Analysis

Government strategies for increasing SME procurement

Kathleen Hall

Government’s addiction to mega-contracts has been pegged as a key factor in the exclusion of small to medium-sized enterprises (SME) from the public sector IT market

Deputy government CIO Liam Maxwell (pictured below) and a number of SMEs discussed strategies for breaking the IT oligopoly stranglehold at a recent public sector IT roundtable.

Victor Baldorino, director of networking company Updata, said it had taken his company a long time to make headway into the public sector market, citing large frameworks as key in Updata being excluded from contracts – a factor which is still an issue for the £25m company.

Stephen Allott, SME representative to the Cabinet Office, agreed. “Large contracts in effect eliminate small businesses from the tendering process,” he said at the event organised by Mantis PR.

Breaking the oligopoly

As deputy government CIO and a long-standing campaigner for public sector IT reform, Liam Maxwell is regarded by many as a force for change in Whitehall. For Maxwell, disaggregating large contracts into smaller parts is a crucial first step in broadening the market to SMEs and cutting costs.

“We looked at how much it would save to go from a black box set-up to a disaggregated model. The approximate view is it is certainly north of a 20% saving, just by disaggregating,” said Maxwell.

The next step is to have a much wider range of SMEs engaging with government, with the publication of pipelines a key strategy to get to that point.

“In the IT strategy refresh we will have commitments on pipeline,” said Maxwell. 

If SMEs can see pre-tender government requirements, they will be in a better position to build the appropriate skills, he said. “At that point, the SME becomes a credible bidder against a big systems integrator [SI].”

The cost of connecting multiple sites of a large government department was reduced from £150m to £4m by using open source

Another weapon in the armoury to break large contracts is the spending controls, which see all contracts above £5m subject to central approval.

Maxwell cited the example of a large department seeking to connect a number of sites across the country for £150m. Following a heated exchange, that figure was reduced to £4m using open source just three months later.

The government's Cloud Store is also yielding significant savings and breaking down contract size, he said. Maxwell cited another example, where an SME was able to offer a like-for-like service for £50,000, compared with an SI which was quoting £4m.

But government still does not know its exact figure for IT spend. Research indicates it could be up to £30bn if the maximum amount on all government lots issued were spent, he said.

“It’s not £26bn across the whole of the public sector, but it's north of £16bn. And it’s still more than 1% of GDP. That’s not running government, but the IT running the government. That is amazing,” he said.

“We have this risk-averse view of procurement, which means we want to bid everything, and we want to put everything on the slate so we can’t be accused of leaving anything out,” he said. Such an approach is putting both government and SMEs at a disadvantage, he said.

Local level procurement

Local government has often been credited as having a better relationship with SMEs, partly because IT contracts are typically smaller. But as budgets are cut, there are some concerns around how easy it is to manage multi-sourced contracts under the disaggregation model posed by Maxwell.

Ben Goward, CIO of Westminster County Council, said the council commissioned the majority of its IT services and had no interest in running small systems itself. But he said breaking up contracts would be challenging.

“If we were to start to unbundle contracts, it would pose difficulty at our scale to manage a wider community of suppliers, and it would take us into SIAM [service integration and management] territory and how to bring together a much broader range of suppliers,” he said.

Goward said the council was concentrating on its current move to shared services. 

“We are trying to bring together three councils that are neighbours. They are very different – there are significant challenges in bringing the three together in terms of alignment and the absence of standards for data interchange,” he said.

But Maxwell said there were huge diseconomies in the local government IT market, with councils running multiple versions of the same systems.

He said local authorities should consider procuring some of their IT from other councils, which are running successful systems.  

The key consideration is how much IT costs per citizen, he said. “My own view is you should set a level of charge for IT to £30 per citizen. I inherited £28 and got it down to £19.”

Research indicates government IT spend could be up to £30bn

Barriers to entry

Mark Taylor, CEO of open source software company Sirius, agreed with Maxwell that greater data transparency for contracts would help open the market to SMEs, but he said the critical question is whether the will for change will spread across government at large.

“The key challenge is how to get best practice out to other government departments,” he said.

However, Taylor said it was an encouraging sign to find more people in government who now have “permission” to engage with SMEs.

Baldorino agreed that the direction of policy is positive, but said its manifestation was still to be seen.

He questioned whether the public sector market for SMEs was easier compared with 10 years ago. “My view, and only my view, is that it possibly isn't. Because you need accreditation, references, you need the experience, and you can’t have that with a company of three people,” he said.

But although many SMEs are still frustrated at the pace of change, government SME procurement in IT is ahead of other sectors, said SME representative to the Cabinet Office, Allot.

“I’m sensing real change happening on the front line, and Liam Maxwell has to take a lot of the credit for being the lead area that I work with," he said. 

"IT is very much in the lead, although there are still barriers with frameworks, accreditation and referencing – we still have work to do in that area. But I was talking to the construction sector recently, and they are really in a bad place. So this is a shining light,” said Allot.


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