Thinking small: can government buy more IT from SMEs?

There’s a thought-provoking article on Computerweekly.com today, written by David Chan from the Centre for Information Leadership at City University London, all about government purchasing from small IT suppliers.

David hosted a private meeting between IT firms and Whitehall purchasing experts to discuss what practical measures need to be taken to achieve the coalition government’s aim of placing 25% of IT contracts with SME suppliers.

But this topic has been something of an industry hot potato for some time, and certainly long before the new government came into being.

Large vendors dominate government IT spending. Small suppliers have historically been put off from bidding for government contracts by a whole range of factors, such as: the large scale of projects; government expectations on suppliers owning project risk; the cost and timescales of bidding for contracts; and a perceived reluctance from Whitehall departments to consider anything but the highest-profile firms.

The typical response from government has been to point to big prime contractors such as IBM, Accenture or EDS (now part of HP) and say they can sub-contract SMEs, or to encourage smaller firms to bid for a place on purchasing catalogues run by Buying Solutions, the Whitehall procurement body.

Critics say that SMEs offer innovations that large, low-risk vendors or consortia often cannot deliver.

And small firms point out an obvious disincentive to bid for framework agreements or catalogues – it can cost as much as £100,000 to be selected as part of such a deal, but that brings no guarantee of any sale at the end of it; each subsequent contract brings a further bidding cost that can make the whole process unprofitable or simply too much work for a resource-limited SME.

Another bone of contention is EU procurement rules – or at least the UK public sector’s interpretation of them.

All EU tenders worth more than £100,000 have to be advertised in the Official Journal of the European Union to ensure a level playing field for potential bidders from any EU nation. But the process is seen as hugely onerous and bureaucratic, preventing buyers from taking quick decisions, and leading to endless procurement processes. However, many EU countries manage to complete that buying cycle in significantly shorter timescales than the UK government seems to.

I’ve been involved in several events and discussions in recent months that lead me to believe that the government – and the civil service machine – has accepted that SME suppliers need more help and that the process has to be improved.

If you read David Chan’s article you can see the sensible recommendations that his working group has proposed – I won’t steal his thunder by repeating them here.

In theory, G-cloud – the government cloud computing strategy – and its related “app store” is designed to make it easier for SMEs to bid on a level-playing field; by conforming to a standard architecture, it should be easier for a public sector buyer to choose a smaller supplier to run software in the cloud, and for smaller managed services providers to host aspects of that cloud. That’s the theory, at least.

With all the impending public sector spending cuts there’s a widespread expectation that even more government IT work will be outsourced, and it’s difficult to see how that won’t mean more of those contracts going to the usual big outsourcers, and a growing proportion going offshore too.

Given that SMEs are meant to be the engine of the UK economy, it would be a wasted opportunity if smaller IT suppliers are unable to pick up their share of that work – whether that is an artificial 25% target or not.

If the government wants to be seen to be improving its track record on IT, resolving the issues raised by SME suppliers would be a positive start.

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Getting larger companies to subcontract SMEs is not the answer - certainly not if the government wants to get value from the SMEs as the big firms will just inflate their rates and earn more margin.

The government has to get better at managing multi-vendor projects rather outsourcing the entire responsibility to one firm.
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