7 December 2022

Embrace startups for a slicker, leaner public sector

By Camilla de Coverly Veale

Since Brexit, the Government has had more on its plate than ever – and yet recent Treasury belt-tightening means there are less resources to go around. Last month Rishi Sunak told departments they needed to ‘look for the most effective ways to secure value and maximise efficiency’. The Cabinet have looked in the mirror and they don’t like what they see: the British state isn’t ready for the sunlit uplands of Brexit.
But in order to start to solve this we need to break through the idea that this is wholly a question of ‘Big state vs Small state’. Instead we should we should be asking ‘How do we make the State smarter?’ And to do that, we need to tackle the ultimate in ‘boring but important’ – government procurement.
Right now, what the Government buys, and from whom, is a huge problem: in 2019 a whopping £4.2bn of procurement contracts went to just 34 companies. This is especially galling when there are thousands of incredible startups out there who are clamouring to show the Government how easy they can make our lives. Over the past ten years, the UK’s startup ecosystem has become one of the strongest in the world. Nor, contrary to stereotypes, are our startups all social media apps or food delivery platforms. The average UK startup is part of an incredibly successful behind-the-scenes-infrastructure that has been unleashed through cloud computing.
The problem is, that’s all in the private sector. It’s no secret that the public sector has lagged behind with bad contracts and bad suppliers producing very bad outcomes.
Why is this the case? A big part of that is UK startups that could help the Government offer better public services are being squeezed out by giant firms that compete on the buying process, not the quality of their product.
Despite all the innovation staring at us in the face, too often the public sector continues to procure bespoke solutions. But while bespoke might be great for suits, in public services it’s a surefire way for Government to get fleeced. Bespoke solutions can take years to build, often needlessly reinventing what is already on the market with a few extra unnecessary features. It also requires ongoing upkeep and uses tech that fast falls into obsolescence: the Government spends just over £2bn a year patching legacy IT and often has to approve spending on bad systems with expensive consultants to service it all because they are trapped in a cost sink.
In contrast, platforms built on the cloud are ‘plug in and play’, technical support is built in – not bolted on – and systems are updated and patched as standard. Crucially, bespoke builds tend to have limited bandwidth, making them both difficult to scale and integrate. Cloud-based platforms are the opposite – extremely versatile, customers can scale up and down depending on surges in demand. And governments emerging from pandemics now understand the stress of demand surges like never before.
So how do we fix it?
Theoretically, Government understands what it needs to do. They talk good game on procuring from smaller platforms and introduced a cloud-first policy way back in 2013. Lord Maude’s work at the Cabinet Office saw huge progress. And having talked to founders and procurement officials, we can say that we don’t think the problems are the current procurement rules per se, but in the ways in which these rules are applied.
Coadec’s report into making procurement better for startups, published this week, looks at these issues in more detail but if we could shout two recommendations from the rooftops it would be these: make effective pre-market engagement mandatory and upgrade ‘cloud-first’ into ‘commercial-first’.
Another issue repeatedly raised by founders is that the public sector is too often blind to what is actually out there. To take an example that kept coming up, 89% of startups we surveyed said they use live demos when selling – but some 38% said Government teams wouldn’t let them use them. Rules like this advantage incumbents who are more comfortable talking about what they would do rather than showing what they can do.
The cloud-first policy has radically lowered the barriers to entry for newcomers but it needs to go further. Other countries have recognised this – commercial-first is increasingly the new gold standard.
Baroness Neville-Rolfe, the Cabinet Office Minister overseeing the Bill currently, recently acknowledged ‘complex procurement regulations….have long been the bane of small companies” and saying she intends to “make real progress’.
The Procurement Bill, currently being put through its parliamentary paces, is an opportunity to make this change. Procurement officials should have to produce a written explanation of why a bespoke solution was selected, detailing the steps taken before that decision was reached. Not only would this support meaningful pre-market engagement, it would mean commercial-first becomes a new way of doing things, not just a tick-box exercise.

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Camilla de Coverly Veale is Policy Director at The Coalition for a Digital Economy (Coadec).

Columns are the author's own opinion and do not necessarily reflect the views of CapX.