The government is one of the biggest spenders on IT in the UK, which makes it the target of many an ambitious reseller. But few dealers have managed to prise open the doors to the Treasury coffers and some have not even tried.
The government spends a total of #2.35 billion a year on hardware, software, telecommunications and staff, according to Kable, a consultancy which specialises in government and IT. The budget for PCs alone is #330 million.
The prospect of sharing in such stately largesse must be mouth-watering to many dealers, but their prospects of making any real headway in this lucrative market have traditionally been remote. However, according to some companies that sell to the state, the signs are that things are improving.
Because public money is involved, government departments are less flexible than their counterparts in the private sector. First, there is financial accountability to bodies such as the Public Accounts Committee. Second, government contracts also have to comply with European Union rules on open tendering once they reach a purchase price of more than #120,000. Third, government tenders can be a long, drawn out process involving rigid specifications and lengthy negotiations, which can result in equally lengthy delays in payment.
The Tory government was a pioneer of two major IT initiatives: outsourcing and the Private Finance Initiative (PFI). Both were seen as an attempt to ease the financial burden on the taxpayer and introduce an increased measure of private enterprise into government IT.
One of the first acts of the Labour government was to announce that the rules governing PFI would be eased. Geoffrey Robinson, the paymaster general, announced a 12-point plan to encourage public and private enterprise partnerships. The government also announced that it would set up a committee to review the PFI process and appointed an under-secretary of state, John Battle, as IT minister.
In the view of the Computing Services and Software Association (CSSA), PFI has been a failure. In a paper published before the general election on computing in the health service, the CSSA stated: ?The Private Finance Initiative was supposed to allow more flexible ways of paying for systems, but so far its main effect has been to increase bureaucracy, delay projects and drive down prices, resulting in many major suppliers leaving the market.?
But selling into government departments is difficult and more costly than any other vertical market sector, according to those companies that operate in the field. Financial and accounting software house, Systems Union, has been selling to government departments for several years and claims to be the market leader. But although it sells through the channel, Systems Union?s government divisional manager, Laurie Mascott, says in the main the government departments prefer to deal directly with the supplier.
?There is an opportunity for resellers but it is a tough one. It requires a lot of up-front investment and you really need to understand the market.?
By way of illustration of the sort of costs involved, Mascott cites the example of a salesman that Systems Union took on to deal specifically with one government department. ?I took on a salesman to work on the Ministry of Defence account and we had to invest in him for three years before we saw a return on our investment,? he says.
According to Mascott, securing a contract with a department can take anything be- tween six months and three years because of the tight procurement procedures. He says the whole complex process was designed to deliver value for money, which on the surface he believes it does. But what he is less sure about is whether, when the cost of administering the procurement process is factored in, the savings are as great as may initially be thought.
In effect, Mascott endorses the view put forward by the CSSA in its April paper on the health service. The association called upon the government to ?urgently reduce the bureaucratic burden of procuring systems. Today, the average time taken to order a major hospital system is well over two years. In some cases the procurement process costs more than the eventual contract it leads to.?
The contracts are usually based on guidelines laid down by the Central Computer and Telecommunications Agency. Mascott says: ?The chances are that you will be signing a contract based on terms laid down by the CCTA, which are very tight. In the software supply agreement there is a standard support escalation process which means you have to have the necessary staff on board.?
The one big advantage of selling into government departments, he says, is the size of the order. ?The nice thing about dealing with the government is that if you are successful they tend to buy in large amounts.?
The system has actually been simplified recently by the introduction of GCat (Government Catalogue), an electronic ordering system for lower priced products such as PCs and printers. GCat is administered by EDS, the prime contractor and one of the state?s biggest outsourcing suppliers; ICL Enterprises; and Tplc, the distributor-cum-dealer which is also an ICL company. EDS? role is to select the best of breed supplier in any given field, while ICL contributes the marketing and sales strategy and Tplc acts as the supplier.
According to a representative of EDS, GCat generates #200 million of revenue and contains 27,000 products from 300 suppliers. ?GCat is very much demand-led and the selection criteria is agreed with the CCTA,? he says.
Every month, a meeting takes place between GCat?s customers, the CCTA and vendors to review submissions to GCat. If a government department wants to purchase something that is not currently on the GCat list, it can ask for the product?s inclusion at these meetings. Similarly, a vendor whose product is not included in the catalogue can ask for inclusion. In the event of a rejection, the vendor can appeal to the CCTA.
