Government contracts rescue IT suppliers

30 Oct 2002

Times are tough for the IT sector. After years of sustained growth fuelled by the technology boom and big IT budgets, demand is falling, projects are being shelved and technology has lost a lot of its sheen.

Fortunately for the industry, there is one sector that continues to pour money into technology: government.

Throughout the boom years the public sector was a prolific spender on IT to the extent that many technology vendors and IT consultants had a dedicated public sector team chasing lucrative public contracts. These deals ranged from kitting out entire government departments with new PCs and associated hardware and software systems to building a major business integration system for the Garda Síochána (the €50m (IR£40m) Pulse project).

According to the Government’s Book of Estimates €295m was allocated to ICT projects in 2002. This figure excludes commercial semi-state organisations and the health boards so the true figure could be considerably more. In Northern Ireland, the public sector IT budget is estimated to be in the region of £100 million sterling.

Noel Brady, managing director of Sx3, a Belfast-based IT services company that derives half of its revenue from the public sector, says that government demand for IT products and services has been sustained despite the economic downturn. Brady notes, however, “a distinct lack of progress on larger public private partnership/publicly funded initiative projects coming on to the market”. He adds that few e-government projects have happened and this area of business “is particularly slow”.

Here in the Republic, given the economic downturn, it would be fair to assume that the spending spree on technology is well and truly over. The economy has cooled significantly since the zenith of the Celtic Tiger two years ago and the Government’s coffers are fast depleting. Today all the talk is about government cutbacks, not investment.
Moreover, the tech sector has experienced a calamitous two years. Accounting scandals, creaky stock markets, failed flotations and, most of all, falling revenues have all taken their toll on a once-omnipotent sector.

As they watch their usual customer segments — corporate users, end consumers and small businesses — crumble, technology vendors are no doubt hoping that the government sector will not be affected to the same degree.

It seems they might be right. Cutbacks or no cutbacks, the indications are that technology will remain a key area of government investment for some time to come.

A recently published all-Ireland research project found that the information management sector of the IT industry — a sizeable industry in its own right — is experiencing buoyancy where other IT sectors are still troubled. The research, sponsored by PricewaterhouseCoopers and undertaken by iTx Marketing Services, organisers of the recent Info Ireland exhibition, points to the public sector as the largest market for information management technologies. The sector currently accounts for 39pc of spending on information management technology activity across the island of Ireland and reaches more than 70pc in Northern Ireland.

The research concluded that government initiatives and targets are driving investment in this sector, with e-service delivery over the internet and records management projects topping the activity poll.
Michael Clarke, a director at PricewaterhouseCoopers’ Belfast office who spoke at the Info Ireland show, is in no doubt that e-government initiatives are driving IT investment and will continue to do so.

“Initiatives by the Irish Government are placing a high level of emphasis on e-government and the need to deliver services electronically. These initiatives are supporting and encouraging information management investment in Ireland and are creating a large number of projects and activities,” he says.

“One of the things driving this is targets. For example, the Irish Government’s target to deliver electronic services by 2005. Those involved are thinking ‘Oh, that deadline’s starting to get close’ and so there’s a quite a lot of spend starting to happen in that area,” he adds.
There are several interlinked and large-scale e-government projects that are well under way and will continue to require substantial investment for several years to come.

Virtually every government department has projects either under way or completed. These include: the Department of Social, Community and Family Affairs’ Reach project that is designed to develop a national framework for integrated electronic service delivery across the Civil Service; the Revenue’s much-lauded Revenue On-Line Service’s website that lets citizens and businesses conduct their tax affairs over the internet; and the Office of the Attorney General’s project to put the Irish Statute Book into electronic form.

If meeting e-government targets was the sole reason for continuing to invest heavily in IT, then the Irish Government might consider reining back its spending a little. However, there is a bigger agenda, believes Clarke. “Ireland subscribes to a broader e-Europe strategy that is not about just delivering government services. It’s more about encouraging a broader ‘e-economy’ to compete with other countries that are moving ahead in that space. Governments believe that actually [developing e-services] themselves is one of many ways in which they can move that broader agenda forward,” he comments.

Another factor that’s driving demand for technology, says Clarke, is new legislation in the form of the Freedom of Information Act, 1997. Already law in the Republic and due to be implemented in Northern Ireland in 2005, this legislation enables a citizen or business to request and see information held by the Government.

As a result, government departments and agencies are considering ways of making this information available quickly and efficiently. Clarke observes this is already driving a lot of interest and some new business in the information management area.

The suppliers targeting the public sector have traditionally been a mixture of heavyweights such as IBM, Oracle and Microsoft and smaller niche players with expertise in certain areas. While the continued investment in public sector projects is generally good news for IT suppliers, it also creates challenges, particularly for the smaller players.

As departmental e-government project teams sit down to work out the best way to deliver services online, they are starting to work together more and develop common systems in order to reduce the amount of duplication and the number of suppliers they use. In time, smaller niche suppliers might find themselves outgunned by bigger rivals that have the resources to deal multilaterally with a number of IT departments.

“Given the nature and complexity of some of the problems governments are facing, I think they feel a little bit of security and comfort if they’re dealing with a larger company,” agrees Michael Clarke. As the tech downturn continues to bite, more and more IT companies will be looking to government contracts to stay solvent until the better times return.

By Brian Skelly