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Whitehall’s IT Smokescreen

Why little has really changed in government IT purchasing

 

The British government has made great political capital from slamming large IT suppliers and championing innovative SMEs. However, new research suggests that its public statements may be little more than a strategic smokescreen. Stuart Lauchlan investigates.

ORGANISATIONS SHORTThe UK government’s stated IT procurement strategy is clear: to break up what it calls ‘the oligopoly’ of large technology suppliers to the public sector, and engage with small and medium-sized providers instead.

Alongside Whitehall’s top-down focus on cloud services, this strategy has been in place since the Coalition came to power, with the Cabinet Office providing regular updates on how many SMEs are selling into what had previously been a closed market.

But despite the welcome SME successes in the public sector, new figures from the Institute for Government (IfG) and data analysis firm Spend Network suggest that little has really changed.

The multibillion-dollar few

Although the report acknowledges that 180,000 suppliers of every size and type – not just IT – sell goods and services into government, just 20 large companies received a total of £10.2 billion of government spending in 2013.

Of these, seven of the top 10 suppliers across every part of government were large IT or outsourcing firms. In all, nine of the top 20 government suppliers overall were large IT services companies. In short, ‘the oligopoly’ is flourishing and still dominates government spending.

HP CEO Meg Whitman

HP CEO Meg Whitman. HP is currently the number one IT supplier to the UK government.

The main beneficiary of this continuing dependence on enterprise-scale IT providers is Hewlett-Packard (HP), whose government-derived revenues of £1,701,193,786 made it the biggest single supplier to the sector in 2013.

HP was followed by Capgemini, which pulled in 2013 revenues of £1,010,739,214 from government contracts, and in third and fourth places by Capita and BT, with government revenues of £803,333,738 and £753,976,060, respectively.

Despite spending much of 2013 under threat of expulsion from government contracts altogether, scandal-hit outsourcing giant Serco managed to earn revenues of £445,193,324 from the sector, making it the seventh most successful provider to government overall.

Fujitsu, which is still engaged in legal action against the Department of Health for being ousted from the National Programme for IT (NPfIT), was the eighth-placed supplier, with £415,393,510 of government revenues in 2013. As of September 2013, the ongoing legal dispute between Fujitsu and the NHS had run up a total bill to the taxpayer of £31,452,000.

Ninth place in the top 10 government suppliers overall went to Atos IT, with £401,200,020 worth of business, while IBM was in 12th place, with government contracts worth £365,915,278 in 2013.

Virginia Rometty

IBM CEO Virginia Rometty. IBM was the 12th largest supplier to the UK government in 2013.

US outsourcing provider CSC, widely criticised by MPs (including Prime Minister David Cameron) for its handling of the NHS IT programme, still earned £306,279,738 from government contracts in 2013, giving it 17th place in the supplier table.

It should be noted that the IfG data does not include contracts with the NHS, and so ongoing payments related to the NPfIT will not be included in these figures.

Glimmers of hope

However, there is some good news for the government’s strategic planners. Total spending with the six biggest IT firms fell by nine per cent year on year, albeit in a context of reduced government spending overall.

But at the same time, those six suppliers clocked up the equivalent of £80 million from government work in a single week of trading. In contrast, the G-Cloud programme received £87 million in government spending throughout all of 2013 – and that was shared across 270 separate suppliers.

Whitehall has hit back at suggestions that its strategy is having little effect beyond the modest success of the G-Cloud. For example, the Department for Work and Pensions (DWP) has cited a discrepancy between its official figures for spending with HP and those quoted in the report.

But this in itself points to an ongoing lack of transparency in public sector spending, a theme picked up by the IfG’s Gavin Freeguard in his official blog. While Freeguard notes that progress has been made – and that the report itself would not have been possible a few years ago – he complains of the difficulties in getting an accurate picture from Whitehall.

“When we asked the companies named in the report whether our figures matched theirs, many said they did – but others said they didn’t,” he wrote. “This was often because public data does not allow you to work out the ultimate beneficiaries of joint venture and private finance initiative (PFI) deals.

