Large Scale Government IT Contracts

A worrying development in the way in which government procures IT services has been the apparent loss of real competition due to the limited number of suppliers who are capable of taking a project on and the growing costs involved in making a bid. This creates a degree of supplier dependence that is a cause for concern. From the public point of view there are two ways in which their interests may be harmed by this development.

Firstly, the ability of government to implement its policies may be dependent on the timetable set by the IT suppliers rather than by the politicians who are making the decisions. The delays in bringing in reforms to the Child Support Agency systems in 2002 are an example of this. While decision-makers need to be mindful of the difficulties of implementing policies they have agreed upon, we must consider whether delays are being made worse than is strictly necessary because of the structure of the market.

Secondly, service to the customer can suffer where real competition fails. Liberal Democrats strongly believe in the ability of truly competitive markets to deliver improvements in services. Conversely, we believe that when competition fails then poor services are a likely result.

When government is putting out a service to tender, it has to be the case that better value will be secured when a number of serious bidders are putting effort into competing for that business. Yet, we are now seeing large tendering exercises, such as that for the Inland Revenue systems, where the trade press commonly reports that only the incumbent supplier is serious about bidding for the business.

We should also be concerned about what happens when a supplier underperforms in the context of a lack of serious competition. Where the supplier is responsible for a critical application, the scope for the contracting party to impose meaningful penalties and see an improvement in performance is severely hampered where it is known that there is no serious alternative to the incumbent for a system that must be kept running.

The Liberal Democrat response to this is to look at the scale of the contracts being offered at present. Single supplier dependence is a function of very large contracts that offer proprietary solutions to the end user. The risks of such dependence are now sufficiently large that a different contracting model needs to be considered. Work should be undertaken to look at ways in which large systems can be tendered for in a modular fashion. This is a model which appears to be under consideration for the NHS. The costs of the tendering exercises would increase under this model, but if it leads to stronger competition for each module than existed for the single large contract then it could deliver a cheaper result as well as a more resilient one. We would take this forward by engaging in pilots for the smaller modular contract model that would be fully evaluated by independent auditors.

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