Ovum predicts huge Government IT spend

Analysts, Ovum Holway has predicted that the UK Government's IT market will grow 30 times faster than any growth in the private sector to 2005 and that consortia will enable small and larger suppliers to grab a share of the opportunities.

The report, 'UK Public Sector Market 2003 - The Market for Software and IT Services' forecasts the UK public sector software and IT services market will grow by an average of nine per cent a year between 2001 and 2005 to reach £7 billion in 2006. In contrast, the UK commercial sector is expected to grow by an average of just 0.3 per cent in the same period.

Opportunities for smaller players

Ovum Holway sees plenty of opportunities for smaller players in this market, although acknowledges that this is often by way of sub-contracting.

Georgina O'Toole, an analyst with Ovum Holway and one of the authors of the report said: "EDS' perceived 'stranglehold' over the sector is exaggerated. Although it has won many mega deals in central government, it does not carry out all the work itself. For example, we estimate that as much as two-thirds of the money generated by the Inland Revenue contract of 1994 found its way to sub-contractors."

Ovum also believes that consortia could be the way forward for smaller players, as the public sector makes 'a concerted effort to attract a broader range of suppliers and claims one such example is that it favours bids from consortia.

Ms O'Toole said: "This allows government to spread its risk across a number of suppliers. It also makes it possible to work with companies that are 'best of breed', and to change one under-performing supplier within a consortia rather than having to replace the sole supplier on a contract."

It predicts that this 'multisourcing' approach favours all types of supplier. The megaplayers such as BT, EDS or Capita are able to take the lead in the consortium and may offer to undertake the project management role or take the financial lead on the project. It claims that smaller 'best of breed' or niche players with invaluable knowledge of the sector, for example, health, niche technical skills or targeted application software will not be short of offers to join consortia.

Attitudes soften to overseas firms

Offshore players have also been attracted by the growth in the UK public sector market.

Ovum Holway reported: "Partnerships with UK firms will enable them to benefit from this growth. Offshore firms currently face political sensitivities linked to the loss of UK jobs as well as data security issues, but attitudes are softening.

"The UK e-government agenda is wildly ambitious and it remains to be seen how successful it will actually be. However, vast sums of money will be spent over the next five years, and it will be spent a lot more freely than in the commercial sector. As such, software and IT suppliers cannot ignore this sector of the UK market."

Departmental discrepancies

Although Ovum believes the government presents a huge opportunity for software and IT services suppliers, there are significant discrepancies between its various departments.

The report predicts that the two most lucrative markets, the criminal justice and the NHS, will grow by an average of 25 and 20 per cent respectively from 2001 to 2006. It says that both these sectors will benefit from substantial government investment in IT having previously suffered from years of 'under-nourishment'.

The prospects for the UK education IT sector are less appealing. Education experienced a two per cent decline in software and IT services spend in 2002 and is not expected to achieve more than a two per cent annual average growth through to 2006.

Ms O'Toole concluded with a word of warning for any firms considering entering the world of public sector contracts: "For anyone wanting to compete in this market, careful consideration should be given to the risk involved in a project before starting the bidding process. And once involved in any high profile government initiative, suppliers must also be ready to handle the inevitable press scrutiny."

Freelancers

Ovum has had its own share of press scrutiny. One of its higher profile former employees is the e-Minister Stephen Timms, who found himself in the news over his share-holding in the company after he was a Minister at the Treasury.

Mr Timms, now at the DTi, previously expressed his own views on public procurement and the role for small businesses in an exclusive interview with UKTECH. In the article, E-Minister: Is Small Beautiful? he accepted that there was an issue about public procurement from small and medium enterprises but said that the Government was looking at what could be done to advance the abilities of smaller companies to be successful in the public sector.

The Better Regulation Task Force recently published a report into small businesses and public procurement and made a number of recommendations to improve the opportunities for small businesses. Members of the UKTECH network participated in the consultation process by putting forward their views and experiences of the barriers faced by freelancers and other small businesses in Public procurement - Any experiences?.

Ovum's comments about offshore players wanting a slice of the public action, predict that it sees a softening of attitude. Indications generally from Ministers, including Mr Timms in the UKTECH interview "FTVs: Unnecessary barriers are protectionist" support the view that the UK Government wants to encourage skills from a global talent pool to help the economy grow and to be able to compete on a world stage.