“Some data is redacted – for national security reasons and ‘commercial confidence’. There is no requirement to publish most transactions under £25,000. Some data is published without simple categorisation, like dates or descriptions; some data is simply incorrect; some is simply missing.”

New strategic aims

With this in mind, the IfG makes some strategic recommendations of its own, including:

• Setting clear standards that require the publication of more information on contractual terms, levels of performance, and sub-contracting arrangements.
• Establishing a reporting regime for PFI contracts and joint ventures that allows the public to identify commercial beneficiaries.
• Lowering the existing £25,000 threshold for publishing public sector transactions to £500.

Speaking for the technology industry, Julian David, CEO of industry body techUK, whose members include the so-called ‘oligopoly’ companies, said that his organisation has an “action plan” of its own to provide greater insight, arguing that “the central issue shouldn’t simply revolve around releasing or collecting more data”.

In David’s view, the government needs to involve suppliers in deciding what needs to be measured and how, rather than simply counting how much money is being spent. “What is missing is a clear, consistent and cost-effective arrangement for capturing data on contracts, performance and assets,” he says.

“There is a real opportunity here to work with the tech industry to agree the key measurement points, which would grant the government greater opportunities to effectively streamline and optimise the understanding and management of contracts, performance and assets.”

Where to next?

But where does all this leave the government’s strategy of facing down large suppliers and favouring smaller players?

Francis Maude MP

Cabinet Office Minister Francis Maude has tried to reform IT procurement.

According to the Financial Times, a number of ministers, including Business Secretary Vince Cable, have been telling the Prime Minister that the pro-SME agenda of his Cabinet Office Minister, Francis Maude, is causing technology crises, as some smaller providers are incapable of delivering against enterprise needs.

The FT quoted an unnamed Whitehall official as saying, “Getting more SMEs in was an idealistic Tory policy in 2011 to shake up Whitehall. But in effect they are not necessarily the best fit for this sort of task.”

While that argument seems flimsy, it does highlight an important strategic challenge: how to balance political beliefs with day-to-day operations, while at the same time maintaining continuity in government.

So just how dogmatic is the Cabinet Office really being on the subject of large IT suppliers? After all, the IfG/Spend Network figures suggest that the big picture of IT procurement remains largely unchanged, with the same handful of ‘oligopoly’ companies dominating not just IT procurement, but all government procurement overall.

Putting on a public face

In public at least, the government is maintaining its stance. Criticised at a recent conference over his constant use of the term ‘oligopoly’ to describe the small group of dominant IT vendors, government CTO Liam Maxwell was unrepentant – hardly surprising, given his claim that none of the existing large-scale outsourcing deals will be renewed when they wind down over the next 18 months.

CTO Liam Maxwell

Government CTO Liam Maxwell: still talks of ‘the oligopoly’.

“A lot of people are getting upset because business has gone somewhere else,” he said. “We will continue to refer to it as ‘the oligopoly’, because that’s what it is.”

However, there are signs that all is not quite as it seems. At the end of June 2014, the DWP issued a pre-tender for external assistance to determine the best approach to either replace or renew the department’s major contracts in 2014 and 2015 – despite Maxwell’s numerous public statements about non-renewals.

This could be a sign of a mellowing in attitudes. “In our view, the pendulum has swung too far,” says Georgina O’Toole of research firm TechMarketView. “The Cabinet Office refers to legacy ICT contracts as expensive, inflexible and outdated; but moving away from this style of contract does not necessarily mean moving away from the large systems integrators (SIs).

“It appears that it is beginning to dawn on some in UK government that you can’t do ‘big IT’ without the big SIs. A mixed economy approach – involving large and small suppliers – is what’s needed.

“But the good thing to come out of the government’s recent approach is that the large SIs have been encouraged to work more with SMEs – and to treat them well.” TS

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The Strategist says

The government’s strategy of exerting its power to encourage innovative, home-grown SMEs continues to be welcome, particularly at a time of ongoing US technology dominance and worries over data security. However, this new research reveals the dangers of making too much political capital from slamming the commercial relationships it enjoys with larger suppliers, especially given that the statistics suggest that little has really changed. IT remains government’s biggest commercial commitment, and the same suppliers’ dominance continues.

 

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