A better deal for taxpayers: improving IT procurement in government

In a speech to the RSA in March 2007, Shadow Chancellor George Osborne commissioned Dr Mark Thompson of the Judge Business School at Cambridge University to produce an independent report on delivering better value for money in IT procurement and creating a level playing field for open source software.

Liam Maxwell, Lead Member for Policy at the Royal Borough of Windsor and Maidenhead co-authored the report.

The report will now be considered by the Conservative Party’s Implementation Unit led by Francis Maude, as part of their detailed preparations for government.

The lack of use of open source software is a symptom of the suboptimal procurement processes in government. Using the deployment of open source as a point of investigation the report identifies these key recommendations:

• The government could save at least £600 million per year if it adopted a more effective, open procurement process. Savings would be achieved through transition to a mixed economy for software which did not discriminate against open source software. These savings would come not just from reduced licensing costs - the large majority would result from using the adoption of open standards which this would require to free government bodies from long-term, monopoly supply situations

• New data standards should be introduced across government, enabling large scale IT projects to be split into small modular components.

• A new rule could be introduced to forbid any government department from signing an IT development contract worth over £100 million. Never again would a British government be able to sign multi-billion pound IT contracts such as the deeply flawed NHS supercomputer. This would be possible because data standards enable large IT projects to be split up into small modular components.

• Smaller IT projects mean less risk of failure, and will cut costs by opening up the procurement system to more companies, so increasing competition for IT contracts.

• These new data standards will also create a level playing field for open source software.

IT failure and the public sector

The government currently spends around £17 billion per year on IT – almost £300 for every man, woman and child.

Over the past ten years, there have been a series of catastrophic public IT project failures and massive cost overruns that have cost British taxpayers billions of pounds.

NHS ‘supercomputer’ In 1998, Labour announced a mammoth IT scheme to log every person's medical records on a central NHS computer. It was initially estimated to cost £2 billion, but this figure has subsequently soared to £15 billion. The completion date has been continuously pushed back – and is now at least 30 months behind schedule. According to a recent National Audit Office report on the IT project, neither the Department of Health nor the Treasury sought to quantify the benefits of the scheme – and whether the massive expenditure is justified: "It was not demonstrated that the financial value of the benefits exceeds the cost of the Programme. The Treasury’s guidance states that benefits should be valued when possible, but recognises that sometimes they cannot be. In this case, the Treasury has accepted the Department’s approach and has approved all expenditure so far made and planned."

Home Office probation service computer system The National Audit Office has criticised almost every aspect of the IT system, which was supposed to provide a national infrastructure for the probation service. The system has so far cost £118 million - 70 per cent more than initially projected. The management system CRAMS was initially budgeted at £4 million but has reached £11 million – and this figure is still increasing. The network is technically in operation in 38 of the 42 local probation areas, but CRAMS has had "serious problems", causing it to be used by only a small proportion of areas. The NAO blamed the Home Office for "poor specification of expected outputs, weaknesses in service monitoring and inadequate control of purchases".

Child Support Agency (CSA) IT system The CSA IT system was originally intended to cost £400 million, but a catalogue of errors and mismanagement has resulted in the bill rising to £1.1 billion. In addition to the massive cost overrun, the computer system has also overpayed 1.9 million people and underpayed 700,000 people. The chairman of the Public Accounts Committee described the CSA system as one of the "worst public administration scandals in modern times". A damning PAC report concluded that the Department of Work and Pensions had failed to recruit sufficient high-calibre IT professionals to challenge critically the assurances given by IT suppliers.

The way forward - Open Procurement

“Open procurement” is a term that describes an IT procurement strategy that moves away from the current government practice of outsourcing massive IT projects to a small number of large contractors – because these are the only suppliers capable of delivering multi-billion pound contracts.

What is needed is an “open” environment for IT procurement – which opens up the system to a much wider range of contractors, including small businesses and innovative start-ups.

