Government remodelling big IT contracts as and when they expire, says civil service chief

John Manzoni, chief executive of the civil service and permanent secretary at the Cabinet Office, told the Public Accounts Committee (PAC) that the UK government is "still only in the early stages of disaggregating the big monolithic IT contracts that have been part of the landscape for a decade".

"We can only address them as they come up for expiry because it is at that point that we can then disaggregate them; re-contract them in a different way," he said.

Manzoni said that a special team has been set up inside the government to look at how to disaggregate major government contracts. He said that team has already concluded that "every one of the monolithic contracts have different things aggregated in them" and that is therefore difficult to predict how those contracts can be broken up and how many of the revised lots will be picked up by SMEs.

The Digital Marketplace has been a useful platform for SMEs to supply through and that the government's "common technology strategy" will also make a difference in enabling more of a shift in government expenditure towards SMEs, Manzoni said. He said he was confident the various initiatives the government is driving to spend a greater share of its IT budget with SMEs would deliver that outcome since savings of at least 50% had already been achieved in some cases by disaggregating major contracts.

Last August the Cabinet Office outlined a target for the government of ensuring that a third of the money the government spends goes to SMEs by 2020.

Sally Collier, chief executive of the Crown Commercial Service, explained to the PAC that it is not always in the best interests of the government to look to break up large contracts. She said, though, that it is easier to imagine the government contracting directly with more SMEs for IT products and services than in other categories of services, such as energy.

Manzoni said that a more sophisticated, specific and focused approach to procurement across different sectors could help improve the ratio of government expenditure reaching SMEs. However, he was reluctant to set future targets on how the breakdown of government expenditure would be shared between major suppliers and SMEs and that it is not a "reasonable picture to paint" to expect the government to contract directly with SMEs in every case.

"Each sector whether it's energy, travel, print, hotels, facilities management … is different in the marketplace and it's different how we buy them," Manzoni said. "The real issue is can we build the capability internally because that's how we're going to get this done."

"We have to build the internal capability to get category strategies which can balance the need to get SMEs with best value," he said. "There is a great danger if the centre decides to make some arbitrary target it becomes very shrill at which point you lose credibility. I don't know how to set those targets intelligently right now and I'm not prepared to set targets until we can be intelligent about it."

Specialist in public sector IT contracts Bridget Fleetwood of Pinsent Masons, the law firm behind Out-Law.com, said that the government is progressing the agenda originally set out under the previous coalition government to move away from monolithic outsourcing contracts in order to achieve better value for money.

"The trend in recent years has been a move from large outsourcing deals with single suppliers to smaller, best-of-breed contracts with niche suppliers.  IT products and services are purchased on a commodity basis wherever possible and across government departments to achieve cost efficiencies," Fleetwood said.

"From the government's perspective smaller, shorter IT contracts offer flexibility in an ever-changing world where new digital technologies are emerging all the time, as well as, potentially, better value for money. SMEs can sometimes be precluded from winning bigger, bulkier contracts on the basis of lack of scale, so smaller contracts can attract greater SME interest and help the shift away from the government relying too heavily on major suppliers sharing government contracts with smaller businesses indirectly via their supply chains," she said.

"Managing multiple contracts can be complex. The government is increasingly appointing staff in-house to oversee service integration and management of multiple contracts within the IT environment. The government has recognised that it faces a skills challenge but.it will take time for the government to improve the breadth of capability across departments to negotiate and manage the new contracts successfully," Fleetwood said.