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Watchdog bemoans lack of competition in public sector IT market

25/03/14

The £14bn market in public sector IT is 'not working as well as it could', with barriers to entry and little switching between suppliers, the competition watchdog reports today.

An Office of Fair Trading market study recommends that the public sector improve the way it procures and manages contracts with suppliers, and that suppliers be more transparent with their public sector customers.

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.

Barriers preventing companies from entering the market or expanding their share of supply, and also deterring buyers from switching between suppliers include:

- Overly complex procurement practices which make responding to tenders time consuming and expensive.
- Prohibitively costly and time consuming processes for gaining security clearances to carry out public sector ICT work.
- Signficant switching costs owing to the inherent advantage held by some incumbent suppliers. For example, the incumbent may provide bespoke products that large numbers of staff are trained to use.

According to the report, 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.

While conceding that central government is taking action, for example by breaking large contracts into multiple "towers" to open up opportunities to a wider range of suppliers the OFT finds there is scope for further improvement.

Rachel Merelie, OFT project lead, said: "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."

Analyst Georgina O'Toole of TechMarketView said the report stears clear of the emotional language of some critics and instead focuses on a few areas where supplier behaviour could be improved to allow for healthier competition in the market. "Most apparent is the focus on the lack of supplier transparency and the existence of 'information asymmetries'. Interestingly, there is as much emphasis put on issues in the local government market as on Whitehall," she said.

http://www.oft.gov.uk/OFTwork/markets-work/government-ict/#.UzFb5c2ChUM

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