If the OFT finds IT firms have broken the law it could launch competition enforcement proceedings against them

OFT to investigate government IT contracts

The UK's competition watchdog is looking into government IT contracts to see if large companies win too great a share of work.

The Office of Fair Trading (OFT) asked suppliers and purchasers of IT services on today for information on how the market is structured and barriers to entry for smaller firms.

The action could lead to a market study into the industry, possibly resulting in a referral to the competition commission or a request for voluntary action from companies and state bodies and if the OFT finds firms have broken the law, it could launch competition enforcement proceedings against them.

OFT chief executive Clive Maxwell says: “This work demonstrates a continued focus by the OFT on markets related to public services. Information and communication technology is a crucial part of any modern economy and is key to improving productivity in public services as well as businesses.

“Given the vital role that this technology plays in the delivery of public services and the cost to the taxpayer, the OFT believes it is important to explore whether there are any restrictions on competition.

“We want to hear both from industry suppliers and public sector users about how competition in this market works, any problems that they have experienced, and how it could be made to work better.”

According to the OFT, the top five IT suppliers to Britain's public sector are HP , Capita, CapGemini, Fujitsu and BT.

The biggest supplier, HP, runs the government's Defence Information Infrastructure, one of Europe's largest IT infrastructure projects. Capgemini and Fujitsu are focused on central government and BT works extensively across local authorities.

Capita, the only British company on the list, is better-known for its wider business processing outsourcing than IT, and runs contracts such as processing disability benefits on behalf of government in Wales and Northern Ireland.

The firm now wins more than one in two of the contracts it bids on, though it says this is a result of being selective about what to bid for in the first place.

"Maybe we're good at it. A lot of our competitors don't win one in two," chief executive Paul Pindar said in an interview with Reuters earlier this year. "It would be very unusual to go into a competitive process without at least five or six other competitors in the starting block."

The top ten companies that supply IT to government hold a market share of over 70 per cent, according to a 2011 study by analysts at Kable.

The OFT has shifted its focus in the last two years to looking at competition in public markets as government seeks to transfer chunks of services to private companies.

"It is very difficult to pre-qualify for UK public sector work," Espirito Santo analyst David Brockton says. "There's a reason for that. They don't want any contractor coming in and undertaking government work without a track record, given the risks and high-profile nature of the work."

"It can be a 'catch 22' for credible suppliers trying to break into the market," Brockton adds.

The OFT said that while there had been many reviews of public sector IT procurement, few had examined whether aspects of the supply side of the market inhibited competition.

The study comes shortly after Chancellor George Osborne said he was looking to save about £1bn pounds in 2015/16 by centralising procurement, negotiating better deals with suppliers and making better use of IT in his June spending review.

The deadline for submitting information to the OFT is August 18.

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