Government IT Oligopoly should not be broken up but should be more transparent

The government is desperate to use more SMEs as suppliers. In IT this is particularly important for competition because a small group of large IT suppliers, known as the Oligopoly, dominate government IT business.

Just last week the Office of Fair Trading (OFT) launched an investigation into the dominance of a few big suppliers in government IT.

Here is a guest blog on the subject from Alice Watson is a director at Porge Research, which specialises in providing market intelligence to public sector suppliers. She talks about an alternative to stripping the big players of work, through more transparent sub-contracting by the big suppliers.”

Government needs big and small suppliers

By Alice Watson

“Size matters. Or at least it does according to the Office of Fair Trading which is questioning the fairness of the domination of the Public Sector ICT market by a small number of big suppliers. It’s a view that is echoed by Bill Crothers, Whitehall’s chief procurement officer who – speaking to the FT back in July criticised the fact that just ten IT companies account for 70-80% of Government business.

But before we vilify the major suppliers for dominating the market, let’s not forget that it is Government, not the private sector that has determined the procurement strategy. It is not through cajoling or manipulation that the big boys have taken control of market share. They have simply responded to the specification – a specification that Government has brought to bear, and perhaps with just cause.

By definition, Government is big. And with a major institution come major IT requirements, where risk must be minimised and managed. Fragmentation of these contracts into multiple smaller affairs inevitably introduces risk and an element of finger pointing – ‘It wasn’t my fault Gov, it was his!’ they cry.

And then of course there’s the obvious yet overlooked question of whether dissolving major IT contracts actually solves the issue or simply shuffles it along a little. Government, after all, can’t afford to leave risk unmanaged. So as the major IT players exit, the Management Consultants enter and a new breed of big contract is born -along with associated costs.

So what’s the solution?

Well, let’s get one thing straight. I like SMEs – I run one! So Government’s desire to kick start the economy by awarding 25% of its business to SMEs is laudable. But let’s put self interest aside for a minute.

Surely a positive path forward is to combine the very best that both our major players and our SMEs have to offer. We can do this, by creating a more visible market of sub-contractors.

Major IT contracts already include a significant proportion of sub-contracts, but they’re currently going under the radar. Instead we need publicaly available registers for the major prime contracts which detail all the sub-contracts let by the Prime Contractor. This will encourage transparent and open competition at the sub-contractor tier of the market.

A buoyant and open sub-contractor market offers SMEs a fair share of the cake, whilst ensuring Government retains the benefits of a single prime contract.

I recognise that many SMEs may disagree, keen for a direct relationship with Government. But this comes at a cost.  Terms and Conditions are onerous and procurements are protracted and costly.

I fear that fragmenting large contracts into SME sized chunks will simply see one flawed procurement strategy replaced with another. So it might not be SMEs’ favoured solution, but creating a more visible market of sub-contractors is certainly a pragmatic and attainable option. It’s also one that recognises that ‘beautiful’ – in procurement terms at least, comes in all shapes and sizes.”