News Analysis

Will government IT be better without an oligopoly?

Karl Flinders

The government has reaffirmed its desire to end the dominance of a small group of IT service providers in the public sector.

This was made clear in the government's latest ICT strategy, revealed yesterday. Minister for the Cabinet Office Francis Maude said: "We will end the oligopoly of big business supplying government IT by breaking down contracts into smaller, more flexible projects. This will open up the market to SMEs and new providers."

IBM, HP and Accenture dominate government contracts, but the coalition is eager to open then up to tier two and even tier three suppliers.

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, says it's about time the government looked beyond the usual suspects. "The problem in the past is there has been laziness and the government has not taken time to consider alternatives. The government should no longer default to the suppliers it knows."

He says there are many potential tier two global players that could expand their government IT footprints.

Capgemini, Fujitsu, Capita and Atos Origin are examples. He says then there are the Indian players such as TCS, Wipro, Infosys, Cognizant and Mahindra Satyam

Lewis does not think the government will have trouble working with these companies. "This is doable and I do not believe it will create difficulties."

However, Lewis thinks there will be challenges if the government wants to go beyond the tier two suppliers and into the third tier made up of SME suppliers. "It becomes more of a problem because you have to quality assure solutions from SMEs for example."

He says that too many suppliers might make things difficult. "If they fragmented it too far it will create a management problem."

Steve Nicholls director at CSA Waverley, which is a small supplier, welcomed the announcement by the government. He says that many of the processes required to audit small suppliers are already in place. "They already have agencies such as Buying Solutions that do this."

He says the benefits that the small suppliers include niche knowledge and flexibility.

Robert Morgan, director at sourcing broker Burnt-Oak Partners, says the government faces a huge challenge if it is to reach its goal of ending the dominance of the big suppliers. "It is virtually impossible for the government to bring in multiple suppliers. It will require much more governance and project management of suppliers." He says the government would face difficulties if it multisources because conflicts between suppliers can occur and it is not always clear where one supplier's responsibility begins and ends.

He adds that the use of multiple suppliers was eliminated from government years ago for these reasons. "The practicalities of doing this and the economic benefits just do not add up."

There are always risks replacing suppliers on major contracts. HP lost a desktop services contract with the Department of Work and Pensions to Fujitsu in January last year only to take the service back when Fujitsu was dropped after failing to meet its transition targets.

Morgan believes the only way this can work is if the government names a prime supplier and dictates to them that some services should come from other suppliers. "For example the government could say that in year five of a contract a prime supplier would have 15% of services delivered by a third party."

Nicholls at CSA Waverley agrees. "There needs to be a prime contractor and the buck must stop with them."

Duncan Aitchinson, head of Europe at sourcing consultant TPI, says conceptually there is no reason why the government shouldn't multi-source but stresses that there are challenges. "Managing a complex portfolio of suppliers in a multisourced contract is challenging for any organisation, not only those in the public sector." But he says because it has been done in the private sector there are models in place that the public sector can follow.

Sam Kingston, UK head at T-Systems, says there will also be challenges for tier two suppliers in identifying which contracts to go for. "We would definitely be interested in government work, but tier twos will have to be careful about what deals they go for. Because of the limited experience and resource constraints they cannot chase large chunks of business."

He says when you get down to tier three suppliers it compounds the problems that the government will have working with tier threes.

Vikram Nair, UK head at Indian service provider Mahindra Satyam, says the company is watching central government to see if it can judge its plans, but is presently seeing activity in local government.

He says for central government to become a consideration it would have to open up long-term contracts with payments over a longer period.

The government has set its stall to get a more diverse group of suppliers involved in government IT. Following some of the IT disasters of the past, its decision seems to make sense. But whether the opening up of contracts to more suppliers improves government IT and makes financial sense is less certain.


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