Public enemies

Competition in the public sector is fiercer than ever as margins on certain commodity products erode. Hannah Breeze finds out more

"It would not surprise me if Comparex is the only software reseller adhering to the pricing terms and conditions of the CCS [Crown Commercial Service] frameworks."

That is according to Comparex's UK managing director Mike Chambers, who gave a bullish appraisal of the public sector in a recent chat with CRN.

Comparex has always sold into the public sector in the past, but at the turn of 2015, it bagged a place on a number of government frameworks such as G-Cloud and Technology Products. Its arrival on the schemes acted as a turning point for the firm, which then proceeded to ratchet up its presence in the sector and form a dedicated sales team.

At the start of the year, it lured more than seven public sector sales experts to its York office from rival resellers in response to its arrival on the framework duo. By the end of this year, Chambers (pictured) hopes the team will have grown to nearer 20 thanks to an imminent graduate recruitment drive.

And the investment appears to have paid off so far - Chambers claims that sales in its public sector division have reached about ￡20m in just the first half of this year, mainly thanks to deals done through Technology Products.

Raising eyebrows

A significant chunk of the UK channel has a sizeable footprint in the public sector market, which has meant Comparex's rapid expansion in the space has certainly not gone unnoticed. Some industry onlookers have said Comparex's public sector expansion has been "incredibly aggressive", particularly when it comes to how it prices its products.

But Chambers insists that this is not the case, and made a perhaps controversial statement about pricing practices in the public sector.

"I don't think we have been particularly aggressive," he said. "All we have done is stick to the terms of the framework. What shocks me a little bit is if you look at the gross margin percentages agreed in the tender responses, plus also the rebate which has to go back to the CCS, we're talking the net amount the reseller retains is very low single digits.

"However, if you look at the average gross margins some of our competitors who do large amounts in the public sector retain, it doesn't add up."

He would not be drawn on exactly how he believes other resellers supplement their margins, but insisted Comparex plays it by the book.

"I think the reason we have been so successful is Comparex has managed to leverage pricing from our vendor relationships [and] distribution relationships, but also the pricing that is available throughout the rest of the EMEA region. So we are utilising the best pricing available mostly within the UK, but also within the EU."

Chambers put Comparex's recent public sector boom mainly down to its place on the Technology Products framework, on which it was awarded a place on the second lot - Packaged Software and Value-Added Services. CRN understands that particular lot is particularly competitive, with the CCS actively rewarding suppliers which bid at wafer-thin margins.

That the government awards more points - which are ultimately used to rank the bids - to bidders which go in at

cost price plus one per cent margin, and then fewer points are given for those bidding up to cost plus three per cent, with even fewer still going to those which bid above the three per cent mark.

Customer first

But the race to the bottom when it comes to margins in the public sector is not always beneficial to customers, according to some. Softcat's public sector director Jamie Burke said rock-bottom pricing is not everything when it comes to choosing a supplier.

"Our experience suggests it is those resellers who feel pressurised into effectively buying business at a dangerously low markup who then realise that they cannot afford to align the appropriate resources to deliver the level of service and support the public sector quite rightly expects and deserves," he said.

"Because of this practice, more and more customers assume that competitive pricing has to be at the expense of excellent service; two things Softcat prides itself on delivering.

"Given the highly competitive nature of further competitions in the public sector, which typically drives best value - or at the very least the lowest price - coupled with the rigorous and regular audit processes CCS undertakes, the bigger problem is not resellers making in excess of the permitted markup."