Analysis: SMEs - an answer to public sector IT failings?

Public sector IT is often characterised by the awarding of mega-deal contracts to a handful of large services companies - and, almost like clockwork, the failure of some of these contracts when it comes to delivery. At this week's UK Technology Partnering and Investment Forum, Tony Hallett heard views on whether this should be the only approach.

There have been too many failings of large public sector IT projects. No one would dispute that and this publication writes about them on a seemingly weekly basis. But, put another way, you could say there have been enough to prompt a shake-up of how IT projects are executed and a consideration of alternative approaches. Some of the most important public sector figures see progress is being made.

John Yard, director of business services at the Inland Revenue, this week said: "[Public sector IT] is improving, though all these things take time. There is a government drive for increased efficiency and that depends on an increased use of IT."

One of the most high-profile and well-regarded public sector IT bosses, Yard praises steps taken by the Office of Government Commerce (OGC) in the last couple of years and reckons recent procurement processes in the National Health Service and Inland Revenue "show a competitive environment" for those bidding for the work.

At the NHS, IT supremo Richard Granger has been strict with would-be suppliers for a series of large contracts, while the IR famously did what many thought impossible, last year dropping EDS for its Aspire project and switching to Cap Gemini Ernst & Young and Fujitsu Services.

In the vendor community, too, feelings are generally more positive than they have been for a while.

Tom Abram, CEO of consultancy Mantix, said: "We normally see spectacular failures in the press. But the government and the OGC in particular have been very active in promoting awareness and [procurement] skills. I think it's going to pay dividends."

Martin Goodman, director of public sector business at IBM, is similarly optimistic. "There has been a step-change in working with government; for example, the Gateway Review Process," he said. "There's a lot more to do but we've moved to a significant plateau."

So everyone can now go ahead and ink a few more deals, give each other a pat on the back and look forward to a bright future? Not quite.

Two key issues are skills and the diversity of suppliers.

Abram added: "The key issue is a lack of experience. [We need] individuals who can deliver this, that have the capability."

The IR's Yard agrees. "At the end of the day, government is limited by the IT skills it has available," he said - a situation that tends to favour large suppliers who can pull together consortia and take some of the risk of using technology from smaller companies.

However, there is a growing feeling that the public sector has at the same time been held back by not taking more risks directly with some smaller companies, even if that means managing more - and often more complex - relationships.

Andy Cooke, director at SAS Institute's year-old UK public sector unit, says that government has been seen as something of a "honeypot" by vendors recently, especially as it has upped spending while the private sector has suffered in a downturn. He points to perhaps double-average growth in 2004 but warns: "It is difficult to sell in to, and seen as owned by a small number of large players."

The IR's Yard is all for dusting away some of the conservatism that the public sector is known for and working with smaller companies but talks about a "balancing act" when taking on the extra risk in exchange for often more innovative approaches.

The result in most public sector areas, however, is that more often than not SME providers are given the cold shoulder. A straw poll at this week's event in London showed almost unanimous backing for a small proportion of government spending being set aside for companies with fewer than 50 staff. That's perhaps not surprising in a forum based around the success of new businesses.

Hermann Hauser, veteran tech investor and director at Amadeus Capital Partners, said that the US Department of Defense mandating 8 per cent of expenditure should go to smaller providers has meant a "spectacular contribution to SMEs in the US".

However, he noted such a move meant seeking an exemption from World Trade Organisation rules and a similar move in the UK might be looked upon harshly by Brussels, which will also be considering the welfare of bigger companies who could plead unfair competition.

Clearly the approach to public-sector procurement for IT has made steps forward. But before we get carried away, spare a thought for the billions that tax-payers have already seen wasted and consider the ongoing conundrums of having the right skills in place and fostering innovation, through using SMEs as well as the big boys.