The government is aiming to put half of all new IT spending through small and medium IT suppliers. But is its intent to widen public sector IT procurement to include SMEs and break the "oligopoly" of big suppliers and its G-Cloud diktat really improving SME-government engagement?
Until recently, 80% of central government IT work was undertaken by just 18 large suppliers, according to the National Audit Office (NAO).
“Our ambition is that at least 50% of spend on new government IT flows to SMEs directly and in the supply chain,” the report read. "In exceptional cases where large IT contracts are required, we will expect at least 25% of the supply chain of those contracts to go to SMEs."
But some service providers are sceptical.
While a lot has been said in the last year about opening the public sector up to smaller suppliers, there is limited evidence to suggest that there has been a flood of government business transacted with SMEs, at least directly, to date, says Christian Nagele, chief executive and founder of CentraStage, that sells IT management as a service.
One government report showed that direct spending in the public sector on SMEs increased from £3bn in 2009-2010 to £4.5bn in 2012-2013. However, this still represented just 10.5% of overall public sector spending – far from its 50% objective.
“There has not been a material increase in government engagement with SMEs this year. But the Cabinet Office’s commitment to increasing this and its efforts are starting to bite,” Christian Nagele says.
While the government’s direct spending has been around 10%, the SMEs are gaining through indirect spend too, according to the government. Its report quotes figures provided by major government suppliers, indicating that SMEs have in fact benefited from a further £4bn (9.4%) in indirect spend through the supply chain for 2012 to 2013.
“It is hard to gauge the amount of business that is filtering down to SMEs from the larger suppliers to government,” Nagele says. But he agrees that many big IT suppliers are actively engaging more with SMEs to position themselves well with the Cabinet’s Office’s new diktat – of increasing IT spend with SMEs.
“In terms of G-Cloud, one of the flagship initiatives to drive SME engagement with government, it’s still early days, certainly in terms of the amount of business transacted through it,” he adds.
More on G-Cloud
Is G-Cloud initiative opening more government IT doors to the SMEs?
The fourth iteration of G-Cloud 4 (G4) – with clearer instructions for new suppliers on how they can submit their services to the programme – is now accepting tenders.
G4 features improvements to the invitation to tender (ITT) process following supplier feedback on G-Cloud 3 that it lacked clarity, Peter Middleton, cloud consultant on the G-Cloud programme said on his blog.
The government is certainly giving the right signals to indicate that it is committed to the adoption of cloud computing, service providers say.
For instance, the Houses of Parliament recently adopted Office 365, translating its cloud commitment into real results.
With the G-Cloud as the government's chosen vehicle to achieve its goal of delivering fundamental changes in the way the public sector procures and operates ICT, there is also an emerging framework in place to drive this change and increase the opportunities for suppliers and the channel in public sector ICT provision, some experts think.
A Cabinet Office spokesperson told Computer Weekly: “G-Cloud allows the public sector to buy the IT services they need when they need them, rather than forcing them to design complex solutions from scratch.
There are now 832 suppliers and over 7,000 services on the frameworks, with cumulative spend now reaching £31.2m.
“SMEs are a key driver for the country’s economic growth and G-Cloud is reducing red tape and making it simpler and cheaper for smaller companies to join the G-Cloud supplier framework and win business,” the Cabinet Office spokesperson says.
Its latest G-Cloud sales information showed that this is working, with 56.4% of total sales by value and 62.1% by number having been awarded to SMEs.
“We anticipate that our cloud first policy will result in 50% of new central government IT spend being procured through the CloudStore by 2015,” the Cabinet Office spokesperson adds.
Reality lagging far behind
But some SME providers do not agree.
“The Cabinet Office is saying the right things, but the reality is lagging far behind, especially for any work requiring security clearance,” says Kate Craig-Wood from SME provider Memset.
Too many civil servants have not changed the ways of IT procurement they have used since the time when it was fine to just deal with a few IT companies and exclude the rest, Craig-Wood says.
The experts highlight other barriers to entry for SMEs.
For work which is unclassified (called Business Impact Level Zero or IL0) some opportunities are opening up – but this is still a small minority of work, such as the customer-facing parts of websites, they say.
At the next level, called IL2, security accreditation is based on the industry standard ISO 27001.
“But the government has overlaid this with very bureaucratic processes which take far more effort and cost than is necessary," Craig-Wood says. "Too much of the effort goes into 'feeding the beast' of the administrative process, which simply does not add value or security."
