New rules set out on the awarding of Government IT contracts

The new rules on Government IT procurement mean that departments will only be permitted to agree IT contracts of more than £100m in value where there is "an exceptional reason to do so". The threshold has been set in an effort to facilitate greater competition from prospective suppliers for lower value contracts.

"Smaller contracts mean competition from the widest possible range of suppliers," the Cabinet Office said in a statement.

Among the other 'red lines' drawn on Government IT procurement is a general prohibition on the automatic extension of departments' IT contracts. Deals with existing suppliers will be able to be extended where there is a "compelling case", however.

"To create the efficient and responsive services that the public demands, government must have access to the most innovative, most cost-effective digital solutions," the Government's chief technology officer Liam Maxwell said. "That means going to the widest range of suppliers, and giving ourselves every opportunity to renegotiate and reassess contacts. It rarely makes sense to simply extend a contract based on yesterday’s technology and prices and these red lines make clear that we are doing business in a different way."

The new rules also mean that suppliers of IT services to a Government department will be prevented from providing "system integration" within that department. Government departments will also be prevented from agreeing new hosting contracts with suppliers for any longer than two years.

IT contracts law specialist Simon Colvin of Pinsent Masons, the law firm behind Out-Law.com, said: "Government departments have been moving away from the larger prime integrator contracts towards the tower or 'best of breed' model for some time now. The approach certainly provides increased opportunities for niche market players and SMEs in the technology space, and we would expect it to encourage innovation and competition, particularly given the rules against contract extensions."

"However, ensuring that these new contracting models are underwritten by strong governance, contract management and internal IT capability will be key to the success of this model for all interested parties. It will be interesting to see how the rules are applied, and how and where the exceptions will be applied. For both Government and suppliers alike, it will be essential that a risk based approach is taken for each project before determining the strategy and procurement approach," he added.

Cabinet Office Minister Francis Maude added: "Big IT and big failure have stalked government for too long; that is why this government is radically rethinking the way it does business. We are creating a more competitive and open market for technology that opens up opportunity for big and small firms. These red lines will ensure the government gets the best technology at the best price and we will be unashamedly militant about enforcing them to provide value for hard-working taxpayers."

The new rules mark the latest efforts by the Government to reform the way it buys IT products and services as it tries to cut the costs associated with doing so to the taxpayer. Last year the Government outlined a 'cloud first' policy which requires Government departments to consider IT solutions offered through the cloud before they consider alternatives.

The departments can only deviate from using cloud-based IT solutions where they can show that alternative offerings offer "better value for money" than the products and services available through the 'CloudStore', an online marketplace for cloud IT services linked to the 'G-Cloud'. The G-Cloud system allows public sector bodies to gain access to cloud-based IT services being offered by a selected list of pre-approved suppliers during a set period.

Last month the Government also announced that it would change the law in a bid to streamline the process involved in bidding for and winning public sector contracts. The changes, which will include scrapping the use of 'pre-qualification questionnaires' (PQQs) for low-value contracts, are designed to make it easier for SMEs to win work from the Government.

The market for the supply of public sector ICT goods and services is currently under scrutiny by competition regulator the Office of Fair Trading (OFT). The OFT launched a study into the market in October last year after raising initial concerns about how effective competition is in the market. It is due to report on its findings in March.

The market for the supply of public sector IT goods and services is estimated at being worth £13.8 billion annually. The OFT previously said that the top 20 software and IT service providers currently earn about £10.4 billion in annual revenues from UK public sector bodies.

The Cabinet Office has previously set out a target of ensuring that SMEs win 25% of the business being outsourced by the Government, either directly or through the supply chain. According to data published by the Cabinet Office last summer, 10.5% of all Government procurement expenditure in 2012-13, £4.5 billion, made its way directly to SMEs. The figure was up from £3bn spent by central Government departments on services offered by SMEs in 2009, it said.