Across government, information technology and procurement professionals are contemplating a dramatic shift in the way IT services are managed. Mark Smulian listens in at a round table on the concept of ‘tower services’
While construction work has ground to a near-halt around much of the country, new towers are still springing up across the London skyline. Meanwhile, a parallel growth of virtual towers is emerging among Whitehall departments’ information technology contracts, as civil servants contemplate following the private sector’s move towards a new way of managing IT suppliers.
Traditionally, civil service organisations have sourced their desktop computers, databases, software and other IT requirements by signing a single umbrella contract with a major system integrator, leaving this prime contractor to subcontract elements of the work to specialist organisations. But in the private sector, many organisations are now moving to adopt a ‘tower structure’: signing a range of agreements with different organisations – covering, for example, end-user computing, networks, hosting and applications development – they build up a ‘tower’ of contracts, with a different contractor occupying each ‘floor’.
The idea is that departments can thereby choose the best possible supplier for each service; and if a single supplier doesn’t deliver, the result is a failure in one service area rather than across the organisation’s IT systems. Meanwhile, the smaller size of each contract makes it easier for niche small and medium-sized enterprises (SMEs) to secure government work. But clients need a way to hold the towers together, ensuring that contractors work not only to the client’s specification but also cooperatively with one another – and that’s the tricky bit. Another obvious issue is the complexity of negotiating and managing a plethora of complimentary contracts; a task that involves measuring and allocating risks and liabilities between the client and the various contractors.
Given these challenges, are the potential gains worth the risk and effort involved? With the support of law firm Bird & Bird, Civil Service World brought together a group of civil servants – representing a range of specialisms from project management to IT contract development, and from commercial negotiation to organisational design – to find out.
Risks and benefits
Setting out some of the pros and cons, Bird & Bird’s senior associate for commercial development, Barry Jennings, explained that a single supplier might provide some services well and others badly, whereas towers enable customers to choose the ‘best of breed’ for each role “so you get the best expertise.” By giving civil servants the ability to award contracts directly to SMEs rather than leaving decisions in the hands of prime contractors, he added, tower structures give public bodies much more control over how much work ends up with small businesses.
On the other hand, Jennings warned, towers create additional management costs because “you’re dealing with multiple contracts” – and this must be weighed against the savings they can produce. What’s more, unless public bodies have substantial IT and contract management workforces able to shape, award and police a complex set of contracts, identifying problems and aligning the contractors’ work, they may need to bring in a further contractor to take on this service integration role.
Phil Sharman, HM Revenue and Customs’ commercial lead for its end-user device programme, was concerned about the challenge of managing and arbitrating between all these suppliers. “That is where it starts getting more complicated, and people have struggled to see how it works in practice,” he said. But while Tim Gent, an organisational design executive also from HMRC, acknowledged that with towers “you do end up with a management overhead”, he argued that the ability to go directly to market with each element of an organisation’s IT requirements could produce much greater savings. “The benefit is being able to contract directly with suppliers, so we can ‘compete’ each individual project if we choose,” he said.
Another benefit is the greater control and flexibility that tower structures provide, said Roger Bickerstaff, joint head of Bird & Bird’s international IT sector group. IT systems are no longer a back office function in government departments, he argued; with the move to online services, they are “intrinsic to the business”. What’s more, the public sector’s IT skills have developed to the point where many government bodies are able to take control of these essential parts of their operations.
“There is increasing confidence in the public sector in its ability to manage ICT,” said Bickerstaff. “If you look back to the mid-1990s, one of the key drivers [behind the use of system integrators] was the idea that ICT was too difficult, ‘so let’s give it to somebody who knows how to manage it’. But now there’s a realisation that you cannot do that, and the customer has to have much more active involvement in day-to-day operational issues. A tower gives you a better alignment of ICT with the business than does doing it all through a single supplier.”
Do towers need estate managers?
The Driving Standards Agency, explained its head of ICT strategy and design Peter White, has only a tiny central IT team: there’s no way White’s own staff could handle all the IT requests and queries from the DSA’s workforce and resolve each with the relevant contractor. “We’ve got 350 sites across the country, and could never service all of them with the few staff in our IT department,” he said.
Appointing a service integration contractor, however, could provide a “single thread” through the various tower contracts, leaving his own staff with strategic and managerial roles. Then, White said, if a member of staff “says: ‘My computer is not working, go and fix it’, the service integrator will talk to all the providers in the chain who make that computer work, rather than you being faced with a lot of IT providers pointing at each other saying: ‘It’s their fault!’.”
David Treder, IT modernisation programme manager at the Vehicle and Operator Services Agency, added that these troubleshooting contractors can be tasked with policing service level agreements binding all the various contractors. “So the service integration manager administers overarching service level agreements, and monitors suppliers against their obligation in a contractual sense,” he explained.
Over time, suggested the Department for Transport’s ICT procurement specialist Steve Powell, public bodies will develop the appropriate expertise through the process of overseeing their integration managers and other contractors. “Through knowledge transfer, you can later bring that skill in-house,” he said. Indeed, public bodies will have to work hard to develop the skills to oversee their contractors; towers should certainly not be seen as a way to reduce civil service headcounts. “When two suppliers are giving different stories, you need be able to say that one is talking nonsense,” pointed out Jennings.
