On 25 March 2014 the Office of Fair Trading (OFT) published a report setting out its findings from its study into the supply of information and communications technology (ICT) goods and services to the public sector. The OFT has found that competition is not working as effectively as it should in this sector and recommends that the public sector address these concerns by improving the procurement and management of contracts with suppliers, as well as recommending that suppliers be more transparent with their public sector customers. The OFT has also recommended that ICT suppliers should ensure that they have adequate competition compliance programmes, and recommends that the Competition and Markets Authority (CMA), which is to replace the OFT on 1 April 2014, should give careful consideration to prioritising an investigation into any evidence of anti-competitive behaviour in the sector.


The study, which commenced in October 2013 and was reported in our earlier Law-Now, was launched following a Call for Information in the summer of 2013 which found a number of issues impacting on competition in the sector which merited further analysis. Although the focus of the study was on the supply of ICT to the public sector, the OFT expressly asked for submissions from buyers in the private sector, indicating that, perhaps, the OFT had concerns about the wider market.

The OFT has found there are a number of factors contributing to concerns about the nature of competition in the sector, in particular that there are barriers preventing companies from entering the market or expanding their share of supply, and also deterring buyers from switching between suppliers. These factors can be grouped into 3 main areas: structural issues; supplier conduct; and public sector buyer conduct.

Structural issues

The structure of public sector procurement practices was highlighted as a key barrier. The OFT considered  that overly complicated procurement processes means that the cost of responding to tenders can be expensive and time consuming and creates a barrier to entry into the sector for suppliers. The OFT found that there was limited early engagement with suppliers which meant that alternative solutions and suppliers were not taken into account when designing tender specifications.

The OFT noted that in some sectors (for instance the provision of certain types of specialist software used for local authority housing, planning and pensions administration), suppliers held high and stable market shares which had not changed significantly over recent years. The OFT reported that the structure of certain areas of the market means that some suppliers will hold an inherent advantage by virtue of the fact that they provide bespoke services, and/or are the incumbents. Complex products, high switching costs and detailed knowledge of buyers’ business requirements contribute to low levels of switching. It was noted that in some cases the actual costs incurred may not outweigh the benefits of switching, however buyers may still be deterred through the perception of high costs and the risks of significant disruption to important public services as a result of switching ICT suppliers.

Supplier conduct

The OFT found that ICT suppliers have much greater knowledge of the quality and suitability of ICT goods and services than public sector buyers. This imbalance of information creates an obstacle when it comes to buyers comparing products, switching to other suppliers and making informed choices when purchasing ICT products. The OFT noted that this is further impacted by a lack of transparency from suppliers in the sector, which is particularly seen through the use of complicated pricing structures.

The OFT also noted that both buyers and suppliers reported a lack of cooperation from some incumbent suppliers during transition to a new supplier. Some of the examples included imposing high charges for data migration and encouraging lock in to an incumbent supplier by proposed implementation of proprietary and bespoke solutions.

Public sector buyer conduct

The report noted that public sector buyers tend to lack the necessary specialised in-house knowledge to judge whether they are being offered the most economic or efficient product for their requirements. This lack of technical or commercial expertise when procuring ICT means they are unable to evaluate the best supplier or to challenge a supplier’s performance.

This is further affected by a lack of routine data collection within public sector organisations regarding procurement.  In the OFT’s view, this creates a hurdle to data comparison, making it difficult for decisions to be made regarding the value offered from switching. Data tends not to be collected on an objective, systematic and consistent basis or used effectively across the public sector. This contributes to information asymmetries between buyers and suppliers.

Anti-competitive behaviour in the sector?

Whilst the purpose of the market study was not to investigate specific anti-competitive behaviour, the OFT did ask respondents to the study for their views on allegations made in a Public Administration Select Committee report of collusion in the sector, and the OFT also considered whether the characteristics of the market gives rise to the grounds for collusion between the suppliers. On both accounts, the OFT’s findings were inconclusive. Whilst it found that there are features of the market that could facilitate collusion, the OFT noted that it is a diverse sector with many different markets, each with unique characteristics.  The OFT concludes “Whilst the evidence available does not allow us to conclude on the feasibility of tacit coordination by suppliers in particular areas, nor can we discount the possibility”.

OFT recommendations

As part of the outcome of this study, the OFT has made a number of high-level recommendations regarding improvements to the way ICT is procured in the public sector. The OFT recognised that there are currently ongoing government initiatives underway to improve public sector procurement, which go some way towards simplifying procurement processes, improving relevant commercial and technical skills and increasing transparency in the sector. It is noted that many of these initiatives are at a relatively early stage and therefore there is scope for further action.

As a result, the OFT is recommending that the public sector continues to seek improvements in the way it procures and manages contracts with suppliers. Public sector buyers should work with suppliers to address information asymmetries. In particular there should be focus upon the collection of data regarding ICT procurement by buyers, whether there is scope for suppliers to make this information more transparent, and how this could be internally shared within the public-sector without being shared with suppliers.

Of particular note are the recommendations for suppliers to consider whether they have adequate competition compliance programmes in place and a clear recommendation to the new competition authority, the CMA, to prioritise an investigation into any evidence of anti-competitive behaviour in the sector. Given that the stated aim of the study was “to develop a sound understanding of the structure of supply of ICT for outsourced IT and COTS software” it is clear that the OFT has gathered a significant amount of information about the sector.  Market studies have increasingly been used by the OFT as a precursor to further action, including investigations, in a sector.  It is to be expected that the CMA will continue this trend.  Thus whilst the report provides valuable guidance to public sector buyers on issues they should address in procuring ICT products and services, suppliers in the sector are encouraged to take heed of the OFT’s recommendations concerning compliance (e.g. reflecting them through the implementation of appropriate policies, procedures and training) to ensure they are not the focus of any future CMA investigations.