UK Government Breaks Promise To Use SMEs

The UK government is doing less business with small and medium-sized enterprises (SMEs) than a few months ago, despite promises by Cabinet Office minister Francis Maude earlier this year to end the oligopoly of big business supplying government IT and open up the market to new providers.

At the first meeting of the ‘New Suppliers to Government’ working group, put together by the Cabinet Office, members highlighted that the government’s aspiration to place 25 percent of all its business with SMEs is in direct conflict with projects such as Sir Philip Green’s ‘Efficiency Review’,  which pushes for consolidation within the supply chain.

“There are two competing tensions inside the government,” said Mark Taylor, CEO of Sirius and lead for the New Suppliers to Government working group. “One of them is the Cabinet Office’s stated commitment to getting more SME involvement. However, the other drive within government is pushing things the other way.”

Two conflicting cost-cutting methods

The Efficiency Review, published in October 2010, said that the government can reduce its spending by acting as a single purchaser, consolidating its supply chain and squeezing its suppliers. “The implication of that programme is they will reduce the number of people they buy from to a very small amount of very large suppliers,” said Taylor.

While this can be an effective way to cut costs through economies of scale, it is not appropriate to every sector, added Taylor. In the case of IT in particular, a great deal of innovation is coming from smaller companies, which can help reduce government expenditure through agile processes and open source technologies.

Taylor cited the Ministry of Justice’s CIPHER project as an example of how SMEs are being elbowed out of contracts as a result of these conflicting objectives. Back in March the MoJ cancelled all freelance IT contractors supplied through SMEs and transferred them to outsourcing company Capita‘s £123 million Cipher contract.

“The solution that we are proposing is very simple,” said Taylor. “In the private sector, companies of whatever size will purchase from whichever entity makes the most sense. If it’s a commoditised service, buy it from a huge supermarket at commodity prices. If it’s a specialised service that is appropriate for the business, buy it from an SME.”

The news follows comments last week by Stephen Allott, the Cabinet Office’s crown representative for SMEs, who said that it will take up to two years for Whitehall to stop excluding small businesses from work they could do more effectively than larger rivals.

Allott was quoted in the Telegraph as saying that meaningful reforms were being rolled out, but that they would take time to be implemented. “There are a lot of things that need to be fixed,” he said.

Ending the rip-offs

Back in July, MPs on the Public Administration Select Committee (PASC) released a report entitled  “A Recipe For Rip-Offs”: Time For A New Approach, which  revealed “obscene” overspending on IT within government departments. According to some sources, the government often pays between seven and ten times more than the standard commercial rate for IT work, said Bernard Jenkin, chair of the PASC.

However, according to Intellect, the trade association that represents IT suppliers of all sizes, allegations of anti-competitive behaviour and the suggestion of an industry cartel were “completely unfounded,” as well as being “inaccurate and misleading”.

“The implication is that leaders of public sector businesses in our industry have been involved in criminal activity,” said Intellect in a statement at the time. “As the trade body for the ICT sector, we want to make it clear that this is not the case and cartels do not exist in our industry. On the contrary, this is a highly competitive market.”