The Cabinet Office recently announced that it is reforming its rules on ICT contracts as part of a drive to avoid repeating previous project failures.
The new rules, announced on 24 January, will set a cap of £100m on government contracts and prevent automatic renewal of existing deals. But will this really make much difference? We think there are other issues that need to be addressed if government is to get better value from its ICT suppliers.
Break up the market
The first is to reverse the policies that enabled big ICT consolidation in the first place. Over the past 20 years, policymaking has significantly favoured large contracts with the private sector, reflecting the government's view that private companies were best placed to provide and integrate a myriad of complex services. In response, we saw a consolidation in the market that will be difficult to change quickly unless the Office of Fair Trading study into the government IT market, launched in October 2013, comes up with formal proposals to address the dominance of a few large suppliers.
Don't buy new for the sake of it
The new policy is that the scope of contracts will be managed tightly, with no automatic extension unless there is a compelling case. When the new rules were published, Liam Maxwell, the government's chief technology officer, stated that it rarely makes sense to extend a contract "based on yesterday's technology and prices".
Yet there may be cases where the government does not need the newest piece of kit. If a contract is well structured, and gives demonstrable value for money, it could continue with existing technology rather than buying new for the sake of it. The government may also be worrying about the wrong thing. Many previous problems were caused not by automatic extensions to a contract, but by lateral extensions that broadened its scope. A good example of this is the offender management system for the Ministry of Justice, developed by EDS (now HP).
ICT suppliers are not your friends
The government also needs to address how it manages its contracts. Contract managers should not treat their IT suppliers as their friends. They need to be prepared to monitor and challenge suppliers to achieve value. There will be a good reason for penalties and damages within a contract. The supplier will have agreed, and included in their price, the possibility of invoking such penalty clauses and the government should have no qualms about enforcing them.
That is not always the case. On one government contract, the supplier was failing to meet milestones, and the government initially applied and then stopped applying liquidated damages for fear that it would damage the long-term relationship. The supplier's performance began to drop as soon as the damages were lifted and the taxpayer lost out.
There are interesting lessons from the private sector in this area. We know of a large pharmaceuticals firm that employs an independent third party organisation to make judgment on the performance management of its IT contract in order to remove any emotional involvement.
This underlines the need to have the right skills, and the government has recognised this, but tends to focus on securing good negotiators. In fact, what is really needed are people who can make effective judgments across the procurement and project implementation lifecycle. Deciding whether an issue is best resolved by competition in procurement or as risk management in the contract requires not just commercial acumen but programme delivery skills.
Be more flexible
Too many procurement exercises are conducted with a narrow focus on compliance with the rules rather than as a way to deliver economic benefits. A more flexible approach can bring real advantages. For example, when the government was recently looking for new UK passport provider, time was taken to understand the market dynamics and the technical issues of changing supplier. This extended the procurement timescale slightly, but resolving these issues in competition allowed the programme to deliver against hard deadlines. As a result, the change of passport provider went smoothly, unlike the previous change in 1999 which led to massive delays in issuing passports, at significantly lower cost. A 20% saving was achieved after implementation costs.
There are many ways to get better value from government ICT contracts and the latest reforms should not divert attention from addressing these other critical issues.
Mark Brett and Alastair McKie are government sourcing experts at PA Consulting group.