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OFT investigates public sector IT outsourcing

Karl Flinders

The Office of Fair Trading (OFT) has called on suppliers and buyers of IT services to the public sector to provide it with information about their experiences, as it investigates the market for outsourcing in government.

The OFT wants to ensure rigorous standards of competition to ensure taxpayers get the most for their money. 

“Healthy competition in any market drives down costs, drives up efficiency and promotes innovation, while a lack of competition can hinder productivity and, in turn, economic growth,” said the OFT.

A small group of large suppliers dominates government IT and has been accused of holding an oligopoly on government IT procurement

Companies such as HP, Capita and Capgemini have substantial government businesses while small suppliers find it difficult to break into the market.

A report by MPs on the House of Commons Public Administration Committee published last year called for an independent investigation into possible anti-competitive behaviour among the large systems integrators that dominate Whitehall IT.

"Extremely serious allegations have been made about the behaviour of some large suppliers," said the committee report. 

"Whether or not this constitutes a cartel in legal terms, it has led to the perverse situation in which the governments have wasted an obscene amount of public money. The government should urgently commission an independent, external investigation to determine whether there is substance to these serious allegations of anti-competitive behaviour and collusion."

In 2011, Cabinet Office minister 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."

Despite government procurement strategies aimed at addressing the issue, some commentators have observed it is taking longer than expected to loosen the oligopoly’s grip. 

Speaking at the Better Deal for Small Businesses event in March 2012, Maude said government was on track to double the amount of SMEs doing business with Whitehall, from 6.8% in 2011 to 13.7% by the end of 2012.
 

But according to the most recent government figures, central government spent 10% of its total budget with SMEs in 2011/12. In a bid to increase this figure, the Government Procurement Service (GPS) recently awarded the contract to develop the Single Supplier Registration platform, which will mean suppliers need only register once to bid for government IT contracts.

The G-Cloud programme has also set up ways to make it easier for small suppliers to win government IT contracts. 

The OFT said it wants to know “the structure of the sector, for example the number of suppliers and their market share; whether there are barriers to entry which make it difficult for smaller businesses to compete in this sector; whether public sector users face high barriers to switching suppliers, such as costs of transferring and restrictive licence agreements; whether some suppliers seek to limit the interoperability and use of competitor systems with their own; and whether outsourcing of ICT service provision results in a high level of dependence on suppliers' expertise, undermining the ability of public bodies to drive value for money over time”.

Clive Maxwell, chief executive of the OFT, said: “We want to hear both from industry suppliers and public sector users about how competition in this market works, any problems that they have experienced and how it could be made to work better.”


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