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£100m cap on UK government IT projects

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London: The UK Government this month introduced a £100m cap on IT contracts in the hope of improving the abysmal delivery record of large scale public sector IT projects — with far reaching implications for IT consultancy and BPO providers.

A procurement policy notice released by the Cabinet Office confirmed the cap for central government departments, their agencies and non-departmental public bodies.

The notice states that the Government "wishes to reduce significantly the delivery risk of very high-value projects which use ICT to deliver their business objectives and also to achieve better value for money overall from its investment in those projects."

Consequently all future ICT projects "will be designed from the outset with the presumption that they will have a total lifetime cost of less than £100m, unless a strong case can be made that doing so increases the overall cost to the taxpayer, notably increases the risk of failure or increases the security threat to the public body or Government as a whole."

"In future, government IT contracts will be more flexible, starting with two areas (application software and infrastructure IT). The Government is introducing set breakpoints in IT contracts so there is less money locked into large lengthy contracts. The Government will look to disaggregate future contracts and deliver more flexible, cheaper solutions. This opens up opportunities for SMEs and reduces the cost to taxpayers."

In a forward to the procurement note, Minister for the Cabinet Office, Francis Maude comments, "The Government believes that business is the driver of economic growth and innovation, and that we need to take urgent action to boost enterprise and build a new and more responsible economic model. We want to create a fairer and more balanced economy, where we are not so dependent on a narrow range of economic sectors, and where new businesses and economic opportunities are more evenly shared between regions and industries. This guidance is founded on a desire to minimise the risk around high value contracts and ensure that Government always seeks the best possible value for money when procuring large ICT contracts.

"In the Coalition Programme the Government made a commitment to promote small business procurement in particular by introducing an aspiration that 25% of government contracts by value should be awarded to small and medium sized businesses. To deliver this aspiration the Prime Minister and The Minister for the Cabinet Office announced, on the 11th February 2011, a far reaching package of measures to open up public procurement to small and medium sized enterprises. The Government ICT Strategy, published at the end of March 2011 outlined a new approach to ICT procurement that improves contract delivery timelines and reduces the risk of project failure, enables greater use of SMEs, a much shorter timescale and lower costs to all parties.

"We will end the practice of attempting to cover every requirement in great detail and cover every legal eventuality in every project and contract, thereby increasing the procurement cost and timescales to all parties to unacceptable levels. We will do this by focussing on the 80/20 rule, simplifying to the core components of the requirements at every level and at every stage of a project."

The Government lists a series of benefits it expects to see from this change of policy. They include:

  • A reduction of temptation to 'Gold Plate' projects as this is likely to exceed the £100m total value;
  • An overall reduction in the risk of over complicating projects, thereby increasing the probability of success;
  • An increase in contracts being let to individual companies rather than consortia, thereby minimizing layered integration risk and costs and at the same time increasing transparency;
  • A reduction in the ability of parties to transfer inappropriate risk to the supply chain without visibility to the project owner;
  • A greater sharing of contracts around the supplier market and increased numbers of qualifying bidders;
  • A reduced risk of paralysis due to single failure of a supplier on a project;
  • Lower individual contract procurement costs;
  • and Reduced overall costs as suppliers factor in less risk premium.

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