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 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, eg 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.
See the panel opposite for a pdf of the full report.
