Public sector procurement must focus on output, not delivery

In July this year, the Office of Government Commerce (OGC) published figures on the distribution of government spending on IT, networking and related costs for 2009.

The total spend on IT, excluding personnel costs, was £7.57bn. Outsourcing was the biggest single item of spending and accounted for £2.33bn of the total.

An accurate figure on IT and networking is a good start in the current drive to cut costs, but this is only part of the picture. The total spend including personnel costs is much higher. Yet one of the problems central government faces in trying to cut costs is a lack of clarity on the total IT spend to which it is committed.

Having contributed to the 2009 Back Office Operations and IT component of HM Treasury’s Operational Efficiency Programme (presented to the previous Labour government by Sir Peter Gershon and Dr Martin Read), my own estimate is a total spend of around £14bn, although credible estimates of as high as £20bn have appeared. The uncertainty around the measurement of IT spend is indicative of wider challenges in measuring the performance of IT in the public sector and achieving positive and lasting change that will reduce costs.

With outsourced service provision making up such a large part of the government’s IT spend, a reasonable expectation might be that the public sector would have outstanding skills in procuring these services in a cost-effective way and then managing them in a way that delivers ongoing value for money.

The opposite seems to be the case. Instead of asking world-class IT service providers to be creative, innovative and do what they do best – delivering best-in-class standard services on an economic scale – the procurement process often focuses too much on the technical aspects of how the service outputs should be delivered rather than the business outputs.

Wading through treacle

So, for example, instead of simply defining the need for desktop clerical tools such as word processing and email, a procurer might insist on a certain PC specification, operating system and versions of the word processing tools rather than letting the vendor come up with the most cost-effective solution to deliver the same outputs. My Compass Management Consulting colleague, Steve Tuppen, has called this the “treacle” of public sector IT contracts.

Steve is right. The process by which many public sector contracts are procured is sticky at best but there is nothing sweet about it. According to figures from our own analysis of contracts, Compass estimates that the public sector is paying 40 per cent or more above the market rate for outsourced IT services.

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