How DWP and Universal Credit failed to work with SME suppliers

Less than 1% of DWP IT spending on the Universal Credit programme has gone to SMEs – how are big suppliers continuing their dominance?

The National Audit Office was sceptical of the Cabinet Office's 2011 plan to improve government IT by contracting more small suppliers. There had, the auditor noted, been similar initiatives in 2001, 2003 and 2008. The watchdog’s caution may be well founded.

While progress has been made in some areas – nearly 60% of the £31m-worth of purchases through the G-Cloud initiative to date has gone to small and medium-sized enterprises (SMEs) – the policy was particularly targeted at changing the multimillion-pound mega-deals with the big suppliers that have dominated Whitehall IT for years.

Computer Weekly analysis of Department for Work and Pensions (DWP) procurement data has now shown just how far there is to go before that objective is achieved. Less than 1% of IT spending on the flagship Universal Credit programme – the highest profile of all the coalition IT projects – has since gone to SMEs. Two-and-a-half years on, the latest SME initiative is being stalled by civil servants falling back on the supposedly safe option of the “oligopoly” of big systems integrators.

SMEs have made such a meagre contribution to Universal Credit that it is hard to recall the anticipation when prime minister David Cameron launched the coalition SME initiative in February 2011. Two parliamentary committees concerned themselves with its aspirations, and it was instilled too at the DWP by the Cabinet Office officials who then ran its IT. Universal Credit was to showcase the coalition's answer to the issues raised in its own criticism of the Labour government's track record with IT.

The new initiative aimed for 25% of all public spending to go to SMEs. Government rhetoric implied an injustice that public IT spending in particular was hogged by a small herd of large corporations.

Blocks to government IT reform

People around the Cabinet Office whispered that the main blocks to its IT reforms were the two big departments of state: the DWP and HM Revenue & Customs (HMRC), whose multibillion-pound IT contracts to run their big, transactional computer systems were tied up by the usual major suppliers.

Such systems were inherent in the work they did: the collection of taxes by one and their redistribution by the other – big systems run under big contracts by big companies for big government.

HMRC is a special case undergoing its own overhaul. But this image of DWP as an obstruction was summoned again in August, in the Cabinet Office's two-year progress report on its SME strategy. The SME scheme was progressing everywhere but the large departments.

"The Cabinet Office has worked with more than 100 major suppliers to understand the role SMEs are playing in supply chains, but we do not yet know the full picture, particularly in those departments such as Department for Work and Pensions with complex, high-value contracts," said the report.

The DWP did nevertheless produce a list of suppliers which had worked on the Universal Credit programme when Computer Weekly asked through a Freedom of Information request. It was a full list, including SMEs subcontracted by the major suppliers. It illuminated how the big companies that did the big systems for the big departments had not shared their big contracts with SMEs.

Transparency reveals lack of SME involvement

A notable part of Cameron's SME plan involved publishing departmental payment data. Fairness would be administered through transparency, he said. That was not greater transparency of private corporations to better empower small companies and citizens, but merely transparency of government spending so it could be picked over by all.

Two years on, Cameron's spending data has exposed just how little progress his government's SME initiative has made at the DWP. 

By May this year, DWP had published 38 files containing 914,746 records. Computer Weekly parsed this against the list of suppliers which had worked on Universal Credit.

The results show that DWP had placed just 0.5% of its Universal Credit IT spending directly with SMEs. Its major suppliers – Accenture, Atos, BT, IBM, Capita, HP and SCC – had subcontracted almost nothing to SMEs. The Universal Credit supply chain flowed downstream mostly to multinational technology suppliers such as Oracle, Nuance, Genband and RedHat.

Cameron had aimed for 25% of public spending to go to SMEs. The Cabinet Office recently raised the bar to 50% specifically for new IT contracts. DWP has managed less than 1%.

This outcome was not inevitable. The Cabinet Office was all over the DWP in 2011. Joe Harley, long-standing DWP chief information officer, also doubled as government CIO at the Cabinet Office for the minister, Francis Maude. Harley straddled Universal Credit and the Cabinet Office SME initiative.

Universal Credit was to showcase the coalition's answer to the issues raised in its own criticism of the Labour government's track record with IT

The point was made, before Harley's retirement in 2012, over the personal hand he had taken in writing the coalition IT strategy. Published the month after Cameron's speech, it promised to break the oligopoly of IT suppliers with which Harley was then in final negotiations over multibillion-pound contracts for Universal Credit.

In early 2011, Harley told the Public Administration Select Committee's landmark IT hearings that DWP would seek to put contractual obligations on its suppliers to use SMEs. His IT programme chiefs made public commitments to employ SMEs through their subcontractors on Universal Credit. They held SME surgeries designed to bring small, innovative companies into the orbit of their major suppliers. The Cabinet Office held its own "Innovation Den" for the same purpose, as did trade body Intellect.

