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The purchase by the UK public sector of Information and Communication technology (ICT) systems has come under the spotlight from the national competition regulator. The Office of Fair Trading (OFT) announced in October that it is launching a market study into the way in which information technology is supplied to the public sector.
ICT purchases accounted for a significant proportion of public expenditure (around £13.8 billion) in 2011/2012. Any market failure or other inefficiencies in this sector could therefore have profound implications for the public purse.
An initial call for information (ICF) by the OFT, issued in July 2013, raised concerns around the several aspects of ICT service provision in the public sector. As a result of this ICF, the market study will focus on:
The OFT's initial comments describe some of the barriers to entry in the current market; for example, some public sector organisations rely on ICT that is highly bespoke and, as a result, there is an associated cost and difficulty in switching providers.
The proposed market study will specifically focus on:
The OFT have previously carried out a study into public sector procurement practices. However, this did not examine the supply side of the sector and whether there were any issues inhibiting competition.
The top six suppliers of ICT to the public sector make up approximately half of the public sector's ICT contract value. In 2012/13, in relation to certain types of software (particularly, productivity and core accounting), the estimated shares of contract values of the top three suppliers were greater than 70%.
The OFT's call for evidence highlighted some of the barriers currently faced in public sector purchasing for ICT goods and services. For example, many public sector buyers seek to "bundle" their ICT products with the accompanying service. Whilst smaller retailers may not be able to cope with the size of such a contract, the economies of scale this affords to larger retailers could lead to lower prices for the public sector.
Whilst the fact that a limited number of firms are winning significant shares of contracts in some areas does not inherently mean that the public sector ICT market is not working well, the OFT market study may result in smaller companies entering the supply chain in the public sector.
The OFT's market study coincides with legislative reforms to the EU Public and Utilities sector Directives. As part of these reforms, purchasers are encouraged to break up larger contracts into smaller "lots", in order to increase the number of ICT contracts held by SMEs.
The OFT has invited evidence to be submitted by 20 December 2013, both on public sector ICT supply and on private sector buyer experience of ICT, in the two sector areas identified above. It aims to complete the market study by March 2014.
For more information please contact Paul Henty, Partner
T: +44 (0)20 7427 6506