Excerpts from report on GovIT: Recipe for rip-offs – time for a new approach

By Tony Collins

Today’s comprehensive report on the government’s use of IT is replete with strong and important messages, particularly on the domination of government IT by a small number of large suppliers, so-called systems integrators.

That said, Techmarketview, which tracks developments in the IT supplier market, has today attacked the report of the Public Administration Select Committee.  Techmarketview’s analyst Georgina O’Toole concedes she has not looked carefully at the full report but says she is irritated by the summary’s sensationalism.

It may be worth remembering that Parliamentary committees compete with each other for media attention. A bland report will be pointless: it won’t be read. Today’s report of the PASC, though, seeks more often than not to give the balacing view whenever it says something tendentious.  

For ease of explanation the Committee’s report “Recipe for rip-offs – time for a new approach” refers to government as if it were a single entity.

But government is, to some extent, at war with itself. The Cabinet Office is trying to have more influence over departments, in encouraging them to use SMEs,  adopt agile methods, simplify working practices and cut costs; and while the Cabinet Office has a mandate from David Cameron to enforce its wishes, in practice departments are giving strong reasons for not acting:

-long-term contracts are already in force

– EC procurement rules mean that SMEs cannot be preferred over other suppliers

– SMEs give insufficient financial assurances and could go bust at any time

– there are not enough internal staff and skills to manage a plethora of smaller companies

– existing (large) suppliers employ hundreds of SME as subcontractors.

There’s a particularly telling passage in the PASC report. It gave details of an exchange between the Department of Work and Pensions and Erudine, an SME. The Committee was given details of the exchange during a private session.

Erudine had given the department a way of migrating a legacy system onto a more modern, cheaper platform, which could generate potential savings of around £4m a year.

A senior DWP IT official rejected the proposal and suggested that the department was maintaining an interest in SMEs for political reasons – the government’s wish for 25% of contracts to be given to SMEs. This was part of what the DWP official said to Erudine:

“.. we have as you know an ‘interest’ in having SMEs present and working in the department for good political reasons. So you have other value to us … purely political.

“You guys need to be realistic. I will be very candid with you […] it is a huge amount of bother to deal with smaller organisations. Huge. And we wouldn’t necessarily do that because it doesn’t make our lives simpler.”

The Department declined to comment on the exchange and said the views expressed did not represent its own. It told the Committee that in 2009/10 SMEs made up 29.3% of their supplier base, either as a prime contractor or a subcontractor.

The Committee welcomed this assurance from the Department but added:

“… this account does suggest that attitudes at official level risk undermining ministers’ ambitions to increase the number of SMEs Government contracts with directly”.

These are other extracts from the PASC report:

Overcharging by large suppliers – an obscene waste of public money?

They [SMEs] also alleged that a lack of benchmarking data enabled large systems integrators (SIs) to charge between seven  to ten  times more than their standard commercial costs.

**

Having described the situation as an “oligopoly” it is clear the Government is not happy with the current arrangements. Whether or not this constitutes a cartel in legal terms, it has led to the perverse situation in which the governments have wasted an obscene amount of public money.

The Government should urgently commission an independent, external investigation to determine whether there is substance to these serious allegations of anti-competitive behaviour and collusion. The Government should also provide a trusted and independent escalation route to enable SMEs confidentially to raise allegations of malpractice.

Vested interests suppress innovation?

We received suggestions from some SMEs that the major systems integrators used legacy systems as leverage to maintain their dominance. Some SMEs reported that there were solutions that could easily transfer data from old platforms, but that a combination of risk aversion and vested interests prevented these solutions being adopted

Large IT contractors are “not performing well”

The Government’s analysis has shown that its large IT contractors are not performing well. A Cabinet Office review in September 2010 of the performance of the 14 largest IT suppliers found that none of them were performing to a “good” or “excellent” level, with average performance being a middling “satisfactory with some strengths”. Some were performing significantly worse.

Openness would help to cut costs

Making detailed information on IT expenditure publicly available for scrutiny would enhance the Government’s ability to generate savings, by allowing external challenge of its spending decisions.

The Government has already taken steps to provide more information about IT projects and expenditure in general, especially through the work of the Transparency Board and its publication of contracts on Contract Finder. To realise the full benefits of transparency, this is not sufficient. More information should be made public by default.

It should publish as much information as possible about how it runs its IT to enable effective benchmarking and to allow external experts to suggest different and more economical and effective ways of running its systems

Will government objectives be achieved?

We received numerous reports from SMEs about poor treatment by both Government departments and large companies who sub-contract government work to SMEs. There is a strong suspicion that the Government will be diverted from its stated policy and that its objective will not be achieved.

The drawbacks of using SMEs as subcontractors to large suppliers

“… subcontracting could lead to the Government paying a high price as it had to cover the margin of both the sub and prime contractor.

