Sunday, 24 October 2010

Crazy government spending

Prime Minister David Cameron has recently been very critical of the “crazy decisions” made by government IT procurement during the past decade. This criticism has come about after the report from Sir Philip Green highlighted the “shocking” inefficiency if IT purchasing.

IT purchasing was one of the main targets identified by Sir Philip Green for improvement. In his report he has called for changes to the “expensive IT services contracted for too long with no flexibility”. The main culprit identified by Sir Philip Green for causing such huge IT spending was the departmentally focused manner in which much of it is done. Instead of purchasing IT equipment centrally, and take advantage of the cost savings associated with such huge orders, it is purchased by individual departments where only small cost savings can be made. Sir Philip Green cited examples of both commodity IT buying and relationships with major IT suppliers as areas where there were opportunities for greater efficiencies to be made.

Sir Philip Green brought special attention to the telecoms costs, indicating that it would be necessary to put them under an “urgent review”. In his report he suggests that the current annual £2bn telecoms bill could be reduced by up to as much as 40% if purchased centrally rather than departmentally.

Also under fire was the £61m that is spent annually on desktop and laptop PCs. Prices vary between £353 to £2000 for such equipment. However, Sir Philip Green’s recommendation was that the government should buy all such equipment directly from a manufacturer, rather than through the 13 service providers that are currently in place.

The spending on mobile phones comes under criticism too. Of the £21m that is spent annually on such equipment, 98% of it goes to one un-named supplier. However, the 68 different contracts are negotiated separately by the various departments, rather than centrally where cost savings could be made.

The following is an example of the sort of spending that was found to be typical, and which highlighted the need for centralisation. The IT contract in question had 6 years still left to run and was costing £100m annually. However, some of the services being delivered under the contract were no longer required, but the terms of the contract did not allow for the fees to be reduced to reflect this. The contract also stipulated that rates of £1000 per day would apply for any work that the IT supplier provided, thus giving the supplier two profit margins.

The following conclusions by Sir Philip Green more than amply summarise the issue of government IT spending:

“There is a huge opportunity that has been clearly identified in central government and beyond, but without a clear mandate, energy, focus and commitment, this cannot be delivered. There is no reason why government should not be as efficient as any good business. Any large organisation would want to use its credit rating and scale to buy efficiently. The conclusion of this review is clear – credit rating and scale in virtually every department has not been used to make government spending efficient.”

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