The latest ITnet Index shows there were 22 managed services contracts let last year, with 14 councils outsourcing for the first time.
More contracts were awarded in 1998, although the total annual value remained stable at£40m.
The average value of contracts fell from£2.7m to£1.8m as there was only one contract worth more than£50m, compared with three in 1997.
ITnet public sector and corporate development director Rod Watts said: 'More and more IT contracts are being wrapped up in managed service deals, which will only continue.
'As the market matures, the selection criteria depend less on a supplier's capabilities and more on the relationship and supplier culture.'