Will ending the IT services to government Oligopoly improve things?

The government has reconfirmed that it wants to end the current situation that sees a few large IT services firms dominate central government accounts. See its latest IT strategy report in full here.

Francis Maude said the oligopoly of big business supplying government IT must be ended by “breaking down contracts into smaller, more flexible projects. This will open up the market to SMEs and new providers.” IBM, HP and Accenture dominate government contracts.

It sounds obvious given the number of high profile IT failures in central government and the wastage, that the government would like to open up its options.

I have spoken to suppliers and advisors and below are their comments. I would appreciate your comments so please fill in the comments section.

1 – Minister for the Cabinet Office, 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.”

2 – Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner said: “The problem in the past is there has been laziness and the government has not taken time to consider alternatives. The government should no longer default to the suppliers it knows.”

“This is doable and I do not believe it will create difficulties.”

However Lewis thinks there will be challenges if the government wants to go beyond the tier 2 suppliers and into the third tier made up of SME suppliers. “It becomes more of a problem because you have to quality assure solutions from SMEs for example.”

3 – Steve Nicholls director at CSA Waverley, which is a small supplier, says that many of the processes required to audit small suppliers are already in place. “They already have agencies such as Buying Solutions that do this.”

He says the benefits that the small suppliers include niche knowledge and flexibility.

4 – Robert Morgan, director at sourcing broker Burnt-Oak Partners, says “It is virtually impossible for the government to bring in multiple suppliers. It will require much more governance and project management of suppliers.” He says the government would face difficulties if it multisources because conflicts between suppliers can occur and it is not always clear where one supplier’s responsibility begins and ends.

He believes the only way this can work is if the government names a prime supplier and dictates to them that some services should come from other suppliers. “For example the government could say that in year 5 of a contract a prime supplier would have 15% of services delivered by a third party.”

5 – Duncan Aitchinson, head of Europe at sourcing consultant TPI, says conceptually there is no reason why the government shouldn’t multi-source but stresses that there are challenges. “Managing a complex portfolio of suppliers in a multisourced contract is challenging for any organisation not only those in the public sector.” But he says because it has been done in the private sector there are models in place that the public sector can follow.

6 – Sam Kingston, UK head at T-Systems, says there will also be challenges for tier 2 suppliers in identifying which contracts to go for. “We would definitely be interested in government work but tier 2s will have to be careful about what deals they go for.”

“Because of the [limited] experience and resource constraints they cannot chase large chunks of business.”

He says when you get down to tier 3 suppliers it compounds the problems that the government will have working with tier 3s.

7 – Vikram Nair, UK head at Indian service provider Mahindra Satyam, says for central government to become a consideration it would have to open up long term contracts with payments over a longer period of time.

The government has set its stall to get a more diverse group of suppliers involved in government IT. Following some of the IT disasters of the past its decision seems to make sense. But whether the opening up of contracts to more suppliers improves government IT and makes financial sense is less certain.