As the axe falls, spare a thought for the private sector too

October 20, 2010

BRITAIN-SPENDING/Most of the media and commentator attention today will rightly be on the public sector. When the Chancellor announces the cuts we all expect, the axe is going to fall on public services and the only real question is where and how hard it falls.

But spare a thought for the private sector too. These cuts will have an enormous effect on private companies that work for the government, and those companies employ many thousands of people too.

Even the exciting high-tech sector is not immune. Last July the Cabinet Office called in the Chief Executives of the 19 leading hi-tech service companies to the government. They trooped up to Whitehall and were asked – in no uncertain terms – how they could help the government, given that times are hard.

The implication was that all suppliers to the government should cut their rates, and stop any non-essential work. The companies could have kicked up a fuss. They all have long-term contracts and agreed rates, but all of them could see that it was a good idea to do what the Cabinet Office wanted. To point to the contract and call in the lawyers might signal the last time they ever work for the British government.

Since then, another thirty or so smaller suppliers have been called in and asked to help the ‘national interest’.

This has created an interesting dynamic because the Cabinet Office, and Francis Maude in particular, are digging deep into the supplier relationships and leaving no stone unturned in a quest to save money. We can all remember old media stories of how much the government used to spend on management consultants and ‘advisors’ – with all the major suppliers being questioned and forced to reappraise their relationship with the government, there can be no doubt that those headlines are a thing of the past.

And yet, all this activity is masking the fact that maybe the issue is with the government as a disorganised procurer of services, not with shady suppliers charging outrageous fees. Regardless of the fact that Francis Maude is riding through the suppliers on a white charger with his trusty sidekick Sir Philip Green advocating a return to centralised procurement, most of the suppliers think that the Office of Government Commerce (OGC), bears much of the blame for government procurement becoming disorganised.

I’ve spoken recently to all the major government suppliers and one of the most senior figures told me: “OGC are a significant part of the problem for everybody. It’s very easy to just cut stuff. Make things cheaper, or remove some specifications. It gets the job done and is quick and easy, but it doesn’t take real brains to do that. The key thing is that if you want to look at real reform, then how do you get genuine cross-departmental support for new procurement models, new delivery vehicles and all that when it relies on permanent secretaries who have no interest in change.”

Quite. If the civil service is not incentivised to relate to suppliers in a different way, then why would anything change? Suppliers to government follow the lead of their paymaster, so they won’t produce new ideas and innovative ways of delivering services to citizens unless the government says that they really want new thinking. The present approach is just more of the same – only cheaper.

The big 19 will probably be OK. They are big enough to ride out the cuts, seek work from other clients, and expand internationally if they have not already done so. They will survive, but smaller firms with the new ideas are unlikely to stick around if the sole strategy for the new couple of years is just cut, cut, cut.

To watch innovative British companies go to the wall in the next year or so is one of the tragedies you won’t hear about today.

Appendix: The original 19 firms called into the Cabinet Office in July were: Hewlett Packard, British Telecom, Capgemini, Fujitsu, Capita, IBM, Telereal Trillium, Atos Origin, CSC, Logica, Steria, Oracle, Siemens IS, C&W, Microsoft, Accenture, Serco, G4S, Vodafone.

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