**

SMEs approached us informally to express concerns based on their own experiences of subcontracting. We heard of cases where systems integrators [large IT suppliers] had involved SMEs in the bidding process so they could demonstrate innovation, only for the SME to be dropped after award of contract.

In some of these cases SMEs felt that they have provided innovative ideas which had then been exploited by the larger systems integrators. We were also told by SMEs that by subcontracting with an SI they were barred from approaching government directly with ideas that might allow it to radically transform its services and reduce costs. This was because systems integrators did not want the Government to be provided with ideas that could result in them losing business, or having to reduce costs.

“… When we put these [SME] concerns to the Government we were told that their contracting arrangements did not stop subcontractors speaking directly to Departments…However, during our private seminar with SMEs, we were told that this did not reflect their experiences. SMEs reported that they were instructed to approach the systems integrator first in order to obtain permission to talk to a Department and that some Departments refused to deal with them directly.

**

We take seriously the concerns expressed by many SMEs that by speaking openly to the Government about innovative ideas they risk losing future business particularly if they are already in a sub-contracting relationship with a systems integator.

Government should deal directly with SMEs

The Government should reiterate its willingness to speak to SMEs directly, and commit to meeting SMEs in private where this is requested. We recommend that the Government establish a permanent mechanism that enables SMEs to bring innovative ideas directly to government in confidence, thereby minimising the risk of losing business with prime contractors.

Is government policy shutting out SMEs even more?

“…the Government has been moving to act as a single buyer to obtain economies of scale… This approach can be counter-productive. The effect of demand aggregation can be to aggregate supply, further concentrating contracts in the hands of a few large systems integrators.

Departments are following instructions from the Cabinet Office Efficiency and Reform Group to switch away from their existing direct SME contracting arrangements in favour of centralised procurement models. This would mean that SMEs would become tier 2 suppliers behind selected large suppliers, preventing SMEs from contracting directly with departments. The Cabinet Office has confirmed that:

Spend is being channelled into three current channels: a) existing framework contracts where spot buying is undertaken centrally (this is known as Home Office Cix), b) department-specific arrangements based on their unique needs (such as FCO’s arrangements with Hays) and c) an existing contract with Capita, owned and managed by DWP and available to all government departments.

It is unclear to us how narrowing the supply channels will create a more open and competitive market. The nature of this supply-side aggregation of SMEs under large contracts appears to be in direct contradiction of the policy articulated by the Minister when he indicated his desire to encourage Departments to secure more direct contracting with SMEs.

“… the Government’s plan to act as a single buyer appears to be leading to a consolidation towards a few large suppliers. This could act against its intention to reduce the size of contracts and increase the number of SMEs that it contracts with directly. We are particularly concerned with plans to move SME suppliers to an “arm’s length” relationship with Government. The Government needs to explain how it will reconcile its intentions to act as a single buyer, secure value for money and reduce contract size to create more opportunities for SMEs.

Procurement barriers for SMEs

The way procurement currently operates favours large companies that can afford to commit the staff and resources to navigate the convoluted processes. It also encourages the Government to confine discussions to as few potential contractors as possible.

If the Government is serious about increasing the amount of work it awards to SMEs it must simplify the existing processes

**

We recommend that the Government investigate the practices which seem unintentionally to disadvantage SMEs. When contracts and pre-qualifying questions are drawn up thought must be given to what impact they could have on the eligibility and ability of SMEs to apply for work, and whether separate provision should be made for SMEs. We believe it would be preferable if the default procurement and contractual approach were designed for SMEs, with more detailed and bespoke negotiation being required only for more complex and large scale procurements.

Have Departments the people and skills to handle more SMEs?

Increasing the use of SMEs will place extra pressure on departments. The management of smaller organisations is currently outsourced to the large systems integrators.

For example the Aspire framework provides HMRC with access to over 200 IT suppliers. Mr Pavitt, HMRC Chief Information Officer said that:

“managing those individually would be quite a heavy bandwidth for a Government department”.

It is not clear that Departments are willing to take on the additional work that contracting directly with SMEs implies even where this could yield significant savings…

Ministers need to ensure their officials have the skills, capacity and above all the willingness to deliver on ministerial commitments to SMEs.

On agile methods:

“… greater use of agile development is likely to necessitate behaviour changes within Government. As agile methodology requires increased participation from the business to provide feedback on different iterations of the solution, departments will need to release their staff, particularly senior staff with overall responsibility of the project, to allow them to participate in these exercises.

Agile development is a powerful tool to enhance the effectiveness and improve the outcomes of Government change programmes. We welcome the Government’s enthusiasm and willingness to experiment with this method. The Government should be careful not to dismiss the very real barriers in the existing system that could prevent the wider use of agile development.

We therefore invite the Government to outline in its response how it will adapt its existing programme model to enable agile development to work as envisaged and how new flagship programmes will utilise improved approaches to help ensure their successful delivery….

