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Exclusive: government drive to break up massive tech contracts starts to pay off

A landmark analysis of UK government tech contracts has revealed that efforts to bring an end to an era of massive outsourcing deals are starting to pay off.

Researchers at Tussell, a government contract data source, analysed thousands of contracts for NS Tech ahead of today’s GovTech Summit in Paris (12 November), which brings together world leaders, technologists and civil servants.

Tussell found that over the three years leading up to the end of June, the total value of contracts remained at around £5bn a year, but the annual number of contracts increased from 3,333 to 4,521 as the size of deals shrunk. The value of awards won by the 10 biggest suppliers fell from 60 per cent of the total to 36 per cent.

During the same period, the proportion of the value of awards won by small and medium-sized enterprises (SMEs) rose from nine to 16 per cent, indicating the government still has some distance to go if it is to meet its 33 per cent target by 2022.

One of the biggest hurdles for smaller businesses looking to work with the public sector is buyers’ preconceptions, according to the research. The proportion of deals flagged as unsuitable for SMEs rose from 31 to 37 per cent, the researchers found. Yet SMEs still won a significant number of these deals, albeit at a lower rate – 35 versus 47 per cent – than others.

The Cabinet Office minister Oliver Dowden, who is responsible for government procurement, welcomed the research. “I’m pleased to see SMEs gaining more market share,” he told NS Tech. “Encouraging them to bid for government contracts is a big priority for me. They are the backbone of our economy.”

Speaking at the GovTech Summit on Monday, Dowden added that too often government buyers look at existing contracts and re-let them at a lower rate, rather than considering whether new technology could change the way the service is delivered.

The Government Digital Service, a division of the Cabinet Office, is expected to publish a strategy guiding public sector innovation by the end of the fiscal year. It has also recently launched a govtech challenge to explore how startups can solve issues facing the public sector. The challenge fund is currently worth £20m, but Dowden said he was keen to scale it up in the years ahead.

Another way government has attempted to boost the number of SMEs working with government is by launching the G-Cloud framework, which lets businesses apply to be included on a register of approved suppliers of cloud computing services. In 2015/16, 45 per cent of the value of the awards made through the framework went to SMEs, but only 37 per cent of the £100m procured through the system was won by startups and medium-sized businesses in 2017/18.

The researchers noted that one of the limitations of the government’s data is that it does not currently reveal how many SMEs are winning work through the supply chains of bigger contracts. Daniel Korski, the chief executive of govtech VC fund Public, said that “if the government is serious about giving contracts to SMEs in the technology space, we need to know what we’re talking about”.

“The government needs to create one standard way of reporting how things are passed through the supply chain,” he added. “We need to move away from this idea of relying on large suppliers to tell us, which is currently what’s happening.”

Korski added that while the government has made progress in withdrawing itself from huge outsourcing deals, the UK’s decision to leave the EU was slowing the pace of change. “There’s a tendency in the British government in the context of Brexit to hold existing suppliers close.

“I still think there’s a lack of understanding of how easy it is to build robust, secure technology, given that everyone now relies on the same kind of cloud architecture, which on the whole is supplied by Amazon, Microsoft and Google.”

Korksi also criticised buyers for placing startups under greater scrutiny than bigger suppliers. “There continues to be a series of unrealistic demands put upon startups to prove their financial viability,” he warned.

Over the three years, BT Group was the biggest beneficiary of government awards, winning more than £1.6bn worth of deals split across 214 contracts. IBM came in at second place, winning £1.5bn across 97 deals, and Fujitsu third, winning £1.4bn over 74.

Gus Tugendhat, founder of Tussell, said: “In today’s digital world, IT & Tech is consistently one of the highest-value sectors in public procurement. In this research we wanted to shine a light on which government bodies are purchasing IT & Tech services, from whom and for how much. In particular, we wanted to provide an evidence base in order to measure progress towards the government’s goal of opening up its supply chain to SMEs.

“The findings paint a broadly positive picture: SMEs are winning a higher proportion of award value now than they did even two years ago, while the dominance of top suppliers has decreased dramatically.

“However, the data also highlights areas where more action needs to be taken. For example, the decrease in the proportion of contracts flagged as ‘suitable for SMEs’ will be counterproductive in helping the government to hit its target of spending £1 in every £3 through SMEs by 2022.”