Government to put 50% of all new IT spend through SMEs

The government wants to put half of all new IT spending through small IT suppliers – doubling the previous target that was designed to break the oligopoly of major system integrators that dominate Whitehall IT.

The ambitious new objective was revealed in the Cabinet Office’s latest report on progress to put 25% of government spending through small and medium-sized enterprises (SMEs) across all areas of purchasing, by 2015.

The new figure for IT was hidden away on page 16 of the 35-page report, and said: “Our ambition is that at least 50% of spend on new government IT flows to SMEs directly and in the supply chain. In exceptional cases where large IT contracts are required, we will expect at least 25% of the supply chain of those contracts to go to SMEs.”

Until recently, 80% of central government IT work was undertaken by just 18 large suppliers, according to the National Audit Office.

But through initiatives such as the G-Cloud framework, SME suppliers are starting to win more business as the new IT leadership regime in the Cabinet Office enforces limits on the size of Whitehall IT contracts. Over 60% of the £31m sales through G-Cloud have gone to SMEs so far.

The traditional large IT suppliers are also being strongly encouraged to use more SMEs as subcontractors in their work. The Cabinet Office report cites HP as one example.

“HP has made a commitment to grow the amount of business it places with SMEs by the end of 2013, and has set targets to increase the value of goods and services bought from UK SMEs by 50% and an additional 150 SME partners engaged to its supplier network,” said the report.

The Cabinet Office also confirmed its intent that most of the big outsourcing deals due to expire by 2015 will not be extended, in favour of new deals with multiple smaller providers.

“Central government spends £7bn a year on IT, with the majority of the largest contracts that make up this spend coming to an end in 2014-15. We have made sure that the barriers to entry that government put in the way of small businesses have been lifted,” said the report.

“Competition in procurements will be encouraged, with no like-for-like extensions to existing contracts. Programmes will be disaggregated for commercial purposes – broken down into components supported by the market to enable many suppliers to bid. This will open the door to new vendors to bid for government business.”

The report cited an example of a Home Office IT contract where an SME supplier won a deal after charging 83% less than a comparable proposal from a large systems integrator.

Overall, the government’s direct SME spend across all its procurement – not just IT - increased from £3bn in 2009-2010, representing 6.5% of spending, to £4.5bn in 2012-2013, which is 10.5% of the total.

“These figures are encouraging, but clearly more needs to be done to reach our 25% aspiration,” said Chloe Smith MP, minister for political and constitutional reform.

“We are clearer about the task ahead; we have much better data than in the past, and through our ongoing engagement with SMEs a better idea of the ‘roadblocks’ remaining that we need to tackle.”

However, four government departments – Culture, Media & Sport; Work & Pensions; Justice; and the Home Office – decreased their total spending with SMEs in the past year.