Digital government inquiry - ‘Oligopolies dominate and SME spend going in wrong direction’

To address the headline of this article, the Oligopoly was a term thrown around a lot in the early days of the creation of the Government Digital Service – to address the imbalance in procurement spend with a select few, large suppliers, which were also typically underperforming. The likes of Liam Maxwell and the leaders of GDS were often quoted on how the ‘Oligopoly’ needed to be dismantled and that more power needed to be given to SMEs and brought back into government departments.

Whilst some disputed that the term ‘Oligopoly’ in itself was unhelpful – given that a lot of these suppliers are strategic to the delivery of government services – it can’t be denied that the intention was good. It was all about giving these companies, which had made billions over the years, sometimes for doing very little, a wake up call.

And for a while, it seemed to be working. New procurement mechanisms, such as the G-Cloud, spend controls and new targets forced government departments to rethink how they were spending the taxpayer’s cash.

However, experts speaking to MPs on the Science and Technology Committee today warned that previous efforts are being reversed, with one prominent SME, UKCloud, warning that we could be heading from an Oligopoly towards a Duopoly.

The Committee is in the process of taking evidence as part of an inquiry into the progress of Digital Government. It recently took evidence from Tom Loosemore, one of the founders of GDS, who said that progress on digital government and the transformation of public services is flailing.

On the topic of SME spend and opening up procurement to a wider range of companies, diginomica/government has recently reported about how department spend with smaller businesses is heading in the wrong direction.

Taking questions from the Committee, Simon Hansford, CEO of UKCloud, one of the success stories from the introduction of the G-Cloud, explained some of the benefits of broadening the supply base for government buyers. He said:

“Having a vibrant SME community not only drives innovation throughout government, but significantly reduces costs. I think there’s a lot of data through CCS (Crown Commercial Service) and others that demonstrate that to be the case.”

“We’ve seen a tremendous amount of good in government over the last five or six years, particularly since the formation of GDS. And through that has driven significant amount of transformation through government. G-Cloud in particular opened the market to many thousands of additional companies.”

However, he was the first to point out to the Committee that times are changing. Hansford said:

“But we are certainly finding that we are stepping back here and that there has been a significant reduction in spend with SMEs over the last couple of years. It’s drifting back into those old ways, which I would suggest were not the good days, where there were a small number of suppliers.”

Industry lobby group techUK was also giving evidence during the session, with deputy CEO Antony Walker also pointing to the benefits that the introduction of SMEs - and a broader mix of suppliers - can bring. He said:

“I think there’s a huge opportunity for the UK through what can be done through digital transformation of public services and service delivery. And SMEs that are often at the forefront of new ideas and innovation have got an incredibly important contribution to make to achieve that objective. So, having a diverse supply base that is able to bring new ideas and innovations to all parts of the public sector is incredibly important. And our view is that the UK needs to be able to benefit from the full ecosystem of small, medium and large sized firms.”

The Oligopoly strikes back

Professor Chris Johnson, Member of the Executive Committee for UK Computing Research Committee, was also in attendance and highlighted how the government needs to get better at assessing which departments, some of which have more spending power, are still limited in their approach to placing money in the hands of SMEs. He said:

“A lot of government procurement is dominated by Oligopolies in some areas. If we want to put some statistics behind the comments, in 2014/15 SMEs accounted for 27.1% of government spend. In 2016/17 that’s down to 22.5%. So we are going in the wrong direction.

“For instance, the MoD is between 13.1% and 18% of spend with SMEs. Obviously the MoD is an area where you could characterise a lot of the supply chain as Oligopolistic. Other departments that have a positive relationship with SMEs include DCMS and International Development. And so I think it’s much more nuanced. For instance, the MoD accounts for 45% of all government expenditure, so that 13% is really significant.”

Johnson urged the Committee to examine this point and added:

“There’s an SME champion in each department, but the visibility of those champions and the role of those champions is highly variable.”

What needs to change?

Hansford highlighted that the Government’s highly touted Industrial Strategy failed to include recognising procurement as a mechanism for growth, particularly as it relates to SMEs, and called for that to change. He said:

“I think the significant difference that could be made in procurement is to have procurement not only as part of our Industrial Strategy - it was there in the Green Paper, but didn’t make the White Paper. So it needs to be brought back into the fold. And we certainly need to bring social value as a component of procurement. Young small companies drive innovation, drive jobs, creating wealth in taxes that are paid back into our economy. “

And he added that SMEs are more than capable for helping government departments transform legacy services, but that if things don’t change on the procurement side, the Oligopoly situation could be made worse. Hansford said:

“There are numerous examples of where a disaggregated supply chain with SMEs and larger companies have taken on very large legacy contracts, very successfully. What it does do, is it takes more effort from procurement. And if anything I think that’s the area that we are slipping into the old ways of doing things, because it’s too hard for procurement.

“Personally I feel we are at risk that we’ve got legacy IT quite firmly in the hands of an Oligopoly of eight large companies, and we are likely to transform our estate into a Duopoly of just two companies that would set us up for a problem of tomorrow.”

TechUK’s Walker added that what mustn’t be forgotten is that a diverse supplier base can benefit the end user and the needs of citizens and that this must again be brought to the fore.

“I think the key thing in all of this is to go back to the GDS mantra of ‘user need first’. That has to be the driving purpose for all of this procurement. But then recognising in meeting and delivering on that user need, SMEs are going to play a vital role in delivering that.”

A skills problem

Finally, those giving evidence were keen to highlight that beyond the mechanisms of procurement itself, what needs to be developed is the skills within the Civil Service around how to manage and work with SMEs as part of a disaggregated supply chain. Walker, for instance, said:

“There’s no doubt that there’s a long term challenge to build the skills, capacity and culture within government and across government that can handle these complex procurements and digital technology procurements. They’re only going to become ever more important. “

Johnson agreed, and added:

“One of the biggest issues is that inside the Civil Service people are often rotated or leave post very quickly. Often the people you meet are fantastically engaged and talented in their area, they gain a certain amount of competency and leverage and then they move to another area. For an SME you then have the overhead of building up the relationships each time and understanding the requirements.”