The big lie: Europe's IT purchasing level playing field

Profile picture for user slauchlan By Stuart Lauchlan November 4, 2013

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A few months back Tim Gregory, the man put in charge of CGI’s UK operations, made a rather foolish comment to Computerworld UK’s Derek Du Preez in which he made the allegation:

“You’ll be aware that the government is making life difficult for IT vendors. I find this adversarial approach quite unhealthy.”

This was not a remark that gained Gregory much sympathy, such is the antipathy towards what the current UK government describes scathingly as the 'oligopoly’ - by which it means the large systems integrators and the like - which has dominated the public sector IT landscape for so long.

While Gregory might have chosen his words more carefully perhaps, it is true that these are testing times for many suppliers.

Not before time, many would argue, but while it’s an exaggeration to say that the government is at war with its incumbent providers, it’s certainly not in any mood to take any more nonsense from them either.

Just this week two major outsourcing providers to government - G4S and Serco - have found themselves on the receiving end of criminal investigations by the Serious Fraud Office into allegations of fraudulent behaviour in relation to contracts with the UK Ministry of Justice.

As John O Brien of research house Techmarketview noted:

These SFO investigations show just how serious UK Government is about tackling any untoward behaviour by two of its biggest outsourcing partners.

Elsewhere the Office of Fair Trading has confirmed it is mounting an investigation into IT provider practices in the public sector, focusing heavily on the idea that the ‘oligopoly’ locks out competition from a market worth £14 billion a year.

Renewal time

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One reason all this matters now is that most of the multi-year, multi-billion ‘oligopoly’ contracts are coming up for renewal - or more likely non-renewal - in the next 18-24 months so the government is well-placed to play heavy with its suppliers and demand a change of behaviour.

There is also the matter of changing European Union procurement laws that will help government officials to create official blacklists of suppliers who have failed to deliver the goods in previous contracts and get some big snouts out of some bottomless troughs.

But of equal importance is propensity towards supposedly preferential treatment for some suppliers in the European public sector.

There are various reasons why the same names come round time and again and one of them might be references towards specific brands in supposedly level-playing field tendering processes.

A group that’s been at the forefront of publicising this aspect for many years is the OpenForum Europe (OFE), an independent, not-for-profit organisation supported by major IT suppliers including Deloitte, Google, IBM, Oracle and Red Hat, as well as SMEs and various user and consumer organisations across Europe.

For the past five years, OFE has examined the EU Member States' practice of referring to specific trademarks when procuring for ICT products and found what it calls:

“a trend of continued discrimination…Such a practice limits competition by excluding specific suppliers from placing a bid for a contract.”

Now technically speaking this is not legal by and large. Naming trademarks in tenders is viewed as discriminatory, and is against existing EU procurement laws, except under specific and exceptional circumstances.

Essentially if the value of a public contract is above €130,000 in central government and €200,000 in other government sectors, then the contracting authorities intending to award that contract have to follow the procedure laid down in the Public Procurement Directives.

Invitations to tender for these contracts also have to be published in the Supplement to Official Journal of the European Union (OJEU).

Any evidence of discrimination or favoritism matters because public procurement accounts for 19% of the EU's gross domestic product or around 2.4 trillion euros, according to Eurostat figures from 2011.

OFE notes:

“By specifying one preferred supplier public bodies are inadvertently helping dominant firms maintain their stranglehold on markets to the detriment of smaller competitors. Not only that, but the lack of competition often leads to greater expenses, resulting in a waste of EU's taxpayers money.

“Europe 2020 Flagship Initiatives such as the Digital Agenda for Europe or the Innovation Union define Public Procurement as a vehicle to the economic success of Europe, to the development of European R&D and to an arena where SMEs should progressively have more access to.”

Bad practice

OFE examined 841 documents issued by contracting authorities procuring for computer software products over a three months period from April 1st to June 30th 2013. It found that 17% of tender notices included technical specifications with explicit references to trademarks.

The conclusion to be drawn is that:

“Engaging in a more comprehensive and global analysis of the EU's procurement market would show that the use of discriminatory technical specifications is a widespread practice within the EU.”

By far the most common trademark to be referenced in IT calls for tender was Microsoft, with almost 10% of all tender notices making a direct reference to a Microsoft product. Oracle, Hewlett Packard and Cisco follow behind.

(NB: there is no implication in the OFE report findings that any provider advocates or is complicit in any form of discriminatory behavior or breaches of procurement law.)

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The scale of bad practice varies from country to country with Italy, Slovenia, Romania, Hungary and Spain the worst offenders, but a number of others have little to be proud of either. Only the UK and Sweden emerge untarnished with no transgressions.

(Although Greece also has no evidence of discrimination the OFE highlights that its sample here was very small so draw your own conclusions…)

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Make IT better

So what is to be done? OFE makes a number of key recommendations:

EU decision-makers have to adopt a series of measures to open up public procurement to all economic operators, including SMEs, by removing artificial obstacles and improving procedures and encouraging the widest possible participation.

Barriers to exit also need to be taken into account, says OFE as if such barriers persist in the market, they can allow inefficient suppliers to remain in the market. In other words, it needs to be easier to root out the bad apples.

It also calls for greater clarity from the European Commission around procurement rules to prevent inadvertent breaches, stating:

“The inconsistencies in the amount of information…is a cause of concern and make it difficult to correctly assess the full extent of the problem. Some countries are doing much better than others in this regard and exchange of best practices should be encouraged.”

Finally, OFE urges its members to engage with procurement authorities across the EU to ensure that:

  • no predatory behaviour occurs.
  • that they encourage public authorities to mandate that procurement follows open standards to improve software interoperability.

Verdict

The OFE results suggest that the UK market is in fact one of the most level playing fields for IT suppliers bidding for public sector business, although that shouldn’t in any way be taken to suggest that the reforms and tough actions of the current government should be diluted or reined in in any way.

The drive towards Digital by Default and initiatives such as the UK G-Cloud programme have the potential to be genuinely transformative and quite frankly the UK just can’t afford to go on paying out for the same old same old any longer.

The same is true of Europe at large and here - in a rare moment - is where I end up calling for the Commission to interfere a lot more.

It’s quite clear that EU procurement laws are not rigorously enforced and that individual countries have hugely variable track records when it comes to sticking to the rules.

Those who advocate and enthuse long term about a single market for cloud computing and telecoms might profitably turn their short term attention to a single market for procurement legislation and enforcement.

(But they won’t!).

 

Graphics: OFE

Disclosure: at time of writing, Oracle is a premium partner of diginomica.