Government departments have "wasted an obscene amount of public money" on IT supplies and services, paying between seven times and 10 times the going rate, a committee of MPs has said.
Government departments have "wasted an obscene amount of public money" on IT supplies and services, according to a committee of MPs. Photo credit: Syniq/Flickr
Procurement for government IT projects is over-reliant on a small "oligopoly" of large suppliers, a situation that witnesses described as a "recipe for rip-offs", the Commons Public Administration Select Committee (Pasc) said in a report on Thursday.
"IT procurement has too often resulted in late, over-budget IT systems that are not fit for purpose," the committee said. "Given the cuts that they are having to make in response to the fiscal deficit, it is ridiculous that some departments spend an average of £3,500 on a desktop PC."
Estimates of government spending on IT projects put the cost at about £16bn a year. In June, the Cabinet Office said government procurement 'madness' must stop, noting different departments paid different prices to the same suppliers for the same equipment.
Over the past year, a number of government IT projects have become derailed. The Department for Work and Pensions ended a deal for Fujitsu to supply desktop PCs; one of the partners in the NHS electronic patient record scheme withdrew after the supplier missed a deadline; and the Universal Credit programme hit a delay because the related IT system fell behind schedule.
'Perverse situation'
According to the report, the government does not know how much IT it owns, meaning that it is unable to set a benchmark for prices. In addition, public-sector decision makers rely too much on consultants, so they end up lacking knowledge of and contacts in the technology industry. This puts them in a position of weakness when negotiating contracts.
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"Current arrangements have led to a perverse situation in which governments have wasted an obscene amount of public money," the committee said. "Benchmarking studies have demonstrated that government pays substantially more for IT when compared to commercial rates. The government needs to break out of this relationship."
According to research carried out by Rupert Collins-White, head of content and community at Legalsupportnetwork.co.uk, the Ministry of Justice (MoJ) and Her Majesty's Courts Service (HMCS) have failed to carry out cost/benefit analyses — even partial ones — over the past four years.
"The HMCS/MoJ have... through poor contract writing and negotiation allowed a situation to persist in which a tiny number of large businesses essentially rotate their status as primary IT suppliers, creating a de facto cartel," Collins-White said in written evidence to the committee.
A Freedom of Information request submitted by Collins-White in 2009 revealed that MoJ suppliers such as Atos Origin added a three percent mark-up on subcontractor work, while Logica charged up to 10 percent in "pass through costs". This is an incentive for systems integrators to keep costs high, he argues.
"If I asked you to buy me a car, and I say I'll pay you a 10-percent mark-up, you're not going to buy me a cheap car," Collins-White told ZDNet UK.
Committee findings
The committee found that departments rely on the 'waterfall' method of development, where each phase is completed before moving on to the next. This does not fit well with projects that need to change mid-way through, as is common in government IT, according to the report.
– Public Administration Select Committee
IT procurement has too often resulted in late, over-budget IT systems that are not fit for purpose.
In addition, there is tendency to over-specify technical solutions to problems, with "long, detailed and very prescriptive definitions of every aspect of the system to be delivered", according to Microsoft. "Not only does this make the bidding process more complex and expensive, but also eliminates any opportunity for innovative solutions," Microsoft is quoted as saying in the report.
Other issues include a lack of appropriate skills in government departments and the use of older legacy IT systems, which gives rise to supplier lock-in and problems with intellectual property rights. Departments also fail to integrate IT into wider projects and have a tendency to commission large projects that struggle to adapt to a change in circumstances, it said.
Recommendations
The committee made four recommendations. It said the government must make sure it has a better picture of how much it spends on IT and publish more information on the costs and operation of its IT projects. In addition, it should reduce the size of contracts, so that small businesses have a chance of winning them, and adopt more "agile" development methods.
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The Pasc also said the government should make sure internal staff, rather than consultants, have the expertise and networks to help get value for money in procurement.
Mark Taylor, chief executive of Sirius IT, said the de facto cartel extended over many government departments. "I support the committee's recommendation that there should be an investigation into whether there has actually been any anti-competitive behaviour and collusion, but in the end there doesn't need to have been an actual cartel to have the same results," he told ZDNet UK. "The effect of inefficiency and extremely high pricing is the same."
Taylor, who heads a Cabinet Office working group for new suppliers to government, said the reliance on big IT suppliers has to change. "In the private sector it's common for SMEs and microfirms to be [directly] involved in large-scale projects," he said. "The days of huge monolithic projects in government are over."
The Cabinet Office welcomed the Pasc report. "We have already made significant improvements to the management of IT projects including introducing new ICT controls, increasing transparency, and creating robust governance arrangements," said the Cabinet Office. "We hope these will go some way to address the problems of the past the committee has rightly highlighted."
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Talkback
I don't think anyone would complain if a company charged 10% if they offered an efficient service for procuring the best solutions, however that is not the case. In my experience almost every MoJ requirement leads to a new system being written from scratch. There are 25+ case management systems in the Royal Courts of Justice alone! Proven COTS solutions are overlooked. This constant re-invention of the wheel results in initial procurement costs being at least 10 times greater than necessary. But that is just the start... Annual support charges are often linked to the cost of a system. Hence a system that costs 10x what it should initially will cost 10x more to support year on year. A cash cow that no-one has any incentive to butcher.
The solution is to renegotiate the support contracts based upon the cost of a replacement off-the-shelf alternative solution - benchmarking. The suppliers would then be encourgaed to replace bad systems or accept lower costs. Either way, value-for-taxpayers-money would be restored.
In my experience, Mr Taylor is right. There may well be a de facto cartel (in fact, having an idea of the values of our bids as subcontractors, and what bids given to government clients through those big firms were, I'm certain of it), but government IT projects are rife with inefficiency compared to the commercial sector. There's more politics, more emphasis on a magic 'does everything' solution, more design by committee, and a perception that it's someone else's money (so value is less important). I'm not saying that the commercial sector is good at avoiding those things itself - but it does seem better.