SMEs are frequently more innovative, more responsive to customer needs and willing to go the extra mile, compared with their big business counterparts. So why do they have such a hard time accessing the public-sector marketplace?
The public sector now spends more on IT than the private sector, so an SME could be expected to generate more than half of its income from the public sector. Sadly for small firms, this is rarely the case. A recent survey by the Federation of Small Businesses found that SME IT companies generate just 10 per cent of their turnover from the public sector. Moreover, figures from the Parliamentary Committee of Public Accounts show that more than 80 per cent of government IT spending goes to just 11 companies.
There is an obvious appeal to the government in allowing one large company to run large projects: they have only to deal with one supplier, get everything done in one go and ensure it all fits together.
Unfortunately, those who have put their faith in this approach have been shown to be excessively optimistic. The UK has a success rate of only 16 per cent for IT projects (compared with 34 per cent in the US).
With this in mind, the government has realised that changing a system from top to bottom can lead to more expensive and higher profile losses than a lower-risk phased development. The scale and complexity of some public-sector IT schemes, especially if they require changes in working practices, make them too ambitious to undertake in one move.
Dave Birch, director at IT consultancy Consult Hyperion, which has contracts with the Home Office, said: “The current procurement system is too complex and time-consuming for most SMEs. As a result, the government doesn’t benefit from the talent that these firms can offer.”
Birch added that his firm considered gaining approved status on SCat – the official Software Catalogue of suppliers, and a predecessor to the current Office of Government Commerce (OGC) Catalist – but found it too unwieldy. Eventually, like many smaller firms, it decided to partner with one of the approved suppliers it found on the list. He said it may be useful if the UK looked to the procurement system used in Hong Kong.
“The Hong Kong system is rigorous,” he claimed. “You are not allowed to have any contact with the tendering party prior to the request for tender. That makes it a level playing field.”
As well as phasing the releases, experience from other countries suggests that dividing large public sector IT projects into smaller, more manageable chunks and farming these out to a range of suppliers can lead to greater success.
But there are signs that the government is changing course. Procurement professionals are breaking developments into smaller units to increase competition, reduce risks, and provide a basis for comparison. This new approach was apparent when, in June 2005, the Office of the Deputy Prime Minister announced that it was looking for two outsourcing partners to take over the running of its desktop and IT infrastructure.
The NHS programme for IT is proceeding on a similar basis, with five regional clusters of suppliers responsible for developments in their allotted areas. The programme is recognised as being too large for one supplier or consortium to manage.
In 2003, as a result of pilot studies, the Better Regulation Committee made 11 recommendations to the government on measures to lower the barriers to SME suppliers. As a result, measures are being taken to assist smaller firms.
The Small Business Service (SBS) and the OGC have developed a web site that provides information on selling to the government, an access point to advertised contracts and details of SME procurement pilots projects. In fact, a full procurement-to-pay portal for small contracts – called Zanzibar – went live recently. There is a simplified pre-qualification procedure for contracts below £100,000, and guidance has been issued to agencies to encourage diversity of the supply base.
There are signs that the measures outlined above are beginning to yield results: an SBS survey of central government procurement in 2004/05 found that 22 per cent (£1.039bn) of contract value was awarded to small businesses across all sectors compared with 18 per cent in 2003/04.
Tony Heyworth, marketing director at video specialist Polycom, said: “The government could get better value, service and response if it bought from smaller firms. At least the [ongoing review process] is helping to drive new approaches to profit, loss and efficiency.”
With regards to contracts in the health sector, his advice to resellers is simple. “Promote your healthcare and IT skills,” he said. “Find out what is going on in your local NHS Trusts.”
Chris Durnan, managing director of security distributor Peapod, said: “It’s a game of price. Even for very small contracts, public-sector customers will collect a handful of quotes and compare prices because they are under so much pressure to get a bargain. The truth is there is not much margin on the basic business. It’s all about the consulting and value-add that you can get.”
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