Strategic suppliers to British Government ride wave of increased spending - consulting revenue almost doubles in 12 months

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Often with crisis, comes opportunity. And it’s hard to deny that both Brexit and COVID-19 present significant challenges and disruptions to the British Civil Service, which has had to rapidly implement new systems, processes and controls to navigate both. And, as a result, it seems that some of the largest suppliers to the government have seen opportunity in this rapidly changing landscape. 

According to the latest market intelligence from Tussell, which carries out data research on government contracts and spending, strategic suppliers to the government saw their revenue increase by 24% in the 12 months to September 2021. It seems that consultants are doing particularly well in the current environment. 

We will dive into the figures in more detail below, but it’s worth noting the context of why this data is potentially significant. It’s unsurprising that public sector spending has increased significantly, given the work that has been required throughout the ongoing public health crisis and the UK’s exit from the EU - but it’s the choices about where that money is being spent that is of interest, given the ambitions of the British Government over the past decade or so. 

During this time, the British Government has made noises about boosting spending with SMEs and reducing its reliance on what it coined the ‘Oligopoly’, given some of those companies’ track record for failing to deliver value for money. Years of devastating headlines about project failures and poor return on investment resulted in the government pivoting spend to smaller firms and boosting its in-house capability. 

There have been successes in this area, with SME spend increasing and access to contracts improving for smaller firms. It’s also true that some central government departments have done well to build some excellent teams that have delivered some superb public facing services. 

However, where some will likely be concerned is whether or not we will see a return to old habits, as a result of the recent crises. For instance, we saw how the UK’s over reliance on consultants for its COVID-19 Test and Trace system was criticized by MPs, as its value for money was called into question. 

It’s not entirely unfair to say that the speed at which such systems were needed perhaps meant that the government required the resources and scale of these strategic suppliers to step in. But when trust in public services, and how money is being spent, is increasingly being called into question, it’s worth remembering the good work that has been carried out in recent years to turn the tide on large project failures in the public sector. 

The data

Firstly, it’s worth defining what the government deems a ‘strategic supplier’. These companies are a small group that do so much business with the government and provide such core services that the Cabinet Office takes a hands-on approach to managing them, giving them a special ‘strategic supplier’ status. 

As of May 2022, there were 40 strategic suppliers, which include well known companies such as Accenture, Microsoft, AWS, Capegemini, G4S, Capita and IBM. 

The 40 suppliers are divided into categories that include: aerospace & defence, construction & engineering, consulting, technology, telecoms, and outsourcing & FM. 

In total, these strategic suppliers earned revenue of £19 billion from the wider UK public sector in the 12 months to September 2021, an increase of 24% year on year. 

But to put their revenue into context, these 40 companies earned almost half as much in public sector revenue as all SMEs combined. They represent 0.3% of suppliers to the government, but make up 11% of all spend. 

Six of these suppliers now earn more than £1 billion from the British Government - Amey, Balfour Beatty, Serco, Mitie, Babcock and BAE Systems. 

The biggest sector by revenue is outsourcing & FM (£6.3 billion, up 59% year on year). But the sector with the fastest growth is consulting, which brought in £1 billion, and saw growth of an incredible 91%. 

Of all public bodies that did business with the strategic suppliers in 2020-21, the top 20 by total spend accounted for £14 billion of the 19 billion revenue earned by the group. So, 20 of the 40 strategic suppliers are taking 76% of the revenue. 

Tussell also breaks down some of the buyers in government by spend, where those departments or organizations have seen the amount they place with strategic suppliers increase dramatically. For instance, the Department of Health and Social Care has seen its spend increase by 476% to £2.5 billion and the Department for Education has seen its spend increase by 360% to £0.4 billion. 

The Department for Transport’s spend has also gone up by 895% to £0.3 billion, and the Office for National Statistics has seen its spend increase by 439% to £0.2 billion. 

Kent County Council is also significantly increasing the money it places with strategic suppliers, seeing its spend increase by 235% to £0.2 billion. 

My take

At this moment in time I would argue that it’s too hard to point to a long-term trend or say that the numbers point to a reversal in buying strategy or habits. But it’s worth keeping an eye on, as the government did make a number of meaningful changes over the past decade that have supported better outcomes for public services. Standards were set, controls were put in place, and capability has been built up internally, which resulted in better products being delivered. Strategic suppliers will always have their place - they are so embedded in public services, that they will continue to feature heavily. However, it would be a shame if the lessons learned over the past 10 years faded away because of the government’s comfort in dealing with these large companies in a moment of crisis. History tells us that the outcome isn’t always a pretty one.