Suppliers will struggle as government IT spending dives

The government’s IT suppliers are set to lose substantial revenue this year, as ministers can projects and renegotiate contracts, according to analyst house TechMarketView.

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The government’s IT suppliers are set to lose substantial revenue this year, as ministers can projects and renegotiate contracts, according to analyst house TechMarketView.

There will be up to a seven percent cut, around £700 million, in central government technology spending in 2010, according to TechMarketView research director Georgina O’Toole.

Next year will see a similar percentage decline, she predicted.

This would present a problem for many of the main suppliers, which rely on the government for over half of their revenues, she said. The leading suppliers would be “eager to find ways” to replace the lost revenues.

The list of the government’s top 20 suppliers of all goods is almost exclusively comprised of IT providers.

The top supplier is HP (including the former EDS business), followed by BT, Capgemini, Fujitsu, Capita and IBM. Other IT suppliers in the list include Atos Origin, CSC, Logica, Steria, Oracle, Microsoft and Accenture.

O'Toole said it would be a real challenge for the existing providers to replace the revenues, adding: “With mounting deflationary pressures, such as the increasing acceptance of offshore services and the move to an ‘as a service’ model, that’s going to be difficult.”

Existing suppliers need to “act now”, she explained, to “transform their businesses” in line with the government’s IT strategy, as the government prepares for more shared services and cloud computing, and as competition is opened further. “In a period of austerity, those that can show the Cabinet Office a way to build on previous ICT investment will be well placed to benefit,” she said.

Nevertheless, O’Toole warned that small and medium sized suppliers could continue to struggle to obtain work with the government, given the high costs of bidding. Additionally, working as subcontractors was costly because of the tough revenue sharing agreements set by the main suppliers.

From discussions with government chief information officer John Suffolk, O’Toole reported that the average public sector support cost per desktop is a sizeable £2,380 per year.

Suffolk said at least £500 could be cut from that figure. There are also 220 datacentres across central government, a number the government plans to slash, ending up at around 12. These moves would likely be "quick wins", with other shifts such as cloud computing and widespread shared services taking longer.

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