The HPs and the SMBs: The battle over public sector IT contracts
A Labour government would break the grip big suppliers have on public sector contracts, a shadow minister vowed today.
Chi Onwurah, shadow Cabinet Office minister, used a speech for social enterprise research body Socent today to attack the public sector stranglehold enjoyed by big business, vowing to open up more tenders to social enterprises if the party comes into power in 2015.
She said: "Many public service markets are now dominated by the same big companies.
"We want to make it easier for social enterprises to win government contracts. To help drive that, a Labour government in 2015 will enable departments and local authorities to offer some contracts exclusively for social enterprises.
"We want services to be less transactional, focused on individuals and delivered at the most local level possible. Labour will make social enterprises the new innovative frontline of the public sector."
The news comes after figures revealed the traditional ‘Big Six’ Government IT suppliers raked in £4.3bn last year, and adds to another Labour promise to devote 25% of all contracts to SMBs.
Labour is pitching its tent firmly in the camp of not-for-profits as it bids to outdo the Government at its own game: cutting costs by employing more small providers.
Whitehall already has a target to spend 25% of all expenditure with SMBs by 2015, and despite the amount earned by the likes of HP, Capgemini and Fujitsu, it’s doesn’t appear to be doing too bad a job.
The Cabinet Office’s G-Cloud framework, launched in 2012 to cut costs by allowing the public sector to procure more services from cloud specialist SMBs, has seen nearly £200m spent on such services.
It’s enough to have angered HP, despite the giant receiving £1.7bn in 2013 and 2012 from Government contracts (though the total is disputed).
The Independent reported that a leaked letter sent from Hewlett Packard to the Government complains about plans to give more IT contracts to small suppliers.
HP, it added, is understood to be alarmed at Cabinet Office minister Francis Maude’s proposals to put a £100m cap on all future IT contracts.
To put that in context, a recent study conducted by Information Services Group (ISG) found that over the past two years, public sector bodies signed seven deals worth more than £600m each.
Another three cost more than £300m.
When CBR contacted HP to address the claims, it didn’t deny the contents of the letter. But it did talk about its support for SMBs as Government contractors, and pointed out its SMEngage programme, which uses smaller firms in HP’s own supply chain.
A spokeswoman added: "HP is a proud and longstanding supplier of IT products and services to Her Majesty’s Government and provides vital public services to UK citizens. We maintain an open and on-going dialogue with government about our programme of work.
"HP has been an active supporter of the Government’s SMB agenda through our SMEngage programme and subcontracts around one quarter of its UK public sector ICT services work to other vendors of all shapes and sizes including more than 700 small and medium enterprises."
But G-Cloud suppliers believe the tide is turning against large IT suppliers.
Peter Groucutt, MD of Infrastructure-as-a-Service (IaaS) G-Cloud supplier Databarracks, said the G-Cloud was levelling the playing field for smaller providers.
He added: "Claims that SMBs are not well-equipped enough to cope with public sector IT requirements are ridiculous, and the reaction from firms like HP are testament to this.
"We’re facilitating a move away from long-term, expensive contracts by giving government departments the opportunity to implement a whole set of new, flexible solutions that were previously not an option."
Cloud security supplier Skyscape, which has been on G-Cloud since the launch of the service, agreed.
CEO Phil Dawson told CBR: "They’re all grown up and realise the world is changing. [But] there’s a lot of large organisations that have serious annual revenues they will try to defend and they will disappear.
"What you will get is the new blood of innovation coming through from small and medium-sized businesses."
But there are examples of cases where using small suppliers hasn’t worked out for the Government.
Problems combining multiple IT firms’ services to replace a single IT infrastructure provided by Fujitsu were blamed for a computer ‘standstill’ experienced by the energy and business departments last month.
However, Dawson defended the decision to move away from large incumbents, and said integration problems could have more to do with how departments manage such projects.
He added: "Incumbents will always throw out some concerns to slow down the pace of change that’s moving away from them."
Additionally, he doesn’t feel he’s experienced the payment problems experienced by 64% of SMBs that complained to the Cabinet Office over contract management issues.
In fact, Dawson said now Skyscape is paid within five days of completing a job.
So, if the Government is already moving away from large incumbents to offer shorter and smaller contracts to SMBs, how different is Labour’s stance on public procurement?
There are calls for Labour to clarify its stance on sourcing IT, specifically, from SMBs – with some suppliers fearing a return to ‘Big IT’ under the party.
CBR also asked Onwurah to clarify what services social enterprises could perform for Government, though the shadow minister confirmed on Twitter: "We want a mixed economy & real competition. I’ve always said that."
Meanwhile, the Government may have to step up efforts to promote G-Cloud more widely to local authorities if it wants to improve on its cost-cutting thus far, and change the image of G-Cloud as a largely central Government service.
Research to be carried out with public sector IT body Socitm on how to make the framework more suitable for councils should help that.
Questions remain over whether the public sector can adapt to SMB-delivered services and how large incumbent suppliers will respond.