PROCUREMENT
SMALL IS BEAUTIFUL – HOW SMES CAN BE A SUCCESS STORY IN GOVERNMENT IT PROCUREMENT
The applause was loud and long when the Cabinet Office, under the helm of minister Francis Maude decreed that it wanted 25 per cent of government spending to be with Small and Medium-sized Enterprises by March next year.
I
n an era when mega corporations are, rightly or wrongly,
surrounded by a lot of distrust who would argue with such an approach in the IT sphere? After all, the majority of the highly
innovative SMEs considered by government are based here in the UK. Doing business with them not only provides a performance enhancing stimulus to the UK economy, but Her Majesty’s Revenue and Customs gets to pocket the tax from their income, instead of seeing revenue flowing out of the country to monolithic system integrators. And instead of having the software developed overseas, the UK is able to build up a strong skills base at home. Yet for everyone to have a good day at the races, some of the hurdles barring the entry of SMEs need to be removed. Not only that, but government procurement chiefs need a much more detailed un- derstanding of which SME specialist providers they should be inviting to take part in the competition for public sector business. Otherwise, the race will be a shambles. On the one hand the government will find it has been backing horses that cannot meet its requirements and on the other, many SMEs will find it hard to get to the starting line, let alone the finishing post. There are good reasons for wanting alternatives to the big system integrators and their dominance in government IT. The long-term, often multi-year contracts with them are very inflexible, making it difficult to introduce changes rapidly – changes to supply services that many in the industry would now consider basic. Renegotiation of delivery within these contracts is well-nigh impossible since the providers feel they have little incentive to innovate simply and quickly as the contracts do not pay them enough to warrant the effort. These are, nonetheless, highly expensive contracts on which government departments are spending £1 billion per year. They are also evolved contracts in the sense that extras have been tagged on, making them complex and unwieldy. So although the government is right to try to break things up and wrest control back from service providers by using SMEs, with hindsight it should have fixed the inefficiencies first.
The introduction of the G-Cloud framework and CloudStore as a software supermarket for the public sector was heralded as opening
32 PUBLIC SECTOR ESTATES MANAGEMENT • MAY 2014
the government procurement door for SMEs. However in reality, there are still substantial barriers before SMEs can cross the threshold. The requirements for an SME to sign up are very onerous and for a business that relies on two or three people that means several days, if not weeks of effort, just to get on this virtual supermarket shelf before anything is sold. Once a public sector organisation has plucked the product from the shelf, SMEs still have to spend time working with the system integrators and niche providers to deliver services. It is also worth considering that despite all the plans for the G-Cloud, it remains a drop in the ocean. Last year it accounted for about £70 million of public sector IT expenditure against a total around the £16 billion figure.
Of course that also means there is a lot of work SMEs can bid for
outside the G-Cloud, but it remains very difficult to find out about. Much of this IT work does not see the competitive light of day because there are always ways of extending existing contracts or obtaining new services based on change-amendments. And even if an SME does find out about a suitable business opportunity, it still has to devote resources to coping with the complex demands of government at all levels. Consider a five-person SME bidding for public sector business. The process may not conclude for 18 months and in that time they have to complete a complex viability exercise with market input. Then there is the request-for-information process and the request for proposal process, followed by bootcamps and interviews before gaining access to a government department’s procurement systems. This is all before obtaining any sight of government business and none of this effort generating a penny SME revenue. The sheer hard work all this involves has its effect on public sector IT decision-makers who know that ramping up their use of products from SMEs in line with government policy may well lead to a tenfold increase in the supply chain. A department going from 20 suppliers to 200 will need to contract and manage a new SME every day-and-a-half with the inevitable consequence that the section handling contracts will have to expand and develop new control systems and skills.
As an indication of the increase in workload for the public
sector, one SME found it was the 54th to be interviewed for a contract in four weeks. It does not necessarily make commercial sense for government departments to do this but they are complying with EU law. It is also a hugely costly experience, requiring lengthy evaluation exercises, soaking up valuable government department time and skills. All in all this does not provide much incentive to rush out and do business with SMEs.
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