Crystal Umbrella

Contractors working in the public sector are already starting to feel the squeeze as spending cuts get underway. IT firms who supply the public sector have been advised they will need to cut their fees by 20%. This request was made at a meeting of all nineteen IT suppliers to the government. At present these firms charge the government in the region of £16 billion.

Francis Maude, cabinet officer minister, confirmed that this “marks the start of the process to renegotiate key government contracts” regarding “everything” that these businesses “do for the government” in a bid to cut costs.

The suppliers involve include such technology giants as BT, IBM, Fujitsu, HP and Serco. According to IT analysts TechMarketView the government will probably choose to curtail the extent or length of contracts rather than seek to cancel them altogether. The government’s CIO, John Suffolk, will be the man responsible for the contract renegotiations.

Mr Maude commented: “Given the really difficult economic climate we now face, we have to do everything we can to deliver better value for money for taxpayers and that involves taking some tough decisions. I am laying down the challenge to major government suppliers to ask them what they can do to take costs out of contracts. Some of this will come out of margins, but we will also invite ideas on how we can structure things differently to reduce complexity and cost.”

According to government insiders, Britain could be developing a new approach to IT contracting over the next few years which could see IT contractors only be required to sign up to one or two ‘mega’ service companies. This insight comes as the government plan to privatise a quarter of the public sector and they have been looking to outsource IT and other departmental services to two FTSE 100 companies. These companies would work in a similar manner to Serco and Capita, although they would, of course, be in competition with them.

If portions of government services were sold on the open market it is believed they could generate around £16bn. Permission has already been granted for business to be skimmed from certain departments and repackaged.

Speaking to The Sunday Times, one government insider stated: “There is no reason every department should do its own IT contracting, for example. There are incredible inefficiencies in the system. These businesses can be a store of value for the taxpayer rather than a cost centre.”

Analysis firm TechMarketView,’s Richard Holway also commented: “Shared Services are really the preserve of the larger companies…Scale is vital.”

Holway concluded: “We should remember that Capita was formed out of CIPFA [the Chartered Institute of Public Finance and Accountancy] which itself has similarities to the privatisation plans being mooted by Whitehall. The returns to shareholders from Capita in the last 20 years have been huge. So I am certain the interest in the opportunity to be part of or buy one of these new ‘outsourcing giants’ will be intense.”