Following best practice in the private sector, open procurement involves the contracting out of smaller, discrete IT projects and systems. This significantly increases the range of companies that are capable of bidding for and delivering the IT contracts, and increases both the competitive tension and scope for innovative solutions.

The benefits of de-constructing major complex systems into much smaller simpler components cannot be over-emphasised. It de-risks developments (large-scale risk being one of the major problems in government IT), and also allows for a more agile approach to change.

Government processes are not simple, yet in so many cases public sector organisations make attempts to deliver or outsource major programmes that encompass this complexity, without thinking through the challenges in specification and subsequent delivery. If the elephant is going to be eaten, it needs to be done in bite sized chunks. Big projects are inherently risky and the track record in delivering major programmes is highly variable.

Achieving open procurement: new data standards

Achieving open procurement requires the adoption of new open standards and protocols that allow large projects to be split up into constituent elements without compromising operational effectiveness. These standards and protocols enable modular components to be bolted together – in effect creating a common ‘language’ for government IT systems.

The first decade of the twenty-first century has seen a rapid growth in modular, component-based IT systems underpinned by open standards such as that now allow the use of interoperable, ‘mixed economies’ of hardware, middleware and software, generating the possibility of more joined-up, ‘one stop shop’ services for the citizen on the demand side, and shared service provision, streamlined processes and cost savings for public service providers on the supply side.

When implemented carefully as part of a well-managed transformation programme with strong IT leadership, this approach can reduce the risk of project failure and can deliver significant value for money benefits.

The advantages of a modular IT system include:

• Smaller, simpler components can be built by a wider range of software and service suppliers, increasing competition and reducing costs

• Failing or under-performing suppliers can be replaced more easily

• Component parts of the infrastructure can be removed and replaced more quickly

• Modularity increases flexibility, enabling organisations to react more quickly to legislative and organisational change

Data standards and open source software

Open source software is software that’s typically developed by a community of developers. Once it’s ready, the source code is then made openly available to licensed users, making it possible for them to tailor the software to their needs and make constant iterative improvements.

The world’s leading companies are switching to open-source software. The primary reason is to cut costs without compromising usability or effectiveness. Another benefit is that it’s easier for open-source software to be tailored for a company’s specific needs, and for it to be subsequently adapted over time.

Public bodies around the world are also switching to open-source, and many more are currently undertaking pilot and evaluation schemes.

This is not surprising – successive UK government and EU reports have shown that public bodies can save significant sums by switching to open-source.

But the UK government is falling far behind. Too much taxpayers’ money is being wasted as a result of flawed procurement, risk-adverse bureaucracy and a lack of incentives for cutting costs.

This is in spite of successive government reports highlighting the benefits of open source software in government IT procurement:

• In 2004, the Office of Government Commerce report into the feasibility of open-source software use in government concluded that: “Open Source software is a viable and credible alternative to proprietary software for infrastructure implementations, and for meeting the requirements of the majority of desktop users. Adoption of Open Source software can generate significant savings in hardware and software costs for infrastructure implementation, and reduce the licensing costs and hardware refresh requirements for desktop implementation.”

• Also in 2004, a BECTA (the technology agency of DCFS) report into the use of open-source in schools concluded that “open-source solutions can be implemented successfully and with obvious cost benefits as a networking solution.”

• A 2006 EC report on open-source software found that: “In almost all cases, a transition towards open source produces savings in the long-term cost of ownership."

The failure of government bodies to develop and implement these standard protocols that enable the interoperability of small scale IT projects within a larger IT ecosystem has also held back the take up of open source software, as within the current framework, open source solutions may be incompatible with other elements of a department’s IT system.

The use of standardised protocols and standards that enable IT systems is therefore key for achieving value for money, operational effectiveness and a level playing field for open source software.

The government could save at least £600 million per year if it adopted a more effective, open procurement process.

Savings would be achieved through transition to a mixed economy which did not discriminate against open source software. These savings would come not just from reduced licensing costs - the large majority would result from using the adoption of open standards which this would require to free government bodies from long-term, monopoly supply situations.