More government IT suppliers at risk

The IT sector will be more exposed to cutbacks than initially thought because Labour ministers allegedly colluded with civil servants to sign off as many contracts as possible, in a bid to saddle the new government with prohibitive costs.



Such is the warning from IT market analysts, reflecting on the coalition's government discovery of what the Sunday Times reported as "previously unknown contracts and uncosted spending commitments."



Even before the disclosure, the IT sector's competitive landscape was always going to change under a Con-Lib alliance, from supplier revenues effectively being redistributed from contract recalls and negotiations.



But now in the light of the revelations, "the worry is that we may well see even more spending cuts or higher tax rises," as ministers reflect "the full extent of the budgetary problems facing their departments".



However in her note, Georgina O'Toole, public sector analyst at TechMarketView, also said she was not "wholly surprised" by claims that Labour pursued a "scorched earth policy" as it vacated government.



She pointed to three state-run ICT-related programmes that she said the outgoing government signed up to in the months, or weeks, running up to the general election date of May 6.



Given that the new government has called a halt to all recently signed ICT contracts, the future of these programmes - Building Schools for the Future, the Future Logistics Information System (MoD), and the Personal Accounts Delivery Authority, now appears less certain.



"Without a view of the contracts and the penalties that the government would incur should it cancel these deals, it is hard to determine the likely outcome," O'Toole said.



But in spite of the temporary moratorium, the analyst expects the Con-Lib government to try to avoid cancellation penalties by renegotiating with IT suppliers, such as by reducing the scope of their work or by differing their payment terms.



Still, alongside the E-borders initiative, which the Sunday Times' sources claim is running later and more over-budget than Labour admitted, the three programmes are the latest to come under pressure.



They sit with the £8billion worth of IT contacts already at a "high risk" of cancellation , according to TechMarketView, potentially affecting IT suppliers including HP, CSC, BT, Fujitsu and IBM.



"[These IT suppliers] will have all fingers crossed that the axe won't fall on their contracts," the firm said. "However it appears that their coming through this period completely unscathed is highly unlikely."