On value and risk
There was considerable scepticism around the table at the prospect of a rapid move to tower structures. Yvonne Gallagher, manager of ICT practice at the National Audit Office, wondered whether the cost of employing a services integration manager would wipe out any savings. “The benefits are around reducing costs due to competition, but against that you have to put in an integration manager – and they have to be good,” she said.
Bickerstaff replied that tower structures can still be better value for money, since in traditional structures the prime contractors add a premium to the services provided by subcontractors – something that clients can avoid by contracting directly. “You ought to be avoiding the prime contractors’ mark-up, and benefit from competitive pressures in the process,” he said.
That doesn’t mean that every service will be cheaper, Jennings pointed out: breaking contracts up deprives suppliers of the opportunity to cross-subsidise risky areas from less risk-prone ones. “You may end up paying more for application development, but you trade it off because you should pay a lot less for computing, where the prime contractors are making a bigger margin than they deserve given the risk,” he said. “Some prices may go up, but the whole package should force the overall price down.”
The DfT’s Steve Powell suggested another benefit of tower structures: reducing the chances of system-wide failure. “For every prime contractor who has done a good job, you can probably think of some examples of things haven’t gone quite right, and to remedy that in an old-style contract is very difficult,” he said. “There is more chance of sorting things out in a tower, as you can partition off the problem area.” If a prime contract begins to go wrong in its first few years, he added, “it is very difficult to stop that from snowballing.”
Preventing such problems from growing isn’t easy, even with a tower system, pointed out Gent. It may not be obvious to a client where a fault lies, he said, so “you can’t beat up one person because you don’t know who it is”. But Bickerstaff responded that the chances of resolving a problem are better where a customer has a direct relationship with a supplier than where it has to go through a main supplier to discipline subcontractors.
Making the shift
Undertaking the transition to a tower system is not straightforward. Incumbent main contractors have little incentive to cooperate with the preparatory work required in order to assess and divide up service contracts, said Bickerstaff: it’s “turkeys voting for Christmas”. One way for clients to ease the shift is by moving to a system of ‘shadow’ towers in their existing contracts, helping them to understand how different parts fit together.
Umer Ehsan, head of performance management for service level agreement/management at HMRC, also raised concerns over the “inherent conflict” facing incumbent suppliers asked to help prepare the ground for a tower system. Where an existing supplier knows a client’s IT systems intimately, he asked, “how willing would they be to share that knowledge when they will be competing?”
The NAO’s Gallagher also saw problems ahead, pointing out that prime contractors “often have people with knowledge in their heads” rather than detailed documentation on existing systems. Unless all of that data can be extracted, she said, new potential contractors will lack all the necessary information to compete for work. “I can ask other people to bid, but if there is no documentation how can they?” she asked. “They would put in a risk premium, so I would not necessarily get a better cost.”
One way of incentivising incumbent suppliers to play ball, said Jennings, is to offer a contract extension as preparatory work is done. But government policy now discourages extensions, he added, which leaves “very few carrots available”. Departments may instead have to rely on enforcing contract terms that require contractors to maintain up-to-date exit documentation. Ehsan agreed: “Incentivisation is difficult because of government policy, so how do you drive good behaviour?”
One way to do so is by utilising departments’ growing ability to work together on procurement – a shift that means that suppliers’ behaviour, both good and bad, now has reputational implications far beyond their own set of government clients. HMRC’s end-user specialist Sharman said the new emphasis on government acting as a single customer means that “no longer can a supplier behave really badly in one contract, then the next day win a big contract with another department. Nowadays, everyone talks to each other”.
The DSA’s White made another important point about the growing cross-Whitehall collaboration on supplier management. Departments should try to influence the design of the Government Procurement Service’s framework IT contracts, he said, so that “they hopefully are not a ‘one contract fits all’,” but allow public bodies to design towers that will fit their own needs.
It is clear that developing and managing IT contracts is going to be a still more complex business under tower structures; and the civil servants turned to Bird & Bird’s legal experts to ask how clients can prevent and handle disputes between their various suppliers. One option, replied Bickerstaff, is to establish ‘co-operation agreements’ under which legal liabilities are allocated among suppliers, so that if one adds costs or delays the others can claim against it. “That insulates the customer quite considerably, but to expect suppliers to enter into contracts with people they haven’t chosen is not always realistic,” he said. His preference, then, is for the use of “a regulated and sensible approach” using codes of practice that create a culture of cooperation between suppliers, and enable clients to charge erring contractors directly.
The proponents of tower structures believe that they’ll yield savings, improve services, reduce the risk of systemic failure, and give clients greater control over their IT systems. But these advantages come at the price of greater complexity in contract management, and won’t be realised unless departments develop the expertise to call the shots in IT disputes. The potential benefits here are surely worth pursuing – but in an environment of shrinking workforces and all-too finite specialist skills, civil servants must be very sure of their ground before taking direct responsibility for managing their vast, labyrinthian and crucially important IT systems.