So an election pledge becomes policy! From 1st April, unless there is a "strong business case" or a "matter of National Security", all Central Government IT contracts will be capped at £100m.
Not quite Big Society but certainly less big IT.
Whitehall, claim that the £100m limit can be complied with by:
• encouraging the reuse of existing assets;
• making changes to procurement such as the application of lean methodology to buying;
• greater competition among suppliers including through the increased use of SMEs; and
• creating contracts differently, for example, by reducing their length or separating out commodity hardware from a new project and purchasing it through an existing contract, or separating out telecoms needs and buying them through the PSN frameworks.
Nice words but will any of these really enable central government to deliver.
Will the £100m cap create a level playing field on which SMEs can compete?
Let’s get the ‘reuse of existing assets’ myth out the way first. Technology moves apace so quickly, that hardware and software once bought as a limited shelf life. Standard accounting practice depreciates its value from 100-0% over three years.
Consider also the level to which previous government procurement exercises have created bespoke solutions tailored for specific purposes. Simple reuse, other than for standard bought desktops, seems highly unlikely - when buying new generally costs less than reconfiguring old.
Making changes to procurement including lean methodology to buying. Ask any procure operating or supplier bidding under the OJEU regulations and they’ll say it does little more than add voluminous red tape, expense, delay and, ultimately, no better result.
The UK, it seems, stands alone in the EU in observing these regulations to the letter – think of instances such as that of Bombardier trains, British jobs being lost.
Whilst the intent of open and transparent procurement processes is entirely right – the application of scalpel (or preferably fire-axe) to the current EU regulations would minimize cost for buyer and supplier alike and would encourage more suppliers to pitch for such contracts. Ironically, doing away with these regulations could create more competition.
If the UK is to challenge any rule of the EU, it should challenge this first. Let’s see if this is Whitehall’s intention?
Greater competition among suppliers including through the increased use of SMEs. A cornerstone of Coalition policy is to help British business through enabling them to compete for both Central Government (as per this policy) and local government (the Localism Act) contracts. SMEs, small to medium enterprises, are normally considered to be companies with fewer than 250 employees and turnover not exceeding €50m, per annum.
If one of the aims of this policy is to provide SMEs with the opportunity to compete – then the limit of £100m per contract invalidates the policies efficacy as no SME could realistically compete at this level.
Even with a leaned out process of procurement, the cost for suppliers to go through such an exercise is prohibitive. Larger corporate organizations are able to absorb this by spreading the cost of failed procurement exercises across those they are able to secure. It will simply not be possible for SMEs to absorb this.
And, finally, creating contracts differently through making them shorter or separating out services. More contracts, means more procurement exercises, more bidders and more service providers. Even with ‘leaned out’ processes, the cost of procurement will rise through the increase in sheer volume of ‘moving parts’ in the system.
So, where are we?
Reuse, unlikely.
Lean processes, desirable but will the UK take Europe on?
More competition, and the encouragement of SMEs, the £100m limit makes this policy totally ineffectual.
Breaking contracts in to smaller, shorter or more discrete parts just adds volume and therefore increases the cost of procurement, Again, as the target is £100m per contract – this won’t help SMEs.
So, from a procurement perspective, this policy has some very real practical challenges.
There is also a massive oversight here. A failure to see the bigger picture. Even if these measures did reduce cost and increase SME engagement, in terms of the cost of procurement – the Government have considered the life and management of those contracts, post procurement.
One of the benefits of buying (properly) from big suppliers is that you can pass the management of the delivery of a number of services to the supplier. They can do this due to scale and infrastructure. Engage a larger number of smaller suppliers and who is going to take responsibility for and absorb the cost of ensuring that each of the procured services fit together?
All in all, whilst lean procurement and the challenge to Europe of the procurement rules is desirable, this doesn’t look like a piece of policy that has been that thoroughly thought out.
Stephen Allen FRSA, advises public and private sector organizations on creating efficient legal functions. He writes a daily blog www.lexfuturus.com which challenges the legal services market to innovate.