OFT (RIP): public sector can increase competition through better procurement

The Office of Fair Trading (OFT) has published its final report on its market study into the supply of information and communication technology (ICT) to the public sector. The report found that these markets possess a number of features that prevent competition from working as effectively as it should and that purchaser behaviour was, to a considerable extent, responsible for this.

The aim of the market study was to enable the OFT to better understand the nature of these markets and the degree of competition that exists between suppliers. Around £14bn was spent by the public sector on ICT in 2011–12, accounting for around a quarter of the overall spend on such products and services in the UK. The procurement of ICT represents around six per cent of the UK’s overall public sector spend on third-party suppliers, and the OFT chose to focus its inquiry on commercial of-the-shelf (COTS) software and business process outsourcing (BPO), which constitute around half of this figure.

The OFT found that there are some structural issues that contribute to a lack of competition in some markets for the supply of ICT. The market study found, for example, that in some cases incumbent suppliers benefited from high market shares that were stable over time, indicating the existence of barriers to entry and expansion. These may exist through incumbency advantages, which are common in the sector, since complex, bespoke ICT solutions are often procured under long-term contracts to justify significant up-front investments. Interestingly, the OFT identified suppliers’ in-depth knowledge of the requirements of specific customers and economies of scale as barriers to potential competition. However, such factors often lead to higher levels of customer satisfaction and efficient service delivery, both of which might suggest overall consumer benefit…

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