OFT finds scope for improvement in purchase and supply of public sector ICT
26 Mar 2014 11:51 AM
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
- See the case
page for the final report.
- 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).
- 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.
- 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.
- 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.