UK government failing to break large service providers’ dominance

Large UK service providers are strengthening their grip on the public sector purse, despite efforts by the government to contract to more suppliers

Large UK service providers are strengthening their grip on the public sector purse, despite efforts by the government to offer contracts to more suppliers.

The UK government’s attempts to spread its business services spending to more suppliers have so far failed, according to research from ISG, with small-and-medium-sized (SME) suppliers in the UK and overseas alternatives being overlooked.

UK-based services firms, such as Serco and Capita, have increased their share of government outsourcing from 40% between 2002 and 2005 to 61% since 2010. IT-enabled business services take up a large chunk of the government’s outsourcing budget.

In January 2014, the government published rules to reduce the dominance of a small number of IT suppliers offering inflexible contracts.

The Cabinet Office published its “red lines” for IT contracts to increase the number and variety of IT suppliers to government.

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The rules include limits to the size of contracts in financial terms and the length of agreements, as well as breaking up contracts.

At the time, cabinet office minister Francis Maude said the government is radically rethinking the way it does business as it has been stalked by big IT and big failure for too long.

"We are creating a more competitive and open market for technology that opens up opportunity for big and small firms," she said. "These red lines will ensure the government gets the best technology at the best price, and we will be unashamedly militant about enforcing them to provide value for hard-working taxpayers.”

Private sector contracts

The ISG study also looked at the private sector as a comparison. UK suppliers to the UK business sector have seen their market share remain flat, with the share increasing to 36% since 2010 from 35% in 2005.

ISG said the market is much bigger now. In 2002, there were 203 public sector contracts worth about £3.2m compared with 1,085 contracts in 2014. In the private sector there were 445 contracts in 2005, compared with 1,422 in 2010.

“Is the UK increasingly reliant on foreign providers versus domestic providers? In short – no. Domestic providers still retain the largest market share in both the public and commercial sectors,” said ISG. The research was carried out for the Financial Times.

US companies supplying to the UK, including HP and IBM, have seen their share drop from 34% to 23%.

In the commercial sector, Indian-based providers have increased their share from a mere 4% in 2005 to 25% since 2010. However, this has not eaten into the dominance of the UK suppliers – rather, it has eaten into the share of other overseas companies in the US and Europe.

This performance is not emulated in the public sector where Indian suppliers only have a 1% share.

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