7 March 2011
The savings available from better procurement of public sector IT contracts have largely been exhausted, industry experts are warning.
ProBenchmark, which provides IT-market data, said its analysis of public IT buying found that contracts have become more complex with lower margins, so leaving little room to win discounts during negotiations.
It said the ‘procurement effect’ – the ability of professionals to negotiate discounts – had declined from 11% of overall price for IT services in 2000 to less than 5% last year.
But savings of 15% had been achieved across the same period as the costs of technologies such as disk storage had declined.
ProBenchmark director Simon Scarrott said vendors had become more skilled at resisting price pressures, deals had become more complex and buyers had fewer market options.
He said procurement teams should have real-time market information on the pricing of standard bundles of services, and understand better where their organisations lost out through their use of higher priced customised services.
‘The supply side of the outsourcing market has become much more dynamic in the last five years and vendors use real-time market pricing tools to improve their position,’ he said.
‘Yet many procurement teams are negotiating blind and their only reference point in a renewal negotiation is what they paid last time round. They are continually playing catch-up with vendors.’
He added: ‘The days of achieving short term savings through a tough negotiation are gone.’
An Institute for Government report, published last week, criticised repeated government IT failures, singling out the slow pace of procurement. The think-tank said a more ‘agile’ approach needed to be reflected in the government’s IT strategy.
