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UK competition watchdog to examine government IT contracts

By Christine Murray

LONDON (Reuters) - Britain's competition watchdog is looking into government information technology contracts to probe whether the largest companies win too great a share of the work.

The Office of Fair Trading asked suppliers and purchasers of IT services on Wednesday for information on how the market is structured and barriers to entry for smaller firms.

The action could lead to a market study into the industry, possibly resulting in a referral to the competition commission or a request for voluntary action from companies and state bodies. If the OFT finds firms have broken the law, it could launch competition enforcement proceedings against them.

The top five IT suppliers to Britain's public sector are HP, Capita, CapGemini, Fujitsu and BT, the OFT said.

The biggest supplier, HP, runs the government's Defence Information Infrastructure, one of Europe's largest IT infrastructure projects. Capgemini and Fujitsu are focused on central government and BT works extensively across local authorities.

Capita, one of two British companies on the list, is better-known for its wider business processing outsourcing than IT, and runs contracts such as processing disability benefits on behalf of government in Wales and Northern Ireland.

The firm now wins more than one in two of the contracts it bids on, though it says this is a result of being selective about what to bid for in the first place.

"Maybe we're good at it. A lot of our competitors don't win one in two," Chief Executive Paul Pindar said in an interview with Reuters earlier this year.

"It would be very unusual to go into a competitive process without at least five or six other competitors in the starting block."

The top ten companies that supply IT to government hold a market share of over 70 percent, according to a 2011 study by analysts at Kable.

The OFT has shifted its focus in the last two years to looking at competition in public markets as government seeks to transfer chunks of services to private companies.

"It is very difficult to pre-qualify for UK public sector work," Espirito Santo analyst David Brockton said.

"There's a reason for that. They don't want any contractor coming in and undertaking government work without a track record, given the risks and high-profile nature of the work."

"It can be a 'Catch 22' for credible suppliers trying to break into the market," Brockton added.

The OFT said that while there had been many reviews of public sector IT procurement, few had examined whether aspects of the supply side of the market inhibited competition.

"Given the vital role that this technology plays in the delivery of public services and the cost to the taxpayer, the OFT believes it is important to explore whether there are any restrictions on competition," OFT Chief Executive Clive Maxwell said on Wednesday.

IT and procurement more widely are set to play a core role in how Britain's coalition government pushes through spending cuts.

In his spending review in June, finance minister George Osborne said he was looking to save around 1 billion pounds in 2015/16 by centralizing procurement, negotiating better deals with suppliers and making better use of IT.

The deadline for submitting information to the OFT is August 18.

($1 = 0.6592 British pounds)

(This version of the story corrects paragraph 6 to read "one of two" instead of "the only".)

(Reporting By Christine Murray; Editing by Paul Sandle and Tom Pfeiffer)

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