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Government restates SME spend commitment as large suppliers win more cloud hosting deals

An analysis of the G-Cloud and Digital Outcomes and Specialists (DOS) framework sales figures suggests proportion of cloud hosting deals going to big suppliers is continuing to rise

The Cabinet Office has restated its commitment to ensuring small and medium-sized enterprises (SMEs) get their fair share of government IT contracts, as the number of cloud hosting deals being awarded to big suppliers continues to rise.

An analysis of the Digital Marketplace IT spending figures by public sector cloud analyst Lindsay Smith has revealed a continued decline in the percentage of cloud hosting deals being awarded to SMEs over the course of 2018.

This is based on his combined analysis of the SME spend put through both the G-Cloud and the Digital Outcomes and Specialists (DOS) procurement frameworks, which both form part of the government’s Digital Marketplace platform.

“The SME share of hosting fell from a historical 13% share of total SME spend to 8% in the 12 months to November 2018,” he wrote in a blog post.

In a follow-up interview with Computer Weekly, Smith said SMEs attracted around £178m in public sector cloud hosting spend between April 2012 and November 2017, which represents 13% of the total spend being directed their way at that time.

“Contrast that with [the amount of spend] in the 12 months to November 2018. Hosting spend to SMEs was at £48m, while total spending to SMEs in that period was £629m. So, in the past 12 months, it fell to 8% of total spending,” he said.

The source of this trend can be traced back, he said, to the change in buying behaviours within some sizeable government departments, whereby they are moving to procure services from larger providers, such as Amazon Web Services (AWS).

“It seems clear that [the] public sector is switching some large accounts to the larger infrastructure providers, with the Home Office, Department for Education and HMRC seeming to lead this trend,” he continued in the blog.

AWS has seen a marked rise in the amount of public sector IT spend being sent its way since opening its first UK datacentre region in December 2016, as evidenced by the Digital Marketplace’s breakdown of G-Cloud spend by public sector organisations.

The data shows that a total of £4.08bn has been transacted through G-Cloud since its launch in spring 2012, with AWS accounting for around £61.1m of this. The bulk of this spend, however, has occurred post-December 2016.

For instance, during the quarter when its UK datacentre went live, the firm secured just under £2m in spending through G-Cloud, before more than doubling to £4.6m during the subsequent quarter. It has since hit a peak of £13.9m during the second quarter of 2018.

Over the course of the same time period, SME public sector-focused infrastructure-as-a-service (IaaS) provider UKCloud has seen the amount of money spent with it through G-Cloud steadily decline from a peak of £8.1m in the first quarter of 2016 to £3.4m in the third quarter of 2018.

As previously reported by Computer Weekly, UKCloud’s co-founder and CEO Simon Hansford told a Science and Technology Committee hearing in January 2019 of his concerns over the “significant reduction” in government spending with SMEs that has occurred in recent 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.

When asked about the apparent downturn in cloud hosting deals going to SMEs, a Cabinet Office spokesperson reiterated the department’s long-standing commitment to opening up government IT procurement to SMEs.

With particular emphasis on the year-on-year uptick in the amount of business being put Amazon’s way, the spokesperson said the firm accounts for “less than 5% of all spending on cloud services”.

“Small businesses are the backbone of our economy, and we are committed to levelling the playing field for smaller suppliers to win work in the public sector,” the spokesperson added.

To this point, the government has rolled out a number of initiatives over the course of 2018 designed to help encourage more small businesses to compete for government contracts, while also making it easier for SMEs to report poor payment practices within the public sector.

These measures are, in turn, geared towards helping the government achieve its goal of growing its spend with SMEs to 33% by 2022.

According to figures put out by the government in August 2018, the Digital Marketplace is already exceeding this target, with claims that £1.35 out of every £3 transacted via the platform is going to SMEs.

However, a different cut of the Digital Marketplace figures show the percentage of sales by value to SMEs through the G-Cloud portion of the platform has fallen from 56% to 45% between January 2017 and January 2019.

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