Indigenous firms woo public sector

With technology budgets slashed, smaller firms are taking on multinationals in bidding for State contracts writes GORDON SMITH

WHILE THE public had its say at the ballot box last week, another change in the Government has been taking place quietly behind the scenes. The public sector, long accused of favouring the large multinationals and consultancies when buying technology, is now coming around to using indigenous firms instead of defaulting to the “safe” choice.

“I know for a fact that these guys are looking at contracts and they’re looking at indigenous companies. They’re now looking for value for money and they’re no longer prepared to take the exorbitant fees of the big names,” says John McCabe, managing director of technology and business consultancy Prisatec.

“Where the public sector made large investments a few years ago to put in new systems and the original vendor is still maintaining the application, there’s a lot of opportunity for them to look at others like us for application support,” argues Justin Keatinge, managing director of Version 1.

Dublin-based System Dynamics chief executive Tony McGuire points to his own company’s “substantial” contract with the Legal Aid Board for a case management system as an example of the changed attitude. “We do a lot of business in the public sector anyway. We’re used to competing with the multinationals and we win our fair share,” he says.

There is more than anecdotal evidence of this changed attitude. Last October, the Department of Finance is understood to have circulated a memo to other departments, instructing them to lower the threshold of bidders’ requirements such as professional indemnity insurance, revenue figures and even the number of years companies have been trading.

While the issuing bodies cannot be seen to favour any one group, the move effectively opened the playing field to more competitors. EU rules call for public contracts to be open to all, but the size of many deals in the Irish market means by default indigenous firms are the ones most likely to benefit.

Irish tech firms haven’t always done themselves any favours because of a scattershot approach to public sector bidding. “Too many SMEs tend to bid blind. At best, that’s a lottery; sometimes it can work, but if you haven’t spoken to the Government department before the tender, you can’t understand what they need. Many SMEs were unaware that this is being done,” says Brendan O’Reilly, who chairs the ISA’s working group on government procurement.

A more targeted approach can also help firms to compete on price. “If Irish companies take a specific approach, they can get efficiencies that allow them to be as competitive as possible,” says Cian McNamara, managing director of Vulcan Solutions.

Clarion Consulting has been successful with this approach by specialising in IT strategy planning and project management, says managing director Pat Millar. However, he says high levels of repetitive paperwork involved in public sector bidding places a heavy burden on smaller operators.

“If I’m doing a private sector proposal, I don’t send five copies, I e-mail one document, it’s printed and then we have the discussion,” he says. “A lot of the information the public sector looks for is there in other Government agencies, or it’s filed with the CRO. Why doesn’t eTenders collect information and store it so it doesn’t have to be resubmitted with every bid? That doesn’t strike me as something that difficult to do.”

The Irish Software Association (ISA) recently launched a new training programme to help software SMEs better prepare public sector IT bids. O’Reilly says another recent trend has been to break large contracts into smaller components which also works in favour of indigenous players. The Revenue Commissioners recently pointed the way by choosing Version 1 as part of a multivendor IT services arrangement that also includes Accenture, IBM, Deloitte and Fujitsu.

Another element in the mix is the drastically reduced public sector IT budget. An informed source says the 2011 technology allocation has been slashed in half, with one unconfirmed figure suggesting it could be as low as €65 million. The ISA’s working group has spoken with senior IT architects in key Government departments to discuss their future technology plans. It’s probably no coincidence open-source software and cloud computing featured – both are widely considered more cost-effective ways of delivering IT.

Downward price pressure will only make the market more competitive. PricewaterhouseCoopers claims it is winning market share from rivals and Pat Kelleher, director of its consulting division, says prices have already dropped significantly. “Historically, not just our daily rates but the industry’s generally are probably lower than they were in 2000 or 2001,” he says.

Kelleher disputes the “reassuringly expensive” tag some critics attach to the larger players. Improved procurement practices in the public sector have led to better prices, while increased competition means any “fat” is trimmed off winning bids, he says. “If people are putting in [excessive] margins, they will come up against a buyer who can see that and a competitor who won’t be doing it.”

While multinationals like Accenture, Deloitte, PwC, IBM and HP have historically made a virtue of being able to source skills offshore, Keatinge and McGuire dispute the conventional wisdom that larger outfits can provide IT services more cheaply this way.

Privately, most indigenous IT providers admit there will always be certain large-scale outsourcing or shared services projects they are not equipped to handle. By virtue of the scale involved, the shortlists for those deals will remain confined to the names of the multinational IT providers.

It’s not exclusively an us-and-them scenario; in some deals, larger firms subcontract to local specialists, ensuring smaller firms get the kudos and experience of a public sector tender. But in a more favourable bidding environment, an increasingly confident indigenous sector believes it can grab a large slice of the work on its own merits.

Local players are now firmly on the public sector’s radar: a recent IDC survey of Irish technology buyers rated Version 1 on a par with multinationals. A software project delivered by Vulcan last year for the Private Residential Tenancies Board was widely praised in Government circles.

The public sector’s openness to bids from smaller providers is one thing; the proof will be when contracts are announced over the coming months and whether new names start appearing on the dotted lines.