Public sector IT spending to grow

Public sector IT services spending will grow at more than twice the rate of the private sector over the next three years.

A report due to be published next month by analyst Ovum Holway predicts that the sector will grow from a value of £3.4bn this year to £4.75bn by 2004, an average annual growth rate of 11.7 per cent, compared with just 5.4 per cent for the rest of the industry.

By 2004, central and local government spending on software and services will exceed that of the financial services companies, pushed up further by online government initiatives.

But Ovum warns that the lion's share of public sector contracts are distributed between a few big players. The top 10 suppliers to government accounted for 71 per cent of public sector spending on IT services last year, and the top 20 accounted for 90 per cent.

EDS has more than 25 per cent of the public sector IT services market, followed by Capita and ICL. Government must simplify the tendering process if it is to attract new and smaller suppliers, warns the report.

"As the public sector demands a more innovative approach from its suppliers it, in turn, needs to adopt a more innovative approach to the tender process," it says. "For the moment, though, a potential supplier can end up facing the cost of tendering for a large project where an incumbent has been in place for 10 years. There may well be easier business."

The UK Public Sector: Opportunities for IT Services report warns of the dangers of less competition for larger contracts. "One solution would be to put contracts out to tender in smaller parts. Despite such talk, we have yet to see any evidence of it happening," it says.

Initiatives such as the Gateway Review process, and having a "senior responsible owner" for IT projects, have improved the situation, but Ovum says more needs to be done.

"We would like to see the public sector having more choice in when and with whom it goes to tender," the report says. "This would create a much fairer market than currently exists. Alternatively, the government could contribute to tender costs."