The GCat rules also apply to any contractor which is at least 50 per cent funded by the government or any body, such as a water authority, which is regulated by the government. But the coverage only extends to their main form of business. For example, should a water company decide to issue its own credit card and need IT backup to do so, it would not be eligible for GCat assistance.
One of the major advantages of the scheme is that it circumvents the lengthy EU governed procurement process because inclusion in GCat automatically falls within the remit of the rules. ?It cuts out all that tendering nonsense for smaller systems,? says John Wolfe, ICL Enterprises marcoms manager.
GCat covers hardware and software volume products only and excludes support and services. But according to Rob Wirszycz, director general of the CSSA, a new catalogue is being prepared for support and services and is currently being published in the official journal of the EU. Wirszycz believes that this catalogue is ?ideal for Vars?.
ICL has always had a large presence in the public sector, thanks to the preferential procurement policies of governments in the 1960s and 1970s. In order to support and encourage the growth of the firm, then the UK?s only indigenous mainframe manufacturer, central and local government departments and the public utili- ties were virtually instructed to buy ICL.
Despite intensive lobbying against preferential procurement by US firms such as ICL and Bull, then called Honeywell, ICL managed to capture most of the market. At one point in the mid-1970s, Honeywell ? angered by a government directive to the Severn Trent Water Authority to purchase an ICL machine instead of the Honeywell system it wanted ? threatened to withdraw from the UK altogether.
The introduction of the PC, its steady growth in the public and private sectors and Thatcherite monetarism collectively spelled the death knell of preferential procurement and opened up the market to smaller manufacturers and resellers.
Wolfe denies that because Tplc sells directly to end users and is a dealer as well as a distributor, other dealers would be excluded from selling to government. To be included in the catalogue, all a dealer or Var has to do is convince EDS it has a unique offering and price that other resellers cannot match. The main advantage of being included in the catalogue is that it covers all government departments. When the larger systems subject to EU procurement procedures are involved, contract negotiations are done on a departmental basis.
What prompted the introduction of GCat was a 1995 government white paper which analysed public spending. According to Eliana Eaton, GCat marketing manager, the paper revealed inefficiency in public procurement. ?The results found taxpayers were not getting the best value for money,? she says.
While the procurement of large systems carried a high degree of competition, smaller deals often went ahead on the nod. In some cases this meant one government department buying PCs from a reseller was paying more than another department buying from another reseller for the same machine.
According to Eaton, GCat is primarily aimed at commodity products. Not every system is included. Mainframes, a database written from scratch and pre-sales consultancy, for example, do not fall within its remit.
Eaton endorses the view that Vars that genuinely add value to their products can make money from GCat, but says pure box shifters are unlikely to find any benefit. The introduction of GCat, she says, has already led to savings of #5 million and reduced the overall cost of tendering by five per cent.
GCat has also removed one of the obstacles that previously deterred resellers from entering the market, by cutting the time taken to tender and hence the time taken to get paid.
Eaton cites a recent MoD procurement process which used to take a year to 18 months, which GCat cut down to two months. The MoD had to decide whether to upgrade a number of ageing ICL machines or replace them with new kit. The department chose replacement, and from specification to installation the process took just eight weeks.
Not everyone agrees that the EU tendering procedure is perfect. Wirszycz says the EU rules are inappropriate to the UK IT industry. ?They were based on French public procurement rules designed to stop town hall officials giving road building contracts to their brothers.?
According to Wirszycz, government finances under whichever party had been elected on the 1 May would have to come under severe scrutiny. ?Labour are only now discovering the damage to the public purse that actually exists,? he says.
There is no doubt that the introduction of GCat has truncated the long-winded process of selling to the state and its environs. Moreover, the savings to the public purse and the shortening of the procurement process benefit both taxpayer and the IT industry.
It is still unclear what difference the Labour government will make to the IT industry and government procurement, but at least initially there is unlikely to be much change from the policies of its predecessor.
There are opportunities for the channel if it is prepared to take them and offer more than just a PC, printer, or packaged software. But the message emanating from the government is clear: time wasters and box shifters need not apply. The key to selling to the government has to be to add value.
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