Public sector procurement: Buyers and suppliers could do better says OFT

The Office of Fair Trading has "found scope for improvement" in the purchase and supply of public sector IT services.


The Office of Fair Trading has "found scope for improvement" in the purchase and supply of public sector IT services.

It is estimated £13.8 billion was spent on public sector IT in 2011/12.

The OFT has published a report which says that "competition could work better" in the public sector ICT market, and is recommending that public sector buyers address these concerns by improving the way they procure and manage contracts with suppliers.

The OFT however also wants suppliers to be "more transparent" with their public sector customers.

The OFT study looked at competition between companies in two key areas that account for around half of UK public sector ICT expenditure - commercial off-the-shelf software (COTS) and outsourced IT.

The regulator found that there are barriers preventing companies from entering the market or expanding their share of supply, and also deterring buyers from switching between suppliers.

These include "overly complex procurement practices" that mean responding to tenders can be time consuming and expensive, and "prohibitively costly and time consuming processes" for gaining security clearances to carry out public sector ICT work.

There is also the "inherent advantage held by some incumbent suppliers", leading to "significant switching costs". For example, said the OFT, an incumbent may provide bespoke products that large numbers of staff are trained to use - leading to significant costs and disruption from changing supplier.

These barriers are compounded, it added, by the fact that public sector buyers sometimes lack the information they need to judge whether a proposed ICT product or service is the most efficient or best value for money solution.

A lack of routine collection of data by the public sector also makes it difficult for public sector buyers to evaluate or challenge the performance of their incumbent ICT suppliers, or to decide whether switching suppliers will deliver better value for money, warned the OFT.

The OFT also found that the public sector lacks "sufficient in-house commercial and technical expertise" that could help it understand and manage large and complex ICT contracts more effectively.

ICT suppliers tend to know more than public sector buyers about the quality and suitability of ICT goods and services, the report says. This imbalance of information can be compounded by "the practices of suppliers such as complex pricing and a lack of transparency".

The regulator is recommending that the public sector continues to seek improvements in the way it procures and manages contracts with suppliers, such as the way central government is starting to break down larger contracts into smaller "towers".

It says the public sector should also work with suppliers to ensure comprehensive, consistent and objective data is collected efficiently about products, prices and supplier performance. And the public sector should consider how this information can be shared across public sector organisations.

In addition, ICT suppliers should do more to "improve understanding and the flow of clear information to public sector buyers". This would facilitate benchmarking, drive better value for money, and improve the assessment of competition across different sectors, the OFT added.

Rachel Merelie, OFT project lead, said: "The market supplying ICT products and services to the public sector is worth around £14 billion and is not working as well as it should. In some areas entry barriers are high and there is little switching between suppliers.

"The public sector needs better information and expertise so it is able to judge whether ICT suppliers are delivering good value for money. Companies that supply ICT goods and services should also be more transparent and provide better information to their public sector customers."

Georgina O'Toole, an analyst at TechMarketView, said of the report: "There is as much emphasis on the buying behaviours of government organisations as there is on supplier behaviour.

"And it supports the Cabinet Office Efficiency & Reform Group continuing in its existing direction of travel to improve the way government organisations approach ICT procurement."

She said: "There were many ICT suppliers nervous about the outcome of this study – unsurprising considering some previous reports, such as the 2011 Public Administration Systems Committee (PASC) report, which was entitled “Government and IT - A Recipe for Rip-Offs”, and which referred to an 'oligopoly of large suppliers'."

"But the OFT report steers clear of such emotional language and instead focuses on a few areas where supplier behaviour could be improved to allow for healthier competition in the market."

If suppliers were required to share more technology and market data with the public sector, said O'Toole, they would have to be confident it was not going to be shared with their market competitors.

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