Local government bodies will spend Ј8.5bn on new outsourcing deals over the next two years, according to research.

A report by analysts Pierre Audoin Consultants and TechMarketView found that the biggest contract to be awarded is a deal worth up to Ј5.4bn with Essex council, which could see all public services outsourced. Two consortiums, lead by IBM and T-Systems, have been shortlisted.

In central government, the largest outsourcing deals set to be signed this year feature the ID card scheme, including the application and enrolment contract and the national biometric identity service contract, both worth several hundreds of millions of pounds.

In 2009 the spending on IT services and software will jump by 3.7 per cent year-on-year in the public sector, spurred in part by shared services and outsourcing drives, according to the analysts.

Shared services projects have had a mixed history in the public sector: a recent shared services centre implementation by the Department for Transport that aimed to save Ј57m ended up costing the taxpayer Ј81m and was branded “spectacular incompetence” by the government’s spending watchdog.

However, according to an Ovum report late last year, spending on shared services will continue apace: the industry analysts predict total spend on shared services in the public sector will reach Ј3.9bn between 2007 and 2012.