The Office of Fair Trading (OFT) is trying to assess whether IT suppliers including HP are “shutting smaller vendors out of the market”.
V3, The Evening Standard and 4-Traders have all reported on the investigation launched by the OFT, which will be undertaken into the “procurement of government IT contracts” in order to see if OEMs and large IT suppliers, including both HP and Microsoft, are closing off opportunities for smaller companies.
V3 reported that the OFT is aiming to “ensure that competition in the sector was healthy”, and wants to see a fall in costs as well as an increase in efficiency. It added that the OFT is looking to see “whether there are barriers to entry which make it difficult for smaller businesses to compete” in the sector, which would run in conjunction with G-Cloud, a programme set up to help smaller companies get involved in procurement.
Clive Maxwell, Chief Executive of the OFT, stated: “Given the vital role that this technology plays in the delivery of public services and the cost to the taxpayer, the OFT believes it is important to explore whether there are any restrictions on competition.
“This work demonstrates a continued focus by the OFT on markets related to public services. Information and communication technology is a crucial part of any modern economy and is key to improving productivity in public services as well as businesses.
“We want to hear both from industry suppliers and public sector users about how competition in this market works, any problems that they have experienced, and how it could be made to work better.”
The G-Cloud programme, which has operated for over a year, revealed spending of £25 million ($38.1 million/€29.4 million), with 63 percent of this going to small and medium-sized IT companies. Other concerns that the OFT has regarding procurement include “dominance of larger suppliers, higher barriers to entry for smaller firms and the difficulty of switching between suppliers” for many institutions.
Compatibility with rival software and hardware, a heavy dependence on larger suppliers, the “bundling” of procurement agreements ostensibly to save money and other such barriers are other areas that the OFT is aiming to examine, with an open offer given to companies to share their experiences of procurement battles.
The Evening Standard added that in 2011 the Cabinet Office pledged its aim to “put an end to the oligopoly of large suppliers that monopolise its ICT provision”, with a recent inquiry from the Public Accounts Committee finding that many small firms thought a “cartel” of bigger businesses was working together to restrict competition, though this was denied”.
The inquiry stated that the unfair competition had meant it was “ridiculous that some departments spend an average of £3500 ($5,340/€4,117) on a desktop PC”, with the OFT adding that “healthy competition in any market drives down costs, drives up efficiency and promotes innovation, while a lack of competition can hinder productivity and, in turn, economic growth”.
The review is aiming to be comprehensive, with the OFT looking at the structure of the sector, any barriers within for smaller businesses, the domination or limits of “interoperability” between competitor systems, and whether outsourcing results in a dependence on bigger companies’ expertise.
It concluded that “few studies have examined whether aspects of the supply side of the market inhibit competition”, and that its review “aims to address this imbalance”, with options said to include “beginning competition enforcement proceedings, launching a market study, or seeking voluntary action from the industry”.
2011 saw two reports on whether the procurement system in the UK was skewed unfairly, which you can read on our website here and here. The BBC investigated this last year in a Panorama programme, which you can read on our website here.
Are you a UK business trying to compete in terms of procurement contracts for government business? If so, what do you think about this announcement, and what effects, if any, do you think the investigation will have? Comment below or contact us at news@therecycler.com.