In October 2010 Sir Philip Green delivered a report that described government waste of public money and resources as being both staggering and shocking.
The government, he said, was not sufficiently using its huge scale and buying power to gain better deals in all operational and departmental areas. Different government departments and public sector bodies, for example, have often worked with a diverse range of communications suppliers.
His findings in his Efficiency Review argue for a more centralised and consolidated approach to everything from the supply of telecoms and IT to stationery.
He cites, for example, an external report by research consultancy Kable that provides an overview of information communications technology in the UK public sector. It estimates that fixed-line telecoms expenditure is within the region of £2bn per annum. Sir Philip believes that the government could save up to 40 per cent if it were to buy its own capacity, and has requested an urgent review of these costs.
Mobile phones cost central government£21m per year, and there are 105,000 devices in use. The review states that although 98 per cent of the associated contracts are with one supplier, there are 68 separate contracts in place negotiated by individual departments and related bodies.
These contracts also tend to end on different dates, ruling out savings possible through economies of scale. The government needs to employ a centralised procurement team to whittle down these contracts into one.
There are also savings to be made when buying computers. The 460,000 desktops and 60,000 laptops cost the government £61m a year and are purchased from 13 IT service providers. The review recommends that the government purchase its IT hardware directly from a manufacturer in order to save up to £6m.
IT services contracts are also in Green’s line of fire. There are apparently several contracts with one supplier that expire in three years’ time, and they are worth more than £300m per year.
Each contract offers different terms, rate cards and prices. The review claims that higher costs have been incurred because the incumbent contractor has not managed to standardise its services across the each government department.
Inefficiencies are also created by a lack of consistent data quality, which needs to become more accurate and timely.
So what is the government going to do to make sure that public money is spent more efficiently? Robert Honey, senior press officer at the Cabinet Office, simply provided the following statement: “We are grateful to Sir Philip and his team from Arcadia for the time and effort they have taken to produce their recommendations.”
Honey adds that Sir Philip’s sense of urgency is welcomed, before adding that “[We] are looking at how we can best take forward [his] key recommendations.”
Most of the industry experts we spoke to said that a government efficiency drive is sensible and justified.
There are also some very good public and private-sector case studies that purportedly show how much can be gained by consolidating IT, data and telecoms contracts. In February 2009 University College London Hospitals NHS Foundation Trust (UCLH) signed a seven-year £10m communications contract with Azzurri Communications to manage its entire mobile and fixed line communications. Over the last five years UCLH has also consolidated its IT costs.
The organisation has consolidated 21 contracted providers into just one, and across the NHS there is the London Procurement Programme from which it consolidates its mobile airtime.
As an organisation it has had a history of mergers. UCLH is formed out of seven hospitals, and with the merger came a number of different commercial partners. So as an organisation it needed to create a consistent level of service delivery and a coherent infrastructure across the whole organisation.
This means having the ability to more clinical facilities easily from building to building, but if you have several suppliers it becomes impossible to move your virtual call centre in this way. You simply have to leverage your assets in another way.
Flexible and mobile
Vodafone and BT are two other providers that are offering their services to the public sector. Vodafone’s Chief Technology Officer, Jeni Mundy, says her company is working with Cambridgeshire County Council “to transform its working environment and improve services.”
She claims that £1.2m — more than 20 per cent — has been delivered in cost savings over a three-year period. While arguing that efficiencies can be created by adopting a mobile-centric communications infrastructure, through the reduction of property-based costs as a result of enabling a more flexible and mobile workforce, she also explains that time is saved by dealing with one ICT supplier rather than with a number of them.
In spite of the cuts many of BT’s central government contracts remain in place. Richard Knowles, a spokesperson for the company, says that a memorandum of understanding has recently been signed with the government.
“Our talks will enable wider economies of scale while yielding genuine benefits”, he claims.
In September 2010 BT Global Services was awarded a three-year contract with the Ministry of Defence (MOD) to extend its existing Defence Fixed Telecommunications Service agreement until 2015 (worth £640m), and a similar contract was signed with the Department of Work and Pensions (DWP).
Knowles argues that the cuts represent both an opportunity and a challenge to generate financial savings and operational efficiencies, and it is claimed that the MOD has already managed to save in the region of £700m. The original 1997 agreement involved the consolidation of 19 separate telecoms networks that served the MOD, the Royal Navy, the Army and the Royal Air Force into one multi-service platform. It currently connects 230,000 users across 2000 sites in the UK, Germany and Cyprus.
Managing the disadvantages
Some public-sector examples suggest that one of the issues of negotiating single contracts revolves around the fact that contract consolidation can lead to less choice and can, if you are not careful, actually reduce an organisation’s competitiveness.
“When you consolidate spend, you need to make sure that you still have a choice,” explains Sean Whetstone, head of IT services at Reed Specialist Recruitment.
Whetstone explains that far from being a question of cost, it’s often also about having the ability to buy the best of breed in terms of information communications technology.
“With a single vendor you might not be able to do this, and so I recommend working with agnostic vendors to gain cost benefits”, he suggests, before adding that consolidation can lead to greater customer power if you spend a substantial amount of money with your chosen supplier.
To gain from this it is advisable to regularly audit and benchmark your supplier against its competitors to make sure you gain the best deal and operational benefits available on the market.
It also emerges that there is little difference between the public and private sectors when it comes to contract consolidation. The public sector has a heightened concern for security issues, and it has more legal obligations to consider.
These can make progress towards reducing the number of suppliers to a single partner much slower, but CIOs from both sectors share a concern for managing their ICT costs, consistency and quality of service and the ability to streamline management.
VOIP, 3G, VPNs and MPLS are just some of the technologies that are helping them to do more with a reduced budget.
However, the implementation of effective processes can also generate significant efficiencies too. For example, Whetstone believes that communications companies should adopt more ITIL processes and better billing solutions.
“It should be up to them to raise their game, and improve the procurement process,” he says of direct telecoms companies.
Ken Moss, IT director at Allied Carpets, also stresses the increased importance of deploying effective business continuity solutions and disaster recovery processes across more than one site to reduce operational risks.
This is because consolidation leads to an increased dependency on a single supplier. So while contract consolidation offers some clear benefits, it can also increase operational risks.
A failure to consider all of the issues would therefore be more shocking than Sir Philip’s claims about the expenditure and wastage of central government, but it is appropriate for the government to find better and more efficient ways to deliver public services during tough economic times.
So the question remains about whether the government has the ability to put Sir Philip’s reviews into action with the help of its commercial partners. We shall see as time goes on, and the answer will eventually be revealed.