Talking small, spending big - UK government procurement data exposes a division

The era of Big Government is set to continue. That’s according to the latest investigation of UK public sector procurement by analyst firm Tussell. Central government procurement spending has increased by 23% year on year and local government’s by just two percent. Meanwhile, NHS spending has fallen back by 15% against the previous year.

While Boris Johnson’s Conservative administration may be dedicated to the ideology of Small Government, its approach to procurement is anything but, with ongoing reliance on 38 strategic suppliers, including major consultancies and outsourcing firms.

But SME support is clear from Tussell’s figures too. The report says:

Central government has previously committed to spending at least £1 [$1.35] in every £3 (33%) with SMEs – both directly, and indirectly through the supply chain. At first sight, the public sector appears to be undershooting this target, but on closer inspection there is good news.

Our data, which only measures the direct spend with SMEs, shows that from September 2020 to August 2021 the public sector actually spent £45 billion [$61 billion], or 26% of the total, with SMEs. Assuming that SMEs earned at least another £15 billion indirectly as subcontractors, then the public sector would have achieved or even exceeded its 33% target.

The big picture

That questionable assumption aside, here are the headline statistics for full-year 2020/21. The number of newly published public sector opportunities increased by 46% last year to 41,000. Procurement spending overall increased by seven percent to £173 billion ($234 billion), but the total value of new contracts awarded fell by one percent to £124 billion ($167.7 billion).

The 66,000 contracts awarded by 2,200 public sector bodies went to 26,000 suppliers, 17,000 (roughly two-thirds) of which are SMEs. This underscores government’s “hands-on role” in shoring up the UK’s economic recovery, says Tussell.

The company’s separate Tech 200 listing makes interesting reading in this context. That chart of the fastest-growing technology suppliers to the public sector – many of them SMEs – finds that by far the biggest year-on-year spending growth in 2021 was with schools data specialist Wonde Limited, based in the Newmarket constituency of disgraced former Health Secretary and Digital Minister Matt Hancock. The 3,917% spending growth with that company is over ten times the Tech 200 average of 345%.

According to the Tech 200, the rest of the top 10 fast-growing tech suppliers to government all experienced spending growth of around, or in excess of, 1,000%. They are:

• IT solutions provider and Apple reseller Jigsaw Systems Ltd (3,676%)
• Hyper Talent Solutions Ltd (2,032%), a company run by IT consultant and 75% shareholder Amri Nazeer, who lists himself as Chief Technology Advisor at HM Revenue and Trusted Technology Advisor for Cloud at the Cabinet Office, and recently installed a VPN in Downing Street. (Weren’t they using one before?)
• Defence, energy, and space technology specialist TPG Services Ltd (1,998%)
• Software provider and consultancy Diegesis Ltd (1,332%)
• SMS marketing specialist Firetext Communications Ltd (1,211%), which appears to have grown via NHS patient reminder services
• Laptop reseller Ballicom Ltd (1,172%)
• Cloud architecture specialist Cloud Native Ltd (1,023%)
• Software development services provider Computer Application Services Ltd (990%)
• Hybrid cloud and data center consolidation specialist Trustco Plc (960%).

COVID drivers

Tussell’s 2021 Year in Review for all government procurement finds that the pandemic still accounted for more than ten percent of the value of public sector contracts awarded last year, as criticisms remain of the Test and Trace system, which has gobbled up billions of pounds in public spending.

The report’s estimates of this are lower than mainstream media have suggested, but still remain staggeringly high:

To date, the UK public sector has awarded nearly 5,000 contracts in response to the COVID-19 pandemic at a total cost of £43 billion, with £15 billion of those contracts awarded in 2021. The majority of the value has gone towards the Test and Trace program, which accounts for nearly half of all COVID-19 procurement.

The Department for Health and Social Care (DHSC) more than tripled its procurement spending in 2020/21 to £18 billion – £13 billion up on the previous year – but NHS spending fell, albeit against the COVID spike of 2020.

The Department for Education (DfE) also saw significant spending growth, largely due to the procurement of laptops for millions of pupils in lockdown. The Office for National Statistics (ONS) spent heavily with a single supplier, Iqvia, to help collect data on Covid infection rates, notes the report.

So, what of IT and communications procurement specifically? With £628 million ($850 million) of new government business, Capita was again the biggest IT supplier to government, despite a 26% fall in public sector earnings last year. Atos IT (£523 million/$708 million) and Capgemini (£480 million/$650 million) were in second and third place, both with double-digit falls against the previous year.

But Serco was by far the biggest government beneficiary last year (not including rail franchises), with £1.2 billion ($1.6 billion) of spending, up 78% year-on-year. Deloitte also saw a major uptick in business: its receipt of £476 million ($644 million) in government cash was a 71% increase on the previous year.

The proliferation of frameworks in the public sector – more than 2,500 new ones were added last year alone – is another sign of the current administration’s big government, admin-heavy approach. Of these, G-Cloud 12 (1,243 call-offs and £743 million/$1 billion in deal value) was the most widely used. Technology Products and Associated Services was the fourth most popular, followed by UK SBS Monitoring Services for Innovate UK.

So, what of the future? Tussell notes:

There are 16,000 services contracts, worth £19 billion [$26 billion] in total, expiring in 2022. These contracts are likely to be re-procured, so provide an indication of what the public sector will be looking to buy this year. The majority of these will be IT and communications contracts, but there are significant opportunities in all industries and across the entire public sector.

For the time being at least, the era of Big Government looks set to continue, driven by the government’s three big priorities of post- Covid recovery, levelling up, and the transition to Net Zero. For suppliers, this means that the public sector will continue to show strong demand for years to come.

My take

News that the public sector has been talking up Small Government while spending big and centrally is perhaps no surprise in the current era of COVID-meets-Brexit – not to mention bluster versus facts.

Tussell’s next major report is on Strategic Suppliers. Due in February and looking back over the past year, this should make for interesting reading. Last year’s revealed a roster of 38 enterprise IT companies, big consultancies, outsourcers, and systems integrators. But among them a new presence was growing rapidly - AWS, which in 2020 saw a 47% increase in government business. What happened next?