At the next level, IL3, the processes become many times more complex, time-consuming and expensive.
SMEs need expensive, CESG-approved consultants to understand the language and processes and access some of the required information and CESG-approved contractors to carry out the IT Health Checks required to prove their IT services.
Then there is duplication between G-Cloud processes and Public Services Network (PSN) processes.
“You have to go through both routes using different documents that contain the same information,” says Craig-Wood. "At best, all of this cost and complexity causes delays of many months and at worst, it stops smaller companies from entering the battle of attrition.
"There is also the classic catch-22 of staff security clearance, she added explaining that in order to work at IL3 or above, SMEs require a level of clearance called SC. To get staff cleared to this level, a supplier needs a government customer to sponsor them, but to get a government customer requires a supplier to have SC cleared staff,” she says.
Another problem is wading through the application process, which involves filling out the same generic document regardless of the project in question, argued Ella Romanos, director of digital production company Remode Studios, which lost out in the G-Cloud bid due to undefined specifications during the application process.
While the Cabinet Office is looking to address these issues, it is very slow and lacks the capacity to handle more than a tiny proportion of the potential requirement if the market really was opened up to SMEs, Craig-Wood warns.
But the processes are not the only blockers, especially at IL3.
To offer G-Cloud services at IL3, a supplier must use the PSN for network services connecting the supplier to the customer.
But PSN IL3 network services simply do not exist yet. And even if a supplier could buy a PSN connection, the customers, such as the Cabinet Office, are not yet connected to it either. “So new entrants are totally blocked from delivering IL3 services,” says Craig-Wood.
The 10% Group
She has convened an SME cloud group called the 10% Group to collate the views, issues, troubles and successes of UK SMEs and feed them back into the Cabinet Office and the G-Cloud programme to improve SME-government engagement.
It is not all down to the G-Cloud’s procurement processes, argue some experts.
Adoption of SME tech into government will be driven as much by the big IT service providers, as it will by G-Cloud, says Nagele.
“The biggest step-change will come when the top 10 providers of government IT open their eyes and doors to SME technology, and engage these solutions where appropriate in large government projects,” Nagele says.
“If we’re going to get anywhere near the government’s vision Public Sector IT, the major SIs have to embrace smaller SME providers,” he adds.
Some big suppliers are doing this already, such as HP. Its SMEngage programme brings SME technology into public sector IT.
HP has also made a commitment to grow the amount of business it places with SMEs by the end of 2013 and has set targets to increase the value of goods and services bought from UK SMEs by 50% and an additional 150 SME partners engaged to its supplier network.
Some SME service providers are more optimistic about G-Cloud’s role in improving SME engagement.
“There has been much debate regarding claims of ‘barriers to entry’ for SMEs looking to join the G-Cloud framework,” says Phil Dawson, CEO of Skyscape Cloud Services. "However, the reality is that it has never been easier for smaller suppliers to bring their services to market in the public sector."
Skyscape has been a supplier to G-Cloud since its launch and accounts for a significant number of the accredited cloud services available through the framework.
G-Cloud has created transparency in terms of both costs and assurance, for public sector organisations and this is forcing incumbent suppliers to up their game to retain their market share – a win-win situation for the 30,000 UK public sector organisations, according to Skyscape.
“It is clear that while there is further work to be done to achieve government’s goal of IT spend with the SMEs, the G-Cloud framework has made significant headway so far,” he says.
More needs to be done to reduce SME barriers to government IT
In addition to big IT companies increasing their work with SMEs for indirect public sector contracts, the government must simplify public sector IT procurement.
It may be off to a slow start, but as long as the government remain committed to G-Cloud, it will clear the path for a new wave of IT suppliers, Nagele says.
The biggest problem of all is culture, which affects every aspect of government IT procurement, argues Craig-Wood who points out that accreditation and security are big barriers to SMEs entering public sector IT.
“The security community makes life so complicated that even if an SME manages to get through the time consuming and tedious G-Cloud process, it will not have the resources to commit to overcoming the security processes,” she says.
But Skyscape’s Dawson argues that education really is key to dispelling some of the myths around the accreditation process of G-Cloud.
More should be done to educate SMEs around the ease with which they can bring their services to market via G-Cloud, either independently or by partnering with other suppliers who already offer an accredited platform, to deliver value added services far quicker, he says.
“There is huge potential for those SME suppliers who crack it, but one thing remains true – to crack it you have to be smart, very persistent and work your socks off to make it happen,” Nagele concludes.
This was first published in August 2013