Consulting firms win big from UK government procurement during 2019

Profile picture for user ddpreez By Derek du Preez July 13, 2020
According to the latest data from Tussell, each of the Big 4 consulting firms saw revenue grow from government in 2019. Meanwhile, outsourcing spend continues to decline.

Out of the British government's 35 strategic suppliers, it is the Big 4 consulting firms that won big in terms of increased revenues from the public purse during 2019. Whilst revenues were down for a range of other companies, particularly in the outsourcing market, new data indicates that these suppliers too could see a comeback in terms of winning government business in years to come.

Strategic suppliers to government are third party companies that the government deems so critical to the delivery of public services that the relationship with them is centrally managed.

It is perhaps unsurprising that government spend with strategic suppliers - particularly the Big 4 consulting firms - is on the up, given that the UK is facing a number of complex macro challenges, namely Brexit and the response to COVID-19.

According to Tussell, which provides market data on what the government is purchasing, spending on private organisations by central and local government was up 2% on 2018 to nearly £69 billion.

However, despite this overall increase in spend, strategic suppliers' revenue from the public sector decreased by £700 million to £14.7 billion. This is a 4.5% decrease on 2018, when they earned £15.4 billion.

According to recent Cabinet Office data, 12% of departmental spend went to SMEs, meaning that the government spends nearly twice as much with the 35 strategic suppliers as with all SMEs across its supply chain.

The graph below clearly outlines by sector how much spend each strategic supplier saw from government in 2019. As you can see, across IT and consulting, firms such as Capgemini, Accenture, PwC, Deloitte, KPMG and EY were some of the few firms that saw increased spend over the year, whilst others saw declines.

Image of strategic supplier spend in government
(Image sourced via Tussell)

Deloitte, EY and PWC were the biggest winners out of the consulting group with between 30%-51% increase in revenues.

The British government over the past few years has undertaken attempts to diversify its supply chain, trying to shift its focus away from a handful of powerful suppliers towards SME providers. The results have been mixed and there has been growing scepticism in recent years that the enthusiasm for such initiatives is fading.

With the ongoing Brexit saga and now COVID-19, there has also been renewed concern that the government will revert back to its old ways of operating and rely on large suppliers (particularly consulting companies) to guide the way. In addition to this, there appears to be a lack of enthusiasm on the government's part to set an agenda that deviates from this narrative.

It has been argued time and time again that government has the spending power to boost UK industry, introduce new thinking and ideas, as well as improve its agility by supporting a diversified supplier base and direct spend where it can towards SMEs.

Good prospects for strategic suppliers

The Tussell report also suggests that whilst many strategic suppliers may have seen revenues shrink during 2019, they have started to rebuild their market positions. Tussell states:

Last year they won 1,298 new contracts from the UK public sector worth nearly £17bn. This was a 56% increase on 2018.

These new contracts wins are a leading indicator that their public sector revenue will grow again in the years to come.

The Strategic Suppliers were also collectively names on 288 new frameworks created last year. These frameworks - essentially preferred supplier lists - will be crucial for them to continue winning business in 2020 and beyond.

The report also highlights that during 2019, strategic suppliers won 24 £100 million+ contracts. Babcock and Serco were the big winners, both named on £2 billion+ contracts. Whilst most of the large contracts were awarded by central government, the wider public sector also awarded large contracts last year.

On average, central government departments spent 26% of their evidenced procurement spending on strategic suppliers. However, three departments - the Home Office, HMRC and the Ministry of Justice - spent more than 50% of their evidenced procurement with these companies.

Government procurement on the rise

In a separate Tussell report released this month, data on public procurement also indicates that the government has published 40% more market opportunities compared to the previous month.

The report states:

The UK public procurement market continued its strong recovery in June, with the number of initiations to tender published increasing by 40% in June, nearly double the growth rate seen in the previous month.

Opportunities published include a massive NHS developer framework, employment services for the DWP and a CCS media services framework.

It adds that there have been £4.3 billion worth of COVID-19 response contracts published to date. The single largest sector within this was for PPE, followed by testing.

In terms of the COVID-19 response, SMEs are not heavily involved, earning just less than a third of the total contract value. That being said, this is more than the wider UK public procurement market, where last year they earned less than 20% of the total value of public sector contracts awarded.

My take

If you've been tracking the path of public sector procurement in recent years and the change in tone from those in charge, these results perhaps won't be particularly surprising. But it's important to highlight this data in order to understand what the government is prioritising. Given that both Brexit and COVID-19 are going to require a huge procurement response from the public sector, the government should be clearly articulating its strategy for how it intends to make the best use of public money, considering the impact on UK industry, skills and projects that can aid the economic recovery. Unfortunately it seems that any forward thinking approach is currently lacking and the strategy is being outsourced to the consulting firms that will be more than ready to provide guidance. A new procurement programme should be devised, one that doesn't just focus on the mechanics of where spend goes, but one that also ties into a broader growth strategy for the UK and clearly lays out the impact on the mechanics of Whitehall.