Leap of Faith

26 Jul 2007

Despite significant success overseas, local software firms have struggled with the Irish public sector procurement process. Is this about to change?

Despite the fact that this is a largely SME-based econmy, there is a widespread belief that Government procurement processes in this country are balanced in the favour of larger, big name firms rather than smaller companies.

The indigenous software sector, which employs 16,000 people and consists of small companies with global ambitions, is one such sector that believes its biggest challenge is to grow to scale. But failure to win lucrative business deals with its own Government is a barrier to growth.

“Nine times out of 10 the Government chooses to buy ‘reassuringly expensive’ IT services from the big brand providers,” according to one frustrated local tech firm.

The reasons cited for such a major oversight tend to include rigid procurement processes, risk aversion and over-zealous interpretation of EU rules. The €150m PPARS debacle resulted in the tightening up of Government spending controls and this has exacerbated the problem.

To win a contract valued at €25m with a government body, a firm would be obliged to have at least double that sum on its balance sheet. an unthinkable amount for an Irish SME.

With the Irish public sector seen as the largest spender on IT products and services in this economy, this is a severe barrier to growth for the local technology industry.

Failure to have a government organisation in their home country as a reference customer could also be seen as a potential inhibitor to winning business overseas.

But despite this, Irish firms such as Curam, PolarLake, Saadian, and ThirdForce have won lucrative deals with US and UK government bodies.

The same scale of success is yet to be seen in these shores. But there is room to hope as firms like pTools and e-Spatial have won significant contracts with Irish Government bodies.

However, there appears to be a change of heart at the National Public Procurement Policy Unit (NPPPU) within the Department of Finance, and greater interaction and consultation with SMEs appears to be on the cards. Aside from the efforts of lobbying groups, the move appears to be the NPPPU’s own initiative.

“The Department is anxious to see greater involvement by SMEs and also small and micro enterprises in public sector procurement,” a spokesman for the Department of Finance confirmed.

A recent consultation process got under way that yielded contributions from organisations like IBEC, ISME, chambers of commerce, the county enterprise boards and various government bodies.

In a document entitled ‘Improving SME Access to Public Procurement’, the State acknowledged that access to public sector contracts by smaller entities is often seen as a problem.

It acknowledged that under EU rules, contracting authorities are precluded from awarding contracts or any quota of their contracts to a company on the basis of size.

It also suggested that there are areas where SMEs tend to have competitive advantages that could be a factor in tender evaluations, such as quality of service, response times and regular interaction with buyers.

It also said that contracts below thresholds of €211,000 are outside EU thresholds and may offer some flexibility for doing business with smaller companies.

“The indigenous industry is the future and we need to support it,” says Michele Quinn, director of the Irish Software Association. “There appears to be a willingness to engage on the part of the NPPPU and we believe this will help to bring about a sea change.

“The industry here needs to get good reference sites and this will make it easier to sell into economies like the US, which they can’t do unless they have the Irish Government as a customer.”

Quinn says that in the ISA submission a number of proposals were suggested to the NPPPU, including pre-commercial engagement with SMEs, less proscriptive selection criteria that restrict small companies making innovative proposals, dividing large contracts into smaller lots and amending financial capacity criteria.

The ISA recently organised a meet-the-buyer event where a number of local software firms met with government buyers and it is believed talks are still continuing from those meetings.

“Irish central Government spends €260m on technology every year, but Irish companies that have sold to governments as far away as New Zealand have challenges accessing this market,” said Quinn.

One of the factors that irritated local indigenous firms was a defence previously employed by state procurers that under EU rules they couldn’t be seen to be favouring Irish companies.

It has been suggested that the Government considers rules such as ensuring that 15pc of all purchases go to SMEs as is the practice in the US. However, Quinn says the ISA doesn’t support this idea. “The EU isn’t supportive of that either. It would be wrong to choose one company over the other because you’ve a quota to meet.

“Irish firms are innovative and are prepared to win business on their own merits. Government perception is changing and on our side. We need to increase the visibility of innovative companies.”

However, Quinn said there are areas the Government pointed to that indigenous tech firms need to consider also. “It’s a two-way street. Technology firms need to look at Dublin-based PolarLake, whose enterprise software enables organisations to deploy IT projects 75pc faster with 80pc less resources.

The company’s chief executive John Randles, agrees that things are changing and that in the last six months significant progress has been made, particularly in terms of engagement. He believes that forming partnerships and bidding for significant contracts as part of a consortium would be one way of moving forward.

“I would urge Irish software vendors to look at this model. To win an important piece of a €25m project is better than not winning at all. If 70pc of a Government project went to a large firm that met the criteria and had the manpower to deliver, the remaining 30pc could go to an innovative local firm.

“We forged a partnership with Accenture in the UK. This kind of model will prove critical. Our partnership with Accenture came about after we sold our project to the UK Government. We didn’t win in the UK because someone was willing to take a risk, we won because we had the technology to implement a system with 80pc less resources and fast turnaround time.

“I think initiatives such as the Irish Software Association introducing good local vendors to the top IT people in Government will lead to the right kind of engagements. Until now they had to work their way up through the ranks but this time they know the CIO of various departments.”

One of the vendors to meet with senior IT buyers was Declan Kearney of supplier management software firm SupplierForce. “We were one of six companies that presented ourselves to public sector buyers in March because we had something innovative to present to them. Kearney is convinced that forming linkages or alliances with other companies to win business is vital. “We are in the early stages of partnering with System Dynamics to target public sector business. The new philosophy we are grasping is that rather than hang around for years getting small bits of business, let’s go for the bigger business deals by partnering with one or more of the established players in the market.”

He continued: “I would recommend to other players that once they’ve got a proven technology, engage with other larger players to get to the table.
“We are at the early stages of doing business with a small number of Government bodies. Our technology enables organisations to manage suppliers and ensure compliance and the public sector needs this compliance all the way.

PolarLake’s John Randles agrees with this approach. “The important thing is to get in the door and prove yourself. We don’t see ourselves going for €100m deals if it means we have to have €200m on our balance sheet.

“However, if we can get ourselves in there for €1m or €2m deals to prove ourselves to the procurement people then in the longer term it mitigates vendor risk.

“A year ago we weren’t having these conversations with the Irish Government, but we’re having more conversations now than we’ve ever had and these are quite focused conversations.

“The seeds of trust have been sown.”

Cost of Public Tendors Too Prohibitive

The cost and administrative burden of entering into a tender process is often too onerous for an SME to bear, the ISA pointed out in its submission to the National Public Procurement Policy Unit.

A further issue is that a significant number of projects that are put to tender are ultimately not implemented.

This results in a lot of time and money being wasted by the bidders. The ISA says rules should be put in place to ensure that projects put to tender are implemented.

A time limit of six months for implementation and a cost recovery system should exist if a project is not carried out.

“One way of supporting indigenous companies and feed into an agenda of innovation,” says ISA director Michele Quinn, “would be to get suppliers to propose solutions to problems as opposed to proscribing a list of specific technologies. This would help to reduce the barrier to SME participation in tenders.”

The latest e-business survey from Chambers Ireland found that while 17pc of businesses access the Government’s E-Tender site, only 4pc actually engaged in tendering.

“This indicates that the costs of sales on tenders are too high,” says Chambers Ireland policy director Sean Murphy. “SMEs would like to tender but they have found it difficult to convert an initial expression of interest into an actual sale.

“One semi-state body had a metric which was inherently discriminatory to an SME that may be working in partnership with a number of entities,” claims Murphy.

By John Kennedy