BSF debacle may cost IT suppliers up to £3.7bn in lost business

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BSF debacle may cost IT suppliers up to £3.7bn in lost business

Microscope contributor

The government's decision to cut the Building Schools for the Future programme could cost ICT suppliers around £3.7bn in lost business, according to research.

Around 10% of the £45bn BSF budget was set aside for IT but a review of the scheme as announced last week may have dire consequences for incumbent suppliers with RM, Northgate and Redstone expected to be the biggest losers.

Research director Tola Sargeant at TechMarketViews (TMV) calculated that of the total pot of money for BSF funding, suppliers can expect to receive just £800m.

"Clearly this is a huge loss of opportunity in terms of potential revenues over the next ten years," she told MicroScope.

TMV reached the calculation by estimating the pro-rating the number of schools and the total contract value.

Some projects will go ahead following the government's review, however teachers' salaries will take priority as budgets are squeezed and discretional spending on IT will be severely limited as the post-BSF market becomes more fragmented.

Even projects at schools that had reached financial close and were said by Education Secretary Michael Gove to be home and dry could actually be stopped or scaled back, argued Sargeant.

"Software and IT services suppliers (SITS) are set to lose an average of between 37% and 44% of the total value of the BSF contracts that they have signed, or been awarded preferred bidder status on, to date," she added.

The 37% figure considers schools that have been classified as 'stopped' and the 44% worst case estimation assumes that all schools and academies in the 'for discussion' category will be shelved which Sargeant admitted was unlikely.

Another concerning element is the warning from TMV that suppliers could lose revenues on contracts that were penned several years ago where ICT may have been delivered in parts of the region but where others may be cut back.

"Unless the contract was profitable on a per school basis, this could have worrying consequences for suppliers' profit margins, particularly given the high bidding costs and reportedly thin margins on BSF deals," said Sargeant.

RM is the biggest BSF ICT supplier by far, winning 21 contracts with 7 at preferred bidder stage worth an estimated total of £586m, but as a result of the government's decision, appears to have lost up to £306m, according to TMV.

Northgate and Redstone, which had a base worth £205m and £191m, may lose up to £117m and £109m respectively.

Capita which has acquired numerous BSF firms, may see its contract value fall £79m from £217m, while Civica may lose £33m on the back of a projects worth £117m. 

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