9 Procurement and the ICT Industry
Over the last ten years we have seen the boundaries of the ICT industry extend as more and more aspects of business and life in general are touched by digital technologies. Within this growth we have also experienced the convergence of technologies and the companies that provide them.
There has been a great deal of consolidation through mergers and acquisition. The net effect of all of this is that the expanding market place is serviced by fewer major companies than five years ago. On the other hand there are many thousands of small- and medium-sized technology companies anxious to bring their innovation and capabilities to bear.
The diminishing number of large suppliers, the commercial interaction between them and the complexity and dynamism of their technologies means that having a coherent overall procurement strategy and operational approach is vital. The Scottish public sector could not be further from this ideal at the present time.
Since 2006 the structures for and professionalism of public sector procurement have developed at an impressive rate. There is a single centre of expertise for each of the sectors and a national organisation to deal with ICT commodities and services that are common across the whole of the public sector. However, it appears that these structures are able to access and support procurement of a relatively low level of the nearly £900m of spend 12 with the ICT industry. And of course because the bulk of that spend is handled locally and primarily on behalf of individual public sector bodies it means that one of the Scottish public sector's largest categories of spend is one of the most fragmented in its approach to the supply base.
Although there is a low level of procurement involvement considerable effort has been expended by the various procurement departments across the public sector to make inroads in terms of aggregating spend and offering professional procurement involvement ICT expenditure.
For example the Procurement Scotland organisation which handles national contracts on behalf of the entire public sector has developed contracts for some categories of hardware, certain software licences and other ICT commodities. There are framework contracts in place covering a potential of more than £100m of external spend. The National Procurement organisation within the NSS Board has also been active in pursuing coverage of ICT spend as has the Advanced Procurement for Universities and Colleges ( APUC) unit for universities and colleges and also the Central Government Centre of Procurement Expertise ( CGCOPE).
However, all of these organisations find it difficult to engage comprehensively in the area of ICT spend primarily due to the fragmentation of user activity and the absence of complete governance models.
Another key challenge in the field of ICT is associated with the perception that installation and ongoing contract management should not be integrated within the procurement process. Ideally a complete procurement process should be regarded as including the commissioning and management of external ICT applications, services and installations.
The mixture of a market place with large and powerful ICT companies on one hand and this extremely granular and uncoordinated approach on the other is certainly not a recipe for achieving good value. In addition, it will never deliver progress towards an efficient and effective digital public sector.
This situation is even more damaging when the level of external ICT spend referred to above is taken into account.
The profile of overall spend with suppliers for 2008/9 shows that the external spend was assessed at nearly £900m. (Although some data was available for 2009/10 it was not 100% complete.)
Within that one supplier accounts for more than £100m which is nearly 12% of total spend. Although there are approximately 4000 suppliers 80% of the value was spent with just 239 (6%) of these and just the top nine suppliers account for 38% of the expenditure. Within these spend statistics there is a value of around £200m per annum being incurred for broadband services provided by just a few suppliers.
And of course with there being very little sharing of ICT services and therefore fragmented procurement, most of the large amounts spent with single companies will originate from many individual contracts all separately tendered and awarded. For example, it is estimated that there are more than 140 separate contracts for the broadband services referred to above.
In addition, there are some contracts with large providers where services have been vertically bundled into single contracts. In these cases it is essential to have transparency at each layer of service so that best value can be assured throughout the life of the contract.
As mentioned above there is a community of small- and medium-sized businesses striving to offer the public sector innovative solutions and good value. Bodies representing these suppliers are greatly concerned about the difficulty they have in having access to bring forward these innovative solutions and services to users and those specifying requirements.
At the same time large suppliers are also not satisfied with the current situation. They undoubtedly incur considerable cost in engaging with and tendering to hundreds of different public bodies.
Also they are anxious to engage at the leadership level with the sectors so that they can position themselves to offer added value, new technologies and often worldwide experience to the public sector. Some may also be willing to make significant capital investments as an element of tendering and winning contracts. Others are ready to make business propositions to sectors and also the overall public sector in Scotland including partnership arrangements which could be of mutual benefit. So whether its investment, skills, technologies or experience there is no doubt that the ICT industry and its suppliers can bring effective capability to the aid of the public sector.
Given all of these factors and recognising the characteristics of the ICT industry a radical change and indeed a complete paradigm shift is required in how the public sector orchestrates itself in engaging and contracting with suppliers and also how it takes account of and manages the opportunity offered by working in partnership with the ICT industry within the context of EU legislation. This approach will not only deliver best value but also assist in advancing the public sector towards the vision described earlier in this report.