Lessons for Australia? UK outlaws IT contracts larger than £100m


news The UK Government has taken a startling new stance on major IT contracts, outlawing new deals larger than £100 million (AU$190m) and declaring that it’s time the country moved past traditional arrangements with “legacy technology giants”, in a move which appears to mirror similar State Government initiatives in Australia.

In a speech given this week to the Sprint 14 conference in London, UK Minister for the Cabinet Office Francis Maude said previously, the UK government spent more on IT than any other country in Europe except Switzerland. “Although I think that included the cost of CERN,” the Minister added. “They were looking for the God Particle – but over here, we were left with an ungodly mess.”


In the old world, Maude said, the country was procuring applications before they had been designed – or over such a long period of time that the technology was out of date before it was delivered.

“To re-visit the film metaphor: we were promised ‘It’s a Wonderful Life’, charged a ‘Fist Full of Dollars’ – and then a ‘Few Dollars More’ – but we were left with ‘Titanic’,” he told the conference, according to a transcript posted online. “For too long, big IT and big failures have stalked government. Now we want to see a new world, a start-up world, where what you can do matters most and where value includes both cost and quality.”

To address this issue, Maude said, the UK Government has mandated a list of what he described as “IT red lines”, which he said he would be “unashamedly militant about enforcing”.

The news rules state that no IT contracts will be allowed to exceed £100 million without a powerful reason; hosting contracts will not last for more than 2 years (“the cost of hosting halves every 18 months, why commit to a longer contract?”); there will be no automatic contract extensions without a compelling case; and companies with a contract for service provision will not be allowed to provide system integration in the same part of government (“there is a conflict of interest here, and contracts are too opaque”).

Maude said: “The whole point is for Whitehall to look beyond the oligopoly IT suppliers – the legacy technology giants. We want the right technology at the right price for taxpayers – whether that’s from an innovative big supplier which gets the new ways of working with us, or a start-up.”

This kind of approach has recently had wins within the UK Government, as the country has forced its IT buyers to look beyond large traditional suppliers.

“We know the best technology and digital ideas often come from small businesses, but too often in the past they were excluded from government work,” said Maude. “There was a sense that if you hired a big multi-national, which everyone knew the name of, you’d never be fired. We weren’t just missing out on innovation, we were paying top dollar for yesterday’s technology.”

“One great example of the potential from small businesses was when we retendered a hosting contract. The incumbent big supplier bid £4 million; a UK-based small business offered to do it for £60,000. We saved taxpayers 98.5 percent.”

In addition, the UK has saved substantial money by actually exiting projects. “Last year we saved the taxpayer over £500 million by stopping projects not aligned to our IT spending controls,” the Minister said. “Digitalising public services could save citizens, the Exchequer and businesses £1.2 billion over the course of this parliament, rising to an estimated £1.7 billion each year after 2015.”

The approach appears to mirror some similar initiatives being undertaken in Australia. In March last year, for example, the South Australian State Government issued a new whitepaper designed to provoke discussion of its future ICT strategy, promising as part of the document that from then on, it wouldn’t pursue “big ICT projects” any more, with all technology-related initiatives to last 90 days at most.

Similarly, State Governments such as Queensland, New South Wales and Victoria, which have both been pummelled by the failures of massive IT projects, losing hundreds of millions of dollars on individual projects, have mandated “cloud-first” approaches to IT procurement which should result in massively smaller IT contract costs, as IT is procured on a service basis, avoiding large monolithic software customisation projects and instead customising their business processes to meet the demands of cloud computing platforms.

However, the holdout for such approaches is the Federal Government. Over the past decade, major departments such as Defence, Tax, Customs, Immigration and Human Services (Centrelink) have undergone major IT projects worth amounts in the hundreds of millions of dollars, typically involving large traditional IT systems integrators such as IBM or Accenture.

As a rule, the projects have largely run over budget and suffered implementation problems — in some cases major implementation problems — but have eventually been delivered successfully.

I think I may do a deeper piece on this issue for Delimiter 2.0 next week; so I’ll leave discussion of this issue up to you guys for now ;) However, I will note that this is a fascinating (and frightening, if you’re IBM) approach from the UK Government. I recommend you read Maude’s full speech; it’s available online here.

Image credit (photo of Maude): UK Government


  1. The current contracts with NBN Co need to be re-structured like this with immediate effect.

    Everyone knows the corruption and ‘waste’ that is happening – and some very strange things begin to happen when $1.3Bn gets put on the table at each step…

    • Actually, I think NBN Co would have been a lot better off going the other way, and keeping the entire build ‘in house’. Most of the roll out issues have all involved external installers, and those issues just didn’t exist when NBN replaced them with thier own people.

  2. I totally get why they are doing this. And for the most part it sounds great. I wouldn’t like to be re tendering process for hosting contracts every 18 months though. I think smarter contract negotiation with pricing set to be negotiated at intervals and exit clauses based on competitive pricing are much smarter. the cost of data centre transition if a new provider is selected every couple of years would negate lower hosting costs. The best part of this article is that the government has realised that the Small Medium Enterprises are to be taken seriously. This will do two things, the industry gets to grow outside of the major players, and these same major players now need to take stock and need to pull their fingers out. If our government can look at this and even take steps toward this kind of thinking, its full of Win!

  3. I think they could use this approach across a few areas, not just IT spends.

    The only real issue I see is that they may have trouble recouping costs from a smaller business if/when something goes wrong.

    • It’s not clear to me that you can claim money back from big companies when something goes wrong. I am struggling to think of a large project failure where a significant part of the costs were in fact returned.

      On the other hand, to be fair, its also not clear to me that the implementing companies are entirely to blame for a lot of the stuff ups.

      • Very true, a lot of the issues with the QLD Health payroll project were traced back to the government changing the goal posts constantly for example.

        I wasn’t suggesting that the idea wouldn’t work, or that smaller companies couldn’t provide solutions, I was just thinking they’d need to make sure they built in requirements for liability policies, so when/if the government decides to sue them (as QLD Gov has done with IBM), the company doesn’t fold, and/or the government doesn’t lose compensation.

  4. Hi Renai and readers

    To help your analysis, using a figure of above $AUD180m: in the last 3 1/2 years (back to 1 July 2010), that would be seven Australian Government contracts, one of which was radio hardware for Defence. See the details here: https://www.tenders.gov.au/?event=public.advancedsearch.CNSONRedirect&type=CNEvent&keyword=&KeywordTypeSearch=AllWord&CNID=&dateType=Start+Date&dateStart=01-Jul-2010&dateEnd=31-Jan-2014&supplierName=&supplierABN=&valueFrom=180000000&valueTo=100000000000&ATMID=&AgencyRefId=&category=32&category=81&category=43&consultancy=&submit=Search



  5. How would they handle an initial installation and rollout of, lets say a payroll system, that was initially costed at $40M but subsequently needed another $1B to keep it working over 5 years?

    Once a product is rolled it is very difficult to just throw a switch and put in another product. So you end up with the drip feed effect. “Just another $30B”, “Add some more internal staff not costed to the project” etc. Eventually there is so much committed to the project that it gets to a “lets just push on ” type argument – usually to save a lot of face for those involved.

    I did see one interviewee saying that existing projects in the UK that are already over the $100M threshold and that have not achieved their original goal are being considered for immeditate termination. There again though, you can’t just necessarily terminate and switch in a new product overnight.

  6. On the surface this looks like a great way to get Government agencies in the UK to focus on deliverable outcomes and making things simpler. It also helps adjust with the pace of technology and change.

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