SMEs are being locked out of competition in many areas of public sector procurement, including the National Programme for IT, due to the sheer size of the contracts up for grabs, a preliminary report from the Office of Fair Trading (OFT) has found.

In a case study of IT procurement, the OFT found that participation in the original NPfIT bidding process was highly restricted due to the costs of putting together bids, and the number of requirements needed. The report suggested that one way of encouraging all sectors of the market to compete could be to help smaller companies with costs.

The OFT is investigating public sector IT procurement in particular to see whether public buyers have failed to prevent a reduction in the amount of competition between IT companies.

Only a small number of companies – the 1% of the IT market worth over £5bn – are able to deliver large public sector projects, mainly because of the large range of different services they provide under one roof, such as IT management, software and hardware maintenance and education and training. In addition, larger IT companies can have departments that specialise in individual sectors, such as healthcare.

Another potentially anti-competitive issue identified by the OFT was that of incumbency. Although the report highlighted possible concerns with BT Syntegra bidding for infrastructure contracts in December 2003 while it already was the largest supplier of IT to the NHS, it found no basis for concern in practice.

The preliminary report did reserve praise for the individual cluster mechanisms that the national programme introduced. Although it stressed that individual LSP contracts were still far out of the reach of SMEs in comparison to their normal level of supplying to NHS trusts, the fact that a minimum of three bidders was required for each contract was identified as positive.

Furthermore, the report noted, should one contract come off the rails, a neighbouring LSP supplier would theoretically be able to take over. While this creates extra risk for the IT vendors, it encourages competition between suppliers.

The OFT identified several general issues with competition in public sector procurement, namely that the public sector tends to be more risk-averse than many others and does not attempt innovation through new methods of procurement, nor willingly choose new suppliers. Another problem is that the more bids for each contract, the higher the evaluation costs for the public sector buyers.

SMEs, the OFT have noted, only really have more chance of competing with very large companies in the public sector on the basis of innovation, rather than long-term supply of complex products and services.

The OFT is due to make its final report and recommendations early next year.