Competition Law Update: Market Study on Supply of ICT to the Public Sector
03 June 2014
On 25 March 2014, the Office of Fair Trading (OFT) published the results of its study into the supply of information and communications technology (ICT) goods and services to the public sector. The study showed that competition in the sector is not working as effectively as it should be. As a result, the OFT recommended that the public sector should improve the way it is procuring and managing contracts with suppliers and that suppliers be more transparent with their public sector customers.
Barriers to entry and expansion
The study looked at two key areas for public sector ICT expenditure, namely commercial off-the-shelf software and outsourced IT. The OFT found there are barriers preventing companies from entering the market, expanding their share of supply and deterring buyers from switching between suppliers.
The barriers identified by the OFT include:
- overly complex practices that mean responding to tenders can be time consuming and expensive;
- prohibitively and time consuming processes for gaining security clearances to carry out public sector ICT work;
- the inherent advantage held by some incumbent suppliers can lead to significant switching costs. For example, the incumbent may provide bespoke products that large numbers of staff are trained to use – leading to significant costs and disruption from changing supplier.
The OFT also noted that these barriers were compounded by the fact that public sector buyers sometimes lack the information to judge whether an ICT product or service is the most efficient or best value for money solution, that suppliers often have more information about ICT solutions than buyers (referred to as information asymmetries), and by the actions of suppliers themselves, such as the use of complex pricing models.
The OFT noted that, while there were significant initiatives underway in the public sector to improve the procurement process, many of these were at an early stage and there is consequently scope for further work to improve outcomes in this sector.
The OFT recommends that public sector buyers should work with suppliers to address various information asymmetries, including the collection and sharing of information regarding bidding, products and services, prices and supplier performances, and that this information should be shared across public sector organisations. The study further advises that public sector buyers should continue to seek improvements in the way they procure and manage contracts with suppliers.
The OFT also recommends that suppliers should work to improve the understanding and flow of information to public sector buyers which will facilitate benchmarking, drive better value for money and improve the assessment of competition across different sectors.
In what seems like a warning shot, the OFT also asks suppliers to consider whether they have adequate compliance programmes in place to guard against the potential for anti-competitive behaviour. The Competition and Markets Authority (CMA), which has replaced the OFT as of 1 April 2014, was issued with guidance to prioritise an investigation into any evidence of anti-competitive behaviour in the sector.
The recommendations focus on the steps the public sector can take to make its procurement practices more efficient.
The recommendation given to suppliers in relation to compliance is also noteworthy as market studies have in the past been used as a precursor to investigations in a sector. With this is mind, ICT suppliers are well advised to take heed of the OFT’s advice on compliance, for example by drafting and effectively implementing competition compliance programmes, to ensure that their conduct does not put them at risk of a competition law challenge.
If you would like to discuss this article or if you have any other queries about competition law, please contact Dorit McCann.