How G-Cloud became a poster child for the UK government’s SME engagement policy

Profile picture for user kmaciver By Kenny MacIver April 23, 2014
Summary:
Small and mid-sized businesses now bank almost 60% of the spend that UK central government departments put through G-Cloud, as short, fixed-term contracts, pricing transparency and open procurement have “levelled the playing field.”

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Like many Western governments, the UK’s coalition of Conservatives and Liberal Democrats has a stated goal of shifting a major proportion of departmental spending from large companies to small- and mid-sized enterprises. Shortly after taking office four years ago, it set a target for 25% to be spent with SMEs by March 2015.

There’s a genuine economic argument for such a move: SMEs generate a much higher proportion of the country’s overall wealth and employ many more people than their large counterparts. But there’s also some revenge-taking going on based on the perception that “the oligopolies” (as they’re openly derided by senior civil servants) over-charged and under-delivered — sometimes on a catastrophic scale.

Perhaps it’s not so surprising then that, when given the opportunity, UK government buyers have been voting with their wallets. The last published report shows that direct government spend with SMEs was 10.5% of total, with another 9.4% coming from indirect purchases.

Impressive as that 20% is, the SME fervour is considerably more pronounced when it comes to the acquisition of IT services through the government’s cloud store. “G-Cloud has been the standout success in the SME program,” says Stephen Allott, Crown representative for SMEs to the Cabinet Office. And the numbers are certainly there to back that up. The cumulative spend through G-Cloud with SME companies over the program’s first two years reached £92 million ($154m) in March. That compares to just £62 million ($104m) placed with large enterprises.

 

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G-Cloud — Cumulative spend to date, by supplier size

 

“So on a truly level playing field, when central government buyers can choose what they want to buy, SMEs are winning 60% of business,” Allott underscores. Related to that, he observes how several larger government departments are actively developing SME ecosystems — something that will become even more pronounced as many of the long-standing outsourcing contracts forged in the last decade come to an end this and in coming years. “I hope they are doing it because they think they are getting greater value for money [from SMEs] rather than just [to follow] policy, and I think they probably are,” he says.

High-speed procurement

One of those is the Department of Transport, where technology leader James Findlay likes to highlight how his department was the first to start buying through G-Cloud. “Initially, that took a bit of a leap of faith, overcoming nervousness within the procurement teams around the terms and conditions,” he says. “But we have come a long way since then. We are now beginning to see quite an acceleration in the growth of the G-Cloud — and, as a consequence of a number of large contacts coming up for renewal, we are using the G-Cloud significantly more.”

But it is not just contract renewal driving that take-up. When it comes to placing IT business with SMEs, Findlay and colleagues at the DoT have a green-field opportunity to work with. As CIO of HS2 Ltd, the DoT-owned company formed to develop high speed rail links between London and the north of England, he has more of a clean run at any SME target.

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James Findlay, CIO, HS2 Ltd

SMEs have taken “nearly 100%” of HS2’s IT contracts, at least until a few months ago when one of those suppliers’ success pushed it over government threshold for a mid-sized supplier.

For Findlay, HS2 contract activity is not driven by any dogma. “I’m not hung up on whether suppliers are small or large; more if they can they do the job, and get the price and the value right. For example, if you have to roll out [programs] at relatively short notice, nationally over a 24-hour period, as we have done, there are actually only a few small companies who are able to help achieve that. The reality is that [in some government departments] there was almost a monopoly and that is no longer the case,” he says.

Buying without the smoke and mirrors

With their share of G-Cloud business shrinking, several of those larger suppliers are trying to turn the oil tanker as fast as they can, he says. “Some have actually woken up to the fact. There is huge inertia to change as it’s messing with their business models:  they have largescale capability internally, where they have invested in certain skills, and retooling all of that is not a quick fix.”

But what factors have levelled that playing field, or maybe even sloped it in favour of SMEs? What makes G-Cloud particularly attractive, says Findlay, is the transparency of terms and conditions and pricing. “We are seeing the Ts&Cs maturing and market pricing settling. Both from the buyer and the supplier perspective, it actually makes the process a lot more straight forward, less smoke and mirrors, and, as a consequence, that’s better for the taxpayer.”

G-Cloud is also having the effect of creating pricing stability for IT services. “We are still in the transition phase – still migrating from contracts that use ‘old money’ pricing schemes. But we are certainly accelerating towards far more open pricing, and that’s going to settle over the next 12-24 months.”

Two-year threshold

Some of those pricing dynamics are certainly being driven by the G-Cloud policy of limiting contracts to 24 months — something that creates flexibility for buyers but puts pressure on vendors to deliver repeatable and consistent value. That has some drawbacks, though, as Andrew Hawkins, business development director at public sector IT service provider Eduserv, points out. With no guarantee of renewal, a two-year contract does not always provide a basis for reinvestment, he argues. And while such short-term deals may suit the procurement of new applications, they create too narrow a timeframe when organizations are migrating between environments, he says.

“At this stage, a lot of organizations are migrating to cloud and that doesn’t mean you can move immediately to a power-up, power-down managed service world.  There’s a bit missing in the procurement [agenda] for that kind of migration,” says Hawkins.

Trip Advisor experience

There are also of few things still missing from the G-Cloud structure itself. Findlay would like to see much more opportunity for buyers (who have cumulatively placed over 9,000 contacts through G-Cloud so far) to share feedback. “We need a Trip Advisor approach where we see how other departments and agencies bought services and are using them.”

Although the Technology Leaders Network, established by the Cabinet Office's Government Digital Service in October 2013, is establishing high-levels contract transparency across departments, at this stage, the G-Cloud service itself is “not particularly joined up so we can understand what each other are doing.”

• See Stuart Lauchlan’s incisive multi-part Special Report on the state of the G-Cloud: The worrying cloud building around the G-Cloud

Stephen Allott, James Findlay and Andrew Hawkins were speaking at Think Cloud for Government 2014 in London.