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Government SME spend going down, MPs told

Government spending with SMEs has reduced rather than increased, some government procurement markets are dominated by oligopolies and the research community needs to be brought into the mix, according to evidence given to the Science and Technology Committee

A Science and Technology Commmittee hearing on digital government has found that government spend with small and medium-sized enterprises (SMEs) is going in the wrong direction, and that procurement needs an overhaul.  

Giving evidence to the committee, Simon Hansford, co-founder and CEO of UKCloud, said there has been a “tremendous amount of good” being done in government over the last few years, particularly when it comes to working with SMEs and the introduction of the G-Cloud procurement framework.”

However, he added that “there has been a significant reduction in spend with SMEs over the last couple of years”.

“It’s drifting back into those old ways, which I would suggest were not the good days, where there was a small number of suppliers,” he said.

As previously reported by Computer Weekly, the government has an ambitious target of increasing its spend with SMEs to 33% by 2020, however, direct and indirect spend has fallen significantly.   

Also giving evidence, Chris Johnson from the UK Computing Research Committee, said “a lot of government procurement is dominated by oligopolies in some markets”. Referring to government SME spending figures, he said that in 2014/15, SMEs covered 27.1% of government spend, but in 2016/17, that had fallen to 22.5%.

“We’re going in the wrong direction,” he said, adding that it’s also important to look “beyond the high level commitment” and at spending within different departments.

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Using the Ministry of Defence (MoD) as an example, he said the department only spent 13% with SMEs in 2016/17.

“Obviously, the MoD is an area where you could characterise a lot of the supply chain as oligopolistic,” he said, adding that because the MoD accounts for 45% of all government expenditure, “that 13% is really significant”.

Johnson said some departments have a very “positive relationship with SMEs”. The Department for Digital, Media, Culture and Sport (DCMS), for instance, spent 43.9% with SMEs in 2016/17.

“Other departments that have a positive relationship with SMEs include DCMS and International Development, and so I think it’s much more nuanced,” he said. “For instance, the MoD accounts for 45% of all government expenditure, so that 13% is really significant.”

Procurement and legacy systems

MPs on the committee questioned whether this could be because SMEs aren’t equipped to deal with complicated and old Whitehall systems and contracts.

However, techUK deputy CEO Antony Walker said legacy technology is a challenge everywhere and that there are “good examples of where SMEs can handle those legacy issues and engage in that supply chain”.

Walker added that programmes like the GovTech Catalyst programme can be “really powerful” in finding opportunities and getting into government.

 UKCloud’s Simon Hansford said there are several examples where SMEs have taken on “very large legacy contracts, very successfully”.  

“It takes more effort from procurement,” he said. “If anything, I think that’s the area where we’re slipping into the old ways of doing things, because it’s too hard for procurement.”

“We’ve got legacy IT in an oligopoly of eight IT companies and we’re likely to transform our estate into, potentially, a duopoly of just two companies, which will set us up with a problem for tomorrow."

Research community left out

In the second part of the evidence session, Helen Magretts, programme director for public policy at the Alan Turing Institute, said that although a lot of progress has been made in digital government, the steer from the centre seems to have taken a step backwards in terms of coherence.

And it’s not just SMEs struggling to work with government. “Government has a problem with working with the research community,” she said.

If you take the govtech catalyst, for instance, you have to be a private company to bid to do work there. “The research community does have some good ideas and expertise about what to do here,” said Magretts, adding that the government should focus more on a mixed market. “It’s been oligopolistic for so long – dominated by large suppliers and system integrators.”

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