Government, outsourcing and the £3,500 PC

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Recent reports that Government departments paid over the odds for IT will surprise few who have dealt with public sector procurement.

The Public Administration Select Committee’s findings that, in some cases, departments paid £3,500 for a bog-standard desktop computer is just one symptom of a wider malaise.

Public sector procurement is all too often over complicated, bureaucratic, and drawn out.

There are countless examples – in organisations as diverse as the NHS and the Ministry of Defence – where public sector buyers, and their suppliers, have somehow contrived to pay many times over the odds for generic, off the shelf services. It is aircraft carriers and hospitals that capture the headlines; it is the smaller, day-to-day purchases were “waste” could, and should, be cut out.

As MPs suggested, bringing in more, smaller firms could help to cut the public sector’s IT spending. But all too often, smaller firms are put off from bidding for public sector contracts by the cost of bidding, by the form-filling, the obscure purchasing process, unfavourable payment terms (think bans on staged payments) and a perception, correct or not, that the purchasing process favours large, if not incumbent, suppliers.

But when it comes to IT, there is another problem – and one that not only affects public sector organisations. Successive outsourcing contracts have reduced government departments’ expertise in running IT, and even their knowledge of their own IT systems. The “retained organisation”, to use the outsourcing jargon, is either too small, or lacks the skills to know what it wants and to manage the contracting process well.

This affects public sector IT contracts in three ways. Firstly, the organisations often lack the detailed in-house knowledge of their systems, and how they support the business processes, that they need in order to improve them. Managing this systems architecture expertise is a key function of the retained organisation.

Second, departments may not be very good at buying IT anymore; several years into a long-term IT outsourcing contract, with key staff and assets such as data centres, staff, and even mainframes transferred to the outsourcer, any IT buying that the department still does will be at a low level. The outsourcer will often make any significant purchasing decisions, as part of its contract.

And thirdly, smaller suppliers are reluctant to bid for contracts with organisations with a weak retained organisation. Such contracts are all too often hard to run at a profit, as the supplier either takes on too much risk, or has to give extensive support to its client’s retained organisation. Leaving aside whether it is right for a supplier to do such work, it is often not chargeable, or something a smaller contractor has the resources to do.

The most recent outsourcing survey from TPI, the sourcing consultants, pointed out that the UK had led the way in public sector IT outsourcing. For all its failings, these contracts have undoubtedly saved the Government, and tax payers, far more than they have cost.

But if Government IT is to continue to improve, and manage costs, internal IT teams need to be refashioned. They do not have to be larger, but they need to be smarter, and they need to regain control of IT strategy.

Private sector companies have been doing this for four or five years now, often working closely with their IT partners. After all, it is not how much a PC costs, but how much using that PC saves, that really matters.

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