The Government will have to bear in mind the need to facilitate agile development as it renegotiates the EU procurement directive and revises the associated guidance.

Need for more people with the right skills to manage suppliers

Managing suppliers is as important as deciding who to contract with in the first place. To be able to perform both of these functions government needs the capacity to act as an intelligent customer. This involves having a small group within government with the skills to both procure and manage a contract in partnership with its suppliers.

Currently the Government seems unable to strike the right balance between allowing contractors enough freedom to operate and ensuring there are appropriate controls and monitoring in-house.

The Government needs to develop the skills necessary to fill this gap. This should involve recruiting more IT professionals with experience of the SME sector to help deliver the objective of greater SME involvement.

When disaster strikes is anyone responsible?

We are concerned that despite the catalogue of costly project failures rarely does anyone – suppliers, officials or ministers – seem to be held to account. It is therefore important that, when SROs do move on they should remain accountable for those decisions taken on their watch, and that Ministers should be held accountable when this does not happen.

Open source and open standards

Recent initiatives such as the Skunkworks team, dotgovlabs, data.gov.uk, and the Alphagov project suggest that the Government is moving in this direction

Government should omit references to proprietary products and formats in procurement notices, stipulating business requirements based on open standards. The Government should also ensure that new projects, programmes and contracts, and where possible existing projects and contracts, mandate open public data and open interfaces to access such data by default..

Report’s conclusion

“… The last 10 years have seen several failed attempts at reform. The current Government seems determined to succeed where others have failed and we are greatly encouraged by its progress to date.

“Numerous challenges remain and fundamentally transforming how Government uses IT will require departments to engage more directly with innovative firms, to integrate technology into policy-making and reform how they develop their systems.

“The fundamental requirement is that Government needs the right skills, knowledge and capacity in-house to deliver these changes. Without the ability to engage with IT suppliers as an intelligent customer – able to secure the most efficient deal and benchmark its costs – and to understand the role technology can play in the delivery of public services, Government is doomed to repeat the mistakes of the past.”

Links:

Jerry Fishenden, adviser to the PASC, gives his view of the report.

Today’s Public Administration Committee report: Recipe for rip-offs – time for a new approach

Government reliance on large IT suppliers is recipe for rip-offs.

Government IT rip-offs – surely time for a new approach – my view of the report

Techmarketview on the report

Good analysis of PASC report – Centre for Technology Policy Research.

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3 responses to “Excerpts from report on GovIT: Recipe for rip-offs – time for a new approach

  1. Found myself nodding vigorously throughout your piece.

    We are an SME supplying to a number of Trusts and trying to win more business but we constantly find ourselves butting up against procurement rules that on the face of it are designed to reduce costs but in our experience do the complete opposite and massively disadvantage the smaller supplier.

    We provide innovative technology, great service, very detailed knowledge of our specific niche (Therapies) at highly competitive rates whilst the big guys appear to be milking their preferred supplier status, offering archaic technology and holding their clients to ransom – its really no way to do business!

    Even in the quick fix areas our experience suggests that the support for SME’s (that the government has been promoting) is not propagating through to the coal-face. On average it takes Trusts 60-120 days to pay us. Thankfully, we have the cash reserves to manage this but this alone has the potential to “take-out” innovative SME’s in a stroke.

    There also appears to be a pretty narrow minded view with regard to the technology stack/platform. Consequently, we are forced to develop solutions down a Windows/Explorer/Office/SQL*Server/Oracle path and use technologies that have very high barriers to entry when all we want to do is crack on and develop better and better software for our clients using the best technologies that are currently available – rather than the old chestnuts.

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  2. Allegedly, the taxpayer is spending between seven and ten times too much for government IT.

    And yet somehow the word “misfeasance” does not appear in the PASC report.

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  3. It’s a good report. However, as you will know, most of this isn’t new. Our analysis on http://www.opensourceconsortium.org provides references.

    The key is open standards and interoperability, without these it becomes difficult to get the market to operate. Deputy Govt CIO is on the record planning to do not much about that.

    On SMEs – of course if government insists on centralising everything, and owning the customer channel, even at departmental level, then the opportunities for using smaller suppliers is limited. However Dunleavy et al covered this in 2004 using Canada and Holland as evidence based alternatives.

    Paying more than lip-service to localism would solve that. The only example I have seen is in the Welsh Assembly Government’s ICT Strategy

    http://wales.gov.uk/topics/businessandeconomy/digitalwales/publications/ictstrategy/?skip=1&lang=en

    which is the only time I have seen the potential for keeping value-addi in the local economy written down in an official document.

    Then of course, there’s doing less. Just one example, giving tax discs to online insurance companies rather than building your own cathedral would spread the work around and save money. It would ease the skills shortage in government too.

    And so on…

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