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An OFT market study has found that competition could work better in the purchase and supply of Information and Communications Technology (ICT) products and services to the public sector. The OFT is recommending that the public sector address these concerns by improving the way it procures and manages contracts with suppliers, and that suppliers be more transparent with their public sector customers

ICT is vital for the efficient and cost effective delivery of all public services - from schools and social housing to benefits payments and national security - and it accounts for a significant proportion of total public sector expenditure, with an estimated £13.8 billion spent in 2011/12.

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 and outsourced IT.

The OFT 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.
• Prohibitively costly and time consuming processes for gaining security clearances to carry out public sector ICT work.
• The inherent advantage held by some incumbent suppliers can lead to significant switching costs. For example, the 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 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.

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

Public sector buyers are starting to change the way they procure ICT. Central government, for example, is simplifying procurement processes by breaking large contracts into multiple 'towers' to open up opportunities to a wider range of suppliers and expanding access to relevant commercial and technical skills for public sector buyers. 

However the OFT has found that there is scope for further improvement:

• The OFT is recommending that the public sector continues to seek improvements in the way it procures and manages contracts with suppliers. In particular, it should work with suppliers to ensure comprehensive, consistent and objective data is collected efficiently about products, prices and supplier performance. The public sector should also consider how this information can be shared across public sector organisations. 
• ICT suppliers should also 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.

Rachel Merelie, OFT project lead, said:

'Information Communications Technology is central to the efficient and cost effective delivery of many public services.

'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.'

NOTES

1. See the case page for the final report.
2. The OFT launched a market study into public sector ICT services in October 2013. The study examined two parts of the ICT sector in particular: commercial off-the-shelf software - all types of software commercially available to different organisations, which have not been individually tailored to those organisations' needs; and outsourced IT - the contracting of private sector suppliers to build and/or manage public sector IT infrastructure and applications (software designed for non-technical users).
3. Data from market intelligence provider Kable - see www.kable.co.uk/index.html  The £13.8 billion figure excludes direct employment costs associated with in-house ICT staff employed by public sector organisations.
4. Reports and initiatives on public sector procurement have been published by a number of bodies, including the Cabinet Office, the National Audit Office, the Public Administration Select Committee, the Committee for Public Accounts, Institute for Government and the OFT. The OFT's previous work on commissioning includes Choice and Competition in Public Service Markets - a guide for policy makers and Assessing the impact of public sector procurement on competition.
5. On 1 April 2014, the Competition and Markets Authority (CMA) will become the UK's lead competition and consumer body. The CMA will bring together the existing competition and certain consumer protection functions of the Office of Fair Trading and the responsibilities of the Competition Commission, as established by the Enterprise and Regulatory Reform Act 2013.