Big public sector IT projects: Should they be limited to £100m?

The bigger the project, the harder to manage - but here are some keys to success

Big is not always beautiful when it comes to IT projects. But, says Danny Jones, it doesn't mean we should put a set limit on the UK public sector.

Recently there has been a lot of talk around limiting the size of UK public sector IT projects and service contracts. This is not surprising given the public failure of a number of large government programmes and concerns that the public sector still pays too much for IT services.

However, placing a £100m limit on the size of the contract will not solve the government's issues with large-scale programmes and outsourcing contracts. Instead, further changes need to be made to the way that such contracts are sourced and managed.

Understanding past failures
There are a number of factors that can contribute to the failure of public sector IT and they are not all related to the size of the contract. Some common problems are:

• Assuming that local organisations will be willing to adopt centrally developed systems
• Demanding that systems are built in time to meet a policy deadline unrelated to the programme estimates
• Creating monopoly supplier positions, often in order to secure investment funds from the service provider
• Weak programme and service management.

These are all factors separate from the question of overall contract size, although centralisation of solutions and the need for investment have both contributed to larger contract sizes.

Sourcing options
Strategic sourcing decisions play a critical part in determining success. For example, if an organisation needed a new and complex system deployed across several hundred sites then it has a range of sourcing options including:

• Allowing each site or groups of sites to go to market for their own solution. This is a low risk approach that will drive market innovation but one likely to create problems of information sharing and future integration, as well as potentially increasing the total cost.
• Seeking a more standardised approach by using a central pilot scheme to select a common solution and then contracting for deployment in stages. This is a robust approach, but it demands a strong programme team.
• Running a competition to select a system at a fixed price for each type of site, with a payment structure that rewards the pace of implementation and full completion.

Organisations with limited programme management capability and seeking firm pricing are likely to favour the final option, as the cost over-run risk appears to have transferred to the supplier and significant discounts may be obtained from the winning bidder. In fact, this approach has the most built in risk...

Large-scale projects need to be broken down into stages that can be contracted for as the project progresses. This enables estimates to be more accurate and solutions more flexible, allowing for unanticipated changes or complications.

It's not setting a £100m limit that matters; it's taking an informed hard look at the real risks and the extent to which the programme and contract are set up for success or failure.

Service contracts, on the other hand, are different to large IT-enabled programmes. They are inherently less risky and depend more on standardisation, focus and scale economies to drive service and cost.

Services contracts larger than £100m are manageable and may well be the most economically advantageous approach for large organisations. IT services can be broken down into a number of component services and it is often beneficial to do so, reducing contract scope and duration, and therefore contract value. The key is to create a sourcing strategy that will ensure the right service, flexibility and long term value for money.

The multi-sourcing approach
There are often opportunities within the public sector to move from one large contract to multiple contracts, gaining flexibility and control without losing the scale economies within the individual services.

This has the potential to drive improved value for money. However, multi-sourcing requires separate services to be integrated, which becomes a challenge when the prime contractor is removed. There are effective ways of achieving successful integration but it needs additional skills from within the client organisation.

It may be more challenging to manage multi-sourcing but organisations will be rewarded if they manage the approach effectively.

Keys to success
Large programmes should be broken down as far as possible and the £100m limit is a useful reminder that big is not always beautiful when it comes to IT projects. However, setting a £100m limit for service contracts is not necessary. Instead organisations should spend more time and effort setting a sourcing strategy that delivers the right combination of price and service.

Complex IT service contracts, particularly large ones, are not without their challenges and success will be difficult to achieve in the absence of the following elements:

• A solid contractual foundation - A well thought-through contract with clearly outlined roles, responsibilities and payment structure
• A flexible approach to sourcing - Retaining the freedom to choose the best supplier when new projects or services are needed
• Strong service management and governance - Ensuring that commitments are met and that the service provider is managed effectively.

Danny Jones, a partner at global sourcing advisory firm TPI, is responsible for the firm's UK public sector relationships and services.