufficient flexibility to tailor the approach to the specific outsourcing scenario. At the same time, they ensure a minimum standard of quality.
Public clients must interpret these requirements appropriately for their own projects. By leveraging existing instruments such as EVB-IT contracts and the WiBe concept, excellent outsourcing outcomes can be achieved.
