G-Cloud & DOS Spending Review to April 2022

Our Strategic Advisor Lindsay returns to break down the Digital Marketplace spend over the 2021/22 Fiscal Year (FY) and to look at the recently released spend figures for April.

 

Summary

• 10-years of extraordinary growth
• Impact on digital transformation of public services
• Credit to GDS & CCS for this significant contribution
• “March Madness” ever more pronounced, can this be a good thing?
• SME share of spend is increasing
• Daily rates of ‘the oligopoly’ roughly 75% higher than SMEs
• 70% of G-Cloud SMEs not making sales

 

Digital Marketplace Spend Data to April 2022

Crown Commercial Service (CCS) have published the data for spending going through G-Cloud and DOS on the Digital Marketplace up to the end of April 2022. This is a good opportunity to look back over the last full fiscal year and to see what the figures for April might tell us about public sector spending on Cloud services.

 

Overview – The Shape of Spending

It’s not every review I like to clutter up with too much data, but this is rather a special month. The first spending recorded on G-Cloud was just over £ ½ million in April 2012 – 10 years on, the spend on G-Cloud and DOS in the month of April 2022 reached over £322million. That’s an impressive comparison. If we look at the spend in the first 12 months of G-Cloud (£18.3m) – that compares with £3,912m in the 12 months to March 2022, a compound growth rate of 70% a year. To me, that underlines what a valuable contribution the Digital Marketplace has been to the digital transformation of our public sector and what a visionary and robust job GDS and CCS have performed in keeping it running so smoothly.

What has also been visionary is the publication, in some detail, of the spend on the marketplace. It gives great insight and openness into this corner of public procurement. Personally, I’m a little disappointed that other frameworks and procurement channels have not followed this example.

 

 

A couple of things ‘stand out’ looking at the data presented in this first chart. The clearest stand-out feature is the exaggerated peak of spending in March – ‘March Madness’ – where our byzantine public sector budgeting rules dictate that if a department doesn’t spend budget – it loses the budget. This is senseless and encourages waste and discourages thrift.

Broadly, the exceptional spend in March follows the same pattern of distribution between the Lots it is spent on (with 64% going on professional services). However, the allocation to SME suppliers (61%) is much higher than would be expected as SMEs account for approximately 38% of the total spend in the full year. So they are disproportionately rewarded with this rush to use up budgets.

Other points to note from the shape in the chart: we can see the suppressed rate of spend in early 2020 with the lockdown and other restrictions. This, together with high spending from the NHS, gives rise to abnormally high spend in the last quarter of that year. Finally, the rate of spend in the first 4 months of the calendar 2022 is ‘only’ 12% above the same 4 months of calendar 2021. This may reflect exceptionally high spending in 2021 or the impact of spending going to other frameworks and procurement channels in early 2022. There is insufficient data to explain the underlying cause.

 

Comparing Fiscal Years

Total Spend G-Cloud + DOS (all Lots)

Fiscal Year	Large £m	SME £m	Total £m	SME %
2017/18	896.1	449.2	1,345.3	33%
2018/19	1,438.6	624.3	2,062.9	30%
2019/20	1,637.3	820.8	2,458.1	33%
2020/21	2,044.3	1,146.0	3,190.3	36%
2021/22	2,399.1	1,451.4	3,850.5	38%

 

The strong growth in overall spend on the Digital Marketplace, which has almost trebled in 5 years, is accompanied by a noticeable increase in the value of spend in the SME sector. This is particularly gratifying as the intention of the origin of G-Cloud 10 years ago was to open the channels to the SME sector, predicted to provide cost benefits and access to innovation.

The cost benefits are relatively easy to evaluate. Comparing SFIA rate cards using the average of the top 4 levels of day rates of 5 global-sized suppliers as representatives of ‘the oligopoly’ with 5 SME suppliers chosen randomly from the top 20 SMEs ranked by the highest sales in FY 2021/22, shows the oligopoly representatives bill on average 75% more per day than the SMEs. Note that as these SMEs are all billing over £10m in the year, they are going to be quite sizeable, and compete in the same labour markets for talent.

That speaks for the objective, quantitative evidence. Having worked in the oligopoly and small G-Cloud SME suppliers I can attest to the anecdotal discoveries that customers of SMEs are experiencing: SMEs always supply ‘the A Team’ (because they can’t sustain a business on Bs); a G-Cloud customer is always going to be ‘strategic’ to an SME and will get the full attention and support of senior management who will listen and react to customer needs in an innovative way. Finally, there is no incentive to ‘milk’ an assignment by prolonging the engagement.

 

Lot distribution of spend – SMEs only – principal Lots

Fiscal Year	2019/20 £m		2020/21 £m	2021/22 £m
Digital Outcomes		169.1	192.2	227.1
Digital Specialists		72.4	89.4	118.3
Hosting		47.7	51.7	51.1
Software		142.5	234.1	338.4
Support		382.7	570.4	709.5
Total		814.4	1,137.7	1,444.5

 

Fiscal Year	2019/20 %		2020/21 %	2021/22 %
Digital Outcomes		21%	17%	16%
Digital Specialists		9%	8%	8%
Hosting		6%	5%	4%
Software		17%	21%	23%
Support		47%	50%	49%
Total		100%	100%	100%

 

As can be seen, in the SME segment, Support and Software are growing strongly in absolute and relative terms.

 

Plotting the cumulative spend for the last five fiscal years and comparing Large suppliers to SMEs provides another illustration of the strong growth in spend.

 

What the figures do not show is the small proportion of SME suppliers which benefit from this growth of spend. Just using G-Cloud as an illustration: there were 4,635 SME suppliers on the framework at the start of G-Cloud 12. The cumulative sales above were generated by only 1,342 SMEs in 2021/22, so over 70% of SMEs have yet to make a sale. This has been a chronically persistent feature of G-Cloud over 10-years. Analysis of this cohort in the past has shown that the majority of this rump of SME suppliers are responsible for their own failure and doggedly refuse to identify and fix the problems. Often this comes down to material omissions or defects in the presentation of their services on the framework which can be remedied quite easily.

 

Hey Big Spender!

Top 10 Spending Departments

Fiscal Year Customer Group	2020/21 £m	2021/22 £m
Health	538	791
Home Office	552	518
Ministry of Defence	283	381
HM Revenue & Customs (HMRC)	217	298
Ministry of Justice	215	275
Department for Work and Pensions	172	207
Local Government	156	187
Cabinet Office	164	181
Department for Business Energy & I.S.	143	167
Department for Environment, Food & Rural	73	103

 

Health again tops the spend league table, unsurprising in the face of a global pandemic. But whether the spend has been delivering value-for-money is a question outside the scope of this review.

 

Conclusion

Over £15 billion has been spent on the Digital Marketplace over its 10-year life. £3.8 billion in the last full fiscal year. The impact this has had on the digital transformation of the public sector and the delivery of public services should be vast.

A growing proportion of this spend is going to SMEs. Many of these will be UK-based – not just creating jobs, but creating a stock of Intellectual Capital on which sustainable competitive advantage can deliver future growth & prosperity. Though sometimes this seems to be in spite of rather than a result of current government policy or industrial strategy.

Large enterprises and global tech companies are vital for the delivery of technology that is fundamental to successful digital transformation but that comes at a price. Let’s not forget the strategy behind what is now the Digital Marketplace: