Does it matter if government buys IT from SMEs or big multinationals?

bryang | 5 Comments
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Does it actually matter whether government buys its IT from small suppliers or big multinationals?

The Cabinet Office seems to think so - it has increased the target for IT spending through SMEs to 50% of all new contracts, double the wider central government target of 25% for all other areas of procurement.

Some would say this is an entirely artificial debate, brought about by Whitehall shame for over-spending on IT for years and poor management of its suppliers. The argument goes that the only reason they want more SMEs is simply to force the big suppliers to cut costs and deliver better projects. Ultimately, all that matters is that government uses IT cost-effectively and successfully, regardless of how it is sourced.

On the other hand, supporters of more SME spending point to the disastrous track record of big IT projects run by big IT suppliers. They cite years of over-charging, of restrictive contracts and systems integrators (SIs) taking advantage of the lack of IT skills in the civil service.

As is so often the case, both arguments are valid, and both look only at a slice of reality that justifies their opinions.

The opinions that really matter are these:

The IT reformers in the Cabinet Office are determined to break the grip of the big SIs that dominate government IT - the so-called oligopoly that hoover up about 80% of all Whitehall contracts.

The big departments, however, like having big names to kick. They feel safe in the knowledge that nobody in the civil service ever got fired for buying from the oligopoly - even if that's only because they had moved on somewhere else in Whitehall by the time the project went wrong.

Those two perspectives are, of course, as opposing to each other as the arguments stated above.

What's actually happening on the ground?

The G-Cloud procurement framework is opening up government IT spending to transparent pricing and buying from SMEs that overcomes the old frustrations of a procurement bureaucracy that was biased towards big companies with big pockets. About 60% of the spending to date through G-Cloud has gone to SMEs - but that's still only 60% of a little over £31m so far, even if supporters claim that £31m is tens or even hundreds of millions less than buying the equivalent services from big SIs before G-Cloud existed.

On the other hand, Universal Credit - the biggest coalition IT project, and the one that was meant to set the standards for the new way of delivering IT systems - has put less than 1% of its £150m spending to date to SMEs, either directly or through its big SI prime contractors.

So overall, the bulk of the cash leaving government coffers is still going to the same old large companies.

But there is one recent trend that suggests the pro-SME campaign is having a positive effect - suddenly the big SIs are bleating. They are telling the press that the Whitehall reformers have got it wrong; that the SME policy will come crashing down around them; that really and truly it is only they who understand and have the ability to deliver precious public service IT.

In the same vein, a survey released this week by Fujitsu proclaims over the course of 36 pages that actually, SMEs prefer to work as subcontractors to big suppliers.

"Just 6% of SME owners believe it has become easier to win government contracts independently in the last two years - and 50% noted that there had been no change in their ability to win government work," says the Fujitsu report.

"SMEs believe it is collaboration that will give them the best access to large contracts - 58% of SMEs believe that smaller and larger suppliers should collaborate to win large contracts," it continues.

"When collaboration does occur, SMEs reveal that it helps them reap significant rewards."

As a lady once said: "Well, they would say that, wouldn't they?"

I don't have a survey to back up my opinions on this one, but that research doesn't fit with anything I hear from SME IT firms wanting to work with government, many of whom cite instead the insecurity of relying on the benevolence of a prime contractor working to its own agenda.

But the real tests are not far away.

Over the next couple of years, many of the SIs' big outsourcing deals expire. According to government CTO Liam Maxwell, those contracts will not be renewed.

HM Treasury, one of the smaller Whitehall departments, has already signalled its intent to break its expiring deal into several contracts, and is actively encouraging SMEs to bid. Fujitsu is the incumbent at the Treasury.

So where does this leave the argument? We have two sides, each making valid points, both citing examples that demonstrate their case. But when a pendulum swings, it always goes past vertical on the way.

Some big incumbents are worried and trying to respond; some are still complacent; some are going to see their public sector income go sliding downwards.

As things stand, I expect to see a lot more IT spending going to suppliers outside the usual suspects, and by 2015 there should be a much more balanced market for government contracts. The reformers will have failed if that is not the case come the general election.

But ultimately, there can only be one answer to the question of big vs small in Whitehall IT - the money must go to the best, not the biggest or the smallest. The big SIs have only themselves to blame for creating the perception they are no longer the best.

The only reason it does matter whether government buys its IT from small suppliers or big multinationals, is because past governments and their big IT providers have forced the question to be asked.

5 Comments

You hit the nail on the head "the money must go to the best, not the biggest or the smallest". trouble is Government have yet to reach the status of "intelligent customer" as they really do not know how vendors build solutions or undertake research on innovation......so do not expected the big boys to tell you there are better ways.....all contained in my 10 page submission to OFT!....which I will try and send to you....?

David a good overview of the current environment however I feel it is a little more subtle. It is not a matter of big or small or bad v's best. The pendulum is swinging in the direction of distributing current IT spend to a wider distribution of suppliers. In the market you have the " oligopoly" suppliers, then the tier 2, tier 3 etc and then SMEs. Take for example the FCO desktop contract recently won by Computer centre. The strategy of breaking up procurements into functional commodity towers has enabled companies like CC to compete for contracts that they would have naturally looked away in the past. The tower procurement approach is disastrous for the big SIs because it makes them less competitive and hurts their historical profit margins required to support their current operational costs/infrastructure. The result will be a circa 40-50% distribution of spend to alternative suppliers of which SMEs will take a proportion. This is unlikely to come all through GCLOUD except infrastructure services. The big SI are bleating because they see the writing on the wall and are clueless as to what to do. The natural response will be for them to refocus on alternative sectors and downscale their operations until a change of government and policy. This will cause risk to future government services. All of this presents opportunity for others suppliers to fill the void. However this is easier said than done and my observation is that tier 2 down to SMEs are not responding due to a number of factors not helped by HM Government approach to procurement.

The government is right to increase its target for IT spending through SMEs by 50% as SMEs can bring fresh thinking and an agile approach to government projects. This move marks a positive step forward not only in driving cost efficiency and helping the government streamline its own processes, but also boosting economic development through aiding SME growth. In response to your concerns over SMEs running big IT projects, my view is, by employing agile delivery and changing the culture of IT projects, SMEs are well positioned to manage government projects both to budget, on time, and to a much higher standard - providing there is sufficient senior level (digital leader) support and engagement.

Interestingly, the Ministry of Justice recently hired my company, Jadu (through G-Cloud) to create a £1.5 million system to speed up the Employment Tribunals end to end process. By running on an agile development basis, our team (Jadu and MOJ) enabled delivery to deadline and produced a framework that has the scope to grow alongside its ongoing requirements.

Security and accreditation of solutions is a challenge - but this is inherent in all Government IT projects and a necessary step. It's an important investment for any SME wishing to deliver software and services to Government.

A driver for local government to contract with SMEs is around local economic regeneration rather than central government's dogma. I will be interested to see the outcome of the Treasury's decision; I suspect that for such a small user base the complexity and costs of managing multiple contracts in their supply chain could turn out to more than outweigh any benefits. There is however a great deal of talent in SMEs and they can be much more innovateive and flexible than the big companies so it will be interesting to see how this unfolds.

Paul might make a better point if he didn't use the FCO contract as the centrepiece of his argument that recent changes have somehow enabled Computacenter to win a contract that they would have "looked away from in the past".

Computacenter was the original prime contractor for the FCO's Firecrest IT programme in 1997. It lost the contract when it was re-tendered in the mid 2000's.

Awarding a contract to a supplier who proved quite capable of winning its equivalent more than a decade ago is hardly a ringing endorsement of the government's procurement changes. And also, Computacenter's revenues are somewhere around £3bn a year - they're hardly an SME, and have consistently been in Kable's list of the top twenty suppliers to the UK Public Sector for a number of years now.

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