Reflecting UK Government encouragement, SME share of Government spending rose to 26.1% by 2015, or £12.1bn, and is targeted at 33% by 2020, creating substantial new opportunities for smaller telecoms and IT providers at the expense of companies such as BT, Vodafone and systems integrators. To fill us in on current trends, including further easing of the barriers to entry to SME involvement, and a move to dynamic purchasing being trialled with the NHS N3 replacement, we spoke to Ian Fishwick, CEO of business comms and IT provider Adept Telecom. Aside from his Adept day job, Fishwick is also commercial director of Innopsis, the telecoms industry association for Public Sector Network suppliers, as well as being the UK telecoms representative on the Cabinet Office SME panel.
As a reminder, the 25% SME target was put in place by the then new coalition government in 2010 to increase price competition and to speed up the introduction of innovative products and services to the public sector. The SME target includes spending both directly with SMEs and indirectly through larger suppliers, such as systems integrators. With the SME share apparently reaching 26.1%, or £12.2bn, in 2014/15 (40% directly with SMEs, 60% indirectly via supply chains), the target was increased to 33%. There is some scepticism that this new target can be met, given that the MoD accounts for 44% of government spend, but allocated only 19% of its spend to SMEs in 2014/15. The current SME definition requires a supplier to satisfy at least two of <250 staff, <£39m revenue and <£33m net assets.
The key way in which barriers have been reduced for SMEs is through the establishment of frameworks, operated by the Crown Commercial Service, whereby service providers are selected on the basis of their commercial and technical offering. An early example included the PSN (Public Services Network), whose connectivity framework was restricted to 12 suppliers, ranging from BT to SMEs such as the then MDNX and Updata. More recent frameworks have more suppliers; for example the PSN one was replaced by RM1045, which was divided into 10 lots, each with up to 25 suppliers. Sixty suppliers won places on the 10 lots and 30% were SMEs.
G-Cloud, now in its 9th iteration is the most successful framework for SMEs. The objective is to drive the uptake of Cloud technology in the public sector with G-Cloud 9 now split into three lots: Cloud hosting, Cloud software (SaaS) and Cloud support. Nearly £2bn has been spent over the years through G-Cloud and almost two thirds has gone to SMEs. Over 2,800 suppliers are now registered on G-Cloud, but not surprisingly, many have not sold anything.
There are multiple examples to support the general statistics suggesting increased SME involvement, in recent weeks, Adept Telecom and Gamma have trumpeted their public sector success, whilst BT’s profit warning earlier this year partly reflected increased UK public sector pressures; BT’s revenues from UK Public Sector & Major Business have already declined from £2.34bn in fiscal 2014/15 to £2.0bn in 2016/17. However, according to Fishwick, much still remains to be done to fully open up access.
Perhaps the main issue is that the frameworks both have arbitrary limits (eg 25 per lot for RM1045) and are of a fixed duration. The latter means that a supplier that does not get on the framework from day one is effectively shut out for its duration. Other barriers include very fragmented publication of tenders (circa 400 portals!) and various arbitrary constraints, eg fixed insurance requirements irrespective of the nature and value of service to be offered.
To overcome the framework constraint, the Government is considering dynamic purchasing, whereby suppliers can become accredited at any time. This is actually being trialled on the replacement for the £80m pa N3 NHS network operated as a monopoly by BT for the last 14 years. The replacement Health and Social Care Network (HSCN) will be completely different in concept and delivery; it will be a ‘network of networks’ provided by multiple suppliers. It should also be much better suited to today’s healthcare requirements, with mobile and remote working and more shared online system access, regional collaboration with non-NHS bodies, and data sharing.
Whilst selling to the UK public sector has its challenges including longer sales decision cycles, in addition to the procurement barriers highlighted above, it also represents fertile hunting ground for today’s comms and IT providers. Indeed, in a relatively static overall market, improved access to a multi-billion pound public sector comms and IT market represents a significantly enhanced addressable market for many SME-sized providers. All the signs are that access for SME suppliers will continue to improve, albeit gradually; the downside is that SMEs that do become accredited will of course face increased competition from other SMEs. However, whilst it is a zero sum game for UK telecoms/IT plc (or a decline if one takes into account the resulting cost savings), it is definitely a shifting in spend from BT, Vodafone, Virgin Media, the major SIs et al towards many of the smaller suppliers. With BT putting the UK public sector core comms and IT market at £10bn, with £8bn in IT and other outsourcing contracts, there is plenty to share out among SME suppliers.
Based in an article in Megabuyte