The public sector is changing the way it buys IT but there is still scope for improvement, according to the findings of a five-and-a-half month investigation by the Office of Fair Trading (OFT).
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Government procurement teams are at a disadvantage when it comes to contracting because IT suppliers better understand IT, warned the OFT. It also called for more transparency on pricing from suppliers, to reduce the obstacles to customers switching suppliers.
The OFT investigation, which began in October, looked at the public sector procurement of commercial off-the-shelf software and IT services, worth almost £14bn in 2011/12.
The OFT set out to “examine whether competition in this sector could work better and the reasons why it may not be working as well as it could”.
After initially calling to suppliers and buyers of IT services in the public sector for information about their experience, the watchdog identified several issues it believes require further investigation. These were:
- Some suppliers appear to have a large share of contracts in some areas of the sector.
- High barriers to entry and expansion, especially for smaller IT companies.
- Difficulties and high costs in switching from one supplier to another.
The OFT has now reported: “There are barriers preventing companies from entering the market or expanding their share of supply, and also deterring buyers from switching between suppliers.”
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- Government develops single registration system to attract SME suppliers
- Government strategies for increasing SME procurement
- Software suppliers have local authorities over a barrel, says CIO
- IT SMEs could exceed government's 25% target, says Maude
These barriers include: overly complex, time-consuming and expensive procurement practices; prohibitively costly and time-consuming processes for gaining security clearances; and the inherent advantages held by incumbent suppliers leading to significant switching costs.
The OFT said that these factors are made worse by a lack of information and commercial skills within public sector procurement teams.
“ICT suppliers tend to know more than public sector buyers about the quality and suitability of ICT goods and services. This imbalance of information can be compounded by the practices of suppliers such as complex pricing and a lack of transparency,” said the report.
"Supplier conduct can limit the ability of customers to shop around by using complex pricing and pricing that is not always transparent."
It added: "Incumbent suppliers may behave in such a way as to create or increase obstacles to public sector organisations switching to other suppliers when contracts end."
OFT project lead Rachel Merelie said IT is central to the efficient and cost-effective delivery of many public services.
“The market supplying ICT products and services to the public sector is worth around £14bn and is not working as well as it should. In some areas entry barriers are high and there is little switching between suppliers," she said.
“The public sector needs better information and expertise so it is able to judge whether ICT suppliers are delivering good value for money. Companies that supply ICT goods and services should also be more transparent and provide better information to their public sector customers.”
The Cabinet Office, which is responsible for government IT purchasing policy, acknowledged that there have been problems with IT procurement in the past, and said it is already addressing many of the issues.
“We are pleased the OFT recognises the concerns we have about how Whitehall bought technology in the past and that it recognises our efforts to end the billions of pounds which were wasted on IT," said a spokesman.
“As part of this government’s long-term economic plan we want the best technology at the best price for taxpayer. Last year we saved £500m from IT reform but there’s much more to do. We want a level playing field for all suppliers, so innovative SMEs can bid for and win contracts. Overall government spend with SMEs has increased by £1.5bn since 2010 and our new red lines for IT procurement will help us go even further.”