UK introduces £100 million IT spend cap to boost SMEs

The Cabinet Office has announced that it will kick-start its promise to cap IT contracts at £100 million in April, meaning a boost for SME public sector suppliers.

The government has been planning to put a cap of £100 million lifetime value on the vast majority of IT contract.  In certain circumstances there is leeway to apply for larger contracts, but the Cabinet Office is aiming to create more opportunities for smaller businesses.

In the past, public sector IT has been dominated by large contracts going to what has been described as a ‘cartel’ of big firms.   In the wake of a scathing select committee report the government has stepped up its efforts to avoid some costly IT deals ending in disaster.

In a foreword to a policy document announcing the start of the contract cap pledge, Francis Maude said that the guidance aims to “minimise risk around high value contracts”.

As part of the government’s ICT strategy, Maude said that the contract cap will enable “greater use of SMBs”.

This follows attempts to be more canny in negotiations around contracts, with the Cabinet Office claiming £75 million of savings in its renewed deal with Oracle.  It also comes in the wake of the  G-Cloud initiative launching, alongside a more general ‘aspiration’ of 25 percent of government contracts being awarded to SMEs.

All of this is good news for smaller firms that should be able to benefit from the government’s apparent willingness to break up the large contracts that have been handed out to the likes of CapGemini and others in the past.

ChannelBiz UK spoke to Richard Davies, CEO of G-Cloud accredited cloud supplier ElasticHosts, who welcomed the commitment by the government as a boost for SMEs.

“This is saying lets to go to the buyers and lets tell them we don’t want them to just sign a big multi year contract and forget about it,” he said.

Instead it shows a willingness to shop around for individual services and have a set of smaller contracts, Davies told us.

The Cabinet Office is trying to persuade buyers to procure a bit more intelligently, he said, and not just to sign a massive multi year outsourcing contract.

Instead they should buy a selection of services from different vendors who are good for that particular service, at competitive prices for that particular service. These services can then be delivered by someone who is a specialist in that area.

Of course, while it looks like there will be more opportunity opened up for smaller businesses, it is clear that the big names will not have their position shaken too much.

“There is still a lot of scope for larger firms to bag contracts in the £50 to £100 million range,” Davies said. “This is at least making the buyers think a little and say ‘there are three or four things we need lets try and buy them from three or four different people’ rather than signing some big monolithic thing and forgetting about the IT for ten years until the deal expires.”