Flirting with agile development

Universal Credit programme chiefs flirted with the network of small firms identified with the UK's agile computing movement. They committed to using "agile" systems development techniques and employing small firms to support this. There was every indication that the DWP and its large contractors were preparing to nurture a thriving business community.

Yet DWP ended up paying just 0.52% of its Universal Credit spending to SMEs: £787,039 of a total £152m paid to suppliers between January 2011 and May 2013. Most of this money – £598,265 – went to Emergn, the small consulting firm it employed to train its large suppliers in agile methods.

Most Universal Credit IT spending has gone to Accenture, IBM and HP: £57m, £41m and £34m respectively. Almost all of the project's suppliers were multibillion-pound multinationals – just the kind of companies the Cabinet Office wanted to do less work for government.

Daniel Ruiz, Cabinet Office SME advisor, told Computer Weekly recently that the coalition was striving to work with networks of small, innovative firms. It was expected that loose consortia would form around projects, effecting in combination what large firms sought to handle all themselves.

Theoretically at least, small agile software providers might have constituted a considerable SME presence in the DWP supply chain if the Cabinet Office had successfully overseen this aspect of programme development in 2011. But it failed – or perhaps was prevented from doing so.

Read more on the government's SME spending targets

  • G-Cloud key to government SME spending target
  • Government to put 50% of all new IT spend through SMEs
  • Government strategies for increasing SME procurement
  • The IT SME procurement challenge
  • Buying from small businesses is crucial to government cost cutting, says Cabinet Office SME advisor

Thoughtworks, one of the larger agile software houses, was on the DWP's list of Universal Credit suppliers. Computer Weekly understands the firm pulled out after only a few months, while the Cabinet Office was still involved. Its experience accorded with Computer Weekly's investigation last month into the failure of adopting agile at DWP, and statements made by Emergn as DWP signed its contracts with the major suppliers in 2011: the supply chain was broken and the large suppliers were not willing to work in ways amenable to agile techniques or small firms.

Emergn advised on Universal Credit until January this year, shortly before DWP announced under new leadership that it had ditched agile altogether. The decision removed any possibility that there might be room for small, innovative firms on Universal Credit.

Accenture and IBM refused to comment. HP responded enthusiastically at first, saying it had 600 SMEs in its supply chain and hoped to recruit many more. But it would not say how many SMEs it employed on Universal Credit. The DWP disclosure suggested few or none.

HP attempted to pass its supply chain off as a network of innovative SMEs collaborating on its more profitable government work, when its executives faced the Public Administration Select Committee in 2011.

Craig Wilson, UK managing director of HP Enterprise Services, which undertakes most of the Universal Credit work, told the committee HP put 30% of its government work through SMEs. He later retracted his statement, instead saying HP put 30% of all its business through SMEs. He did not fulfil a promise he made to give the committee the real number.

HP refused to confirm the correct figure: "We want to get SMEs involved in the supply to government departments," said an HP spokeswoman.

Hard to measure

Industry trade body Intellect has similarly declined to disclose details of the programme it started in 2011 to introduce small technology companies to government departments and their large suppliers.

Alastair Hardie, board member and SME champion for Intellect, told Computer Weekly it was hard to measure what SMEs did in public sector supply chains, and played down the importance of the issue.

“I haven't got involved with anything to do with central government spend. The majority of Intellect members' business is into the private sector. The public sector is important, but it’s not major,” he said.

The US had, like the UK, attempted to get 25% of public money spent with SMEs with a mandate, he said.

David Cameron's spending data has exposed just how little progress his government's SME initiative has made at the DWP

"All that happened was small companies won contracts and then subcontracted to big companies with the resources to deliver," he said.

"Government purchasing rules create a barrier for small companies. Government procurement is put under scrutiny by [journalists] and parliamentary committees and MPs, so they are really careful not to do it wrong. They are driven by a wish not to be caught doing something wrong – which means they don't do things which are quick and agile," said Hardie.

"I don't judge what the DWP should be doing with its IT spend. For all I know, they've got projects that need thousands of people," he said.

DWP now stands as an example of how big Whitehall departments employing big companies to run big systems under big contracts do not do much for SMEs. But this is not necessarily because big departments employing big companies to run big systems under big contracts automatically do not do much for SMEs.

The Cabinet Office might say, “told you so”, were it not implicated in the SME initiative's failure at the DWP. DWP's early efforts to follow Cabinet Office guidance in meeting what in 2011 was an ambitious development schedule for its major project have failed, putting Universal Credit itself at risk.

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