Government IT cost cutting meets mixed response

The government has received a mixed response to cost-cutting demands from its top IT suppliers, but is on track to make hundreds of millions of initial savings.

The government has received a mixed response to cost-cutting demands from its top IT suppliers, but is on track to make hundreds of millions of initial savings.

In July government Minister Francis Maude conducted the first of a series of meetings with the CEOs of the government's top IT suppliers (see panel below) to discuss ways of cutting costs. He later met them individually.

Reports this week said the government is to make £800m savings as a result of the talks. Although the Cabinet Office said this figure did not come from the government - which has not completed the negotiation process - it said it would soon announce a figure.

"The savings will run into the hundreds of millions but it is too early to say," said a Cabinet Office spokeswoman.

A source close to the negotiations between the government and its main IT suppliers has revealed a mixed response from suppliers.

He said suppliers offering IT standardisation to remove costs, and asking the government to make it easier to deal with them, are getting a positive response. But some suppliers are offering price reductions in return for contract extensions. These are going down less well, he added.

"Those that talk in the language of standardisation and the removal of hurdles dealing with government are going down better," he said. "Suppliers offering small savings like price reductions are the ones that have gone down badly."

If suppliers are to meet tough government targets for cuts in contract costs, there will need to be a sea change. Standardisation of technology across departments will give suppliers confidence to invest in cost-cutting technology, in the knowledge they can win multiple clients across the public sector.

To make this work, government would have to endorse a central figure to authorise departments to invest in chosen technologies, rather than the current federated decision-making that goes on across government. Currently each department or organisation will demand different contracts and services when most processes are actually the same. This figure could be someone like government CIO John Suffolk or former government CIO and Accenture UK managing director Ian Watmore, who is now chief operating officer of the efficiency and reform group.

The CIO is ideally positioned to set out a government-wide IT standardisation strategy and drive its adoption. But the role needs to be given more authority to enforce change.

Lee Ayling, managing director at sourcing consultancy Equaterra, said the government needs to do things differently if is to make real savings. "The key thing is about the sustainability of taking costs out. If you just reduce prices costs will creep in down the line."

He said standardisation and more centralised decision making are the way forward. "I am constantly surprised when advising different government departments because they buy different IT when there is so much commonality," he added.

But he warned that attempts to centralise decision-making in the past have been ineffective.

If the government cannot put in place control from the centre, it will struggle to get departments to buy in. For example, a recent Audit Commission report revealed that, despite the availability of shared services platforms and cloud computing, only about 25% of chief constables believe any more savings can be made in the back office.

The report said that police forces need to do more. "A lack of ambition for back-office savings is a barrier to achieving value for money," it said.

Each police authority traditionally has its own back-office processes such as HR and payroll. This means there is significant overlap across police authorities. There are 23,100 staff involved with the back office at the 40-plus police forces in England and Wales.

Suppliers such as Capgemini and Steria have created platforms to enable different police authorities to share back-office functions. Cleveland Police Authority recently became the first customer of Steria's shared service for police forces. It promises £50m savings over 10 years for Cleveland Police alone. As more authorities join the savings will get bigger.

Sam Kingston UK head at T-Systems said if there is no central control and standardisation "the technology map could be a mile wide and an inch thick," will causes cost and management problems.

The 19 suppliers being squeezed by the government:

  • HP
  • BT
  • Capgemini
  • Fujitsu
  • Capita
  • IBM
  • Telereal Trillium
  • Atos Origin
  • CSC
  • Logica
  • Steria
  • Oracle
  • Siemens IS
  • Cable & Wireless
  • Microsoft
  • Accenture
  • Serco
  • G4S
  • Vodafone

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