Companies supplying information and communications technology (ICT) to the public sector are facing an in-depth competition review following the announcement from the Office of Fair Trading (OFT) on 15 October 2013 that it has commenced a market study into the supply of public sector ICT goods and services.
Depending on the OFT's findings during its market study, there is potential for the OFT to make recommendations to regulators or to Government that could lead to changes in laws and regulations affecting the ICT industry. The OFT's market study may also lead to a further time-consuming investigation of the market by the Competition Commission (CC), which has greater powers to impose remedies to address any competition concerns it has, including the ability to intervene directly in the structure of the market and/or address the conduct of ICT suppliers and their customers.
Both OFT market studies and CC market investigations are onerous and should not be taken lightly by ICT businesses.
What has happened so far?
The OFT issued a 'call for information' back in July 2013, which sought information regarding the structure and operation of the public sector ICT markets, the products and services involved, the identity of the key suppliers and the degree of competition between those suppliers.
The OFT's call for information raised specific concerns regarding a number of aspects of ICT supply in the UK, including:
- certain ICT businesses have a high proportion of contracts in specific areas;
- high barriers to entry and expansion exist, particularly for smaller ICT businesses;
- public sector organisations face high costs and difficulties in switching suppliers; and
- public sector procurement practices and the extent to which they interact with market structure and suppliers' behaviour.
This call for information came just one month after the European Commission (EC) published a Communication and best practice guide in relation to developing open ICT systems by making better use of standards in public procurement. The Communication recommended the use of ICT systems based on standards rather than proprietary technology. The EC believed that this would lead to the creation of a level playing field.
What does the OFT market study mean for ICT suppliers?
The OFT market study will focus on the degree of competition between companies which supply ICT goods and services to the public sector to ensure the market is working as well as it could. The supply of ICT is of vital importance in terms of public sector expenditure, with an estimated £13.8 billion spent in 2011-12.
The OFT will examine two parts of the ICT sector in particular (which, together, make up around half of UK public sector ICT expenditure), namely:
- commercial off-the shelf software (including management information and revenues and benefits systems that may be used by a range of public sector organisations); and
- outsourced IT (including the building, running and maintenance of IT systems and applications for public sector organisations, contracted to private sector suppliers).
The OFT invites evidence by 20 December 2013, both on the supply of ICT to the public sector and on the experiences of private sector buyers of ICT in the two areas of the sector to be examined. It aims to complete the market study by March 2014.
An OFT market study takes up a great deal of senior management time and has the potential to lead to an even lengthier CC investigation of the market.
Both the OFT and the CC have wide information-gathering powers and may impose hefty sanctions for failure to cooperate. For example, the OFT may send a written notice requiring a business to provide relevant information and documents. Anyone who fails to comply with such a notice or who hides, destroys or alters relevant documents may receive a substantial fine and/or up to two years imprisonment.
The climate has changed for companies supplying ICT to the public sector. As they now face increasing competition scrutiny, it is imperative that competition compliance is at the top of their agenda.