01 July 2005
Small and medium-sized businesses are winning an increasing share of the lucrative public sector IT market as a result of government efforts to encourage a wider range of suppliers, new research has shown.
A study by public sector analysts Kable has revealed a steep reduction in the amount of new business going to the leading 20 companies.
Their market share tumbled from 69% in 2003 to 63% just a year later, the report published on June 29 found.
The public sector IT market expanded by a massive 19% from £10.3bn to £12.3bn between 2003 and 2004. Kable's analysis found that the value of the contracts held by the biggest 20 companies rose by 8% over that period, from £7.1bn to £7.7bn. By contrast, other suppliers' contracts shot up in value from £3.2bn to £4.6bn, a 44% increase.
According to the study, the reason for the shift is the increasing trend for contracts to be awarded to consortiums of smaller firms rather than large single bidders. The government's policy of trying to encourage new entrants into the market has fostered this process.
Kable analyst Seyi Agboola told Public Finance that the trend was likely to continue, with smaller firms strengthening their presence in the field.
'This is being actively encouraged by the government. It is not in its interests to see fewer dominant players in the marketplace. It doesn't want one vendor with a 40% share.'
But she said the emphasis on developing a more diverse market was not necessarily a reaction to high-profile failures in some government IT projects.
'It doesn't mean the government is saying “you have performed badly, we're going to look elsewhere”.'
The stronger showing from small firms is also because large companies are increasingly bringing them in as sub-contractors, Agboola added.
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