Government: A chimera for Solution Providers?

The Government sector gives a plethora
of opportunities to the mid-sized system integrators/ solution
providers of the country. Research data from IDC and all other
research agencies have clearly stated that over 70% of the business
in the Indian ICT market comes from the government and public sector
organizations. This clearly indicates that this sector cannot be
missed at any cost by the SPs. With increasing awareness about the
benefits that IT can bring into their operations, various ministries
and departments of government across India are focused and geared up
for a greater role for IT in their day- to-day working. Leading from
the front are central government ministerial departments, which are
largely focused on automation and streamlining their processes. The
government is pursuing various e- overnance-driven projects under
NeGP, like SWANs, CSCs, SDCs, SSDGs; 27 Identified Mission Mode
Projects (MMPs); and 5 optional additional MMPs for each of the 35
states/UTs. NeGP implementation is opening up significant
opportunities for solution providers, as there is larger scope for
providing end-to-end solution and service to most MMPs.

Moreover, state governments are keen to
deploy new applications such as e-District that can smoothen and
speed up the basic governance processes and allow for adequate
monitoring of developmental schemes. The projected e-governance
expenditures and IT compliance projects will involve huge
procurements. These procurements would include hardware, software,
services, consultancies, public-private partnerships (PPP), and
several other types of SPVs. This would create different types of
contracts in execution. Kirit Joshi, senior VP, Sai InfoSystem says,
“There is a myriad of opportunities in the government sector, as
there is a conscious effort on part of both central government and
state government to fulfill aspirations of the young citizens, who
are aware about what is happening around the world and what they are
missing. Initiatives like UID, Computerization of Department of
Posts, and CCTNS to create a centralized data base of crimes being
committed, increasing limits of spending from Mobile Commerce
platforms are some of the examples.” “As a solution provider,
such government projects offer us an opportunity to work with
customers in a direct or indirect way and the use of expertise of
multiple technology platforms, which result in a win-win situation,”
adds Joshi.

Partner in the Consotium

As the Indian government is
looking towards becoming the digital economy, it has come out with
various e- overnance projects like SWAN, APDRP, CSC, SDC, UID and
others.But the question that arises is that,
is there any scope for midsized SPs in any of these government
projects? Ashis Sanyal, ex-senior director, department of
information technology, Govt of India, further points out, “One
important aspect, which I feel, deserves significant consideration is
that it is generally observed that the expertise required for the
end-to-end implementation of any e-governance project in a government
department may not be always available within that department. This
is why we see significant amount of effort being put in by the
private sector consulting organizations that are engaged by
government departments, while implementing e-governance projects.

Managing external consultancy efforts
is an important aspect of e-governance project implementation.”
“Projects like e-District have given tremendous opportunities to
the solution providers to foray into the government sector. I am
insisting on e- District because it is a high impacting project
wherein service levels and outcomes are clearly defined. The UID
project has also opened the Pandora Box for SPs. Mobile applications
is another area that the SPs should closely look at,” adds Sanyal.
Most of the SPs in the country have, however, realized that this
segment is dominated by 5-6 large tier-1 system integrators, who
compete in most of the central government, state government or even
in the public sector banks and institutions. They have learnt the art
of winning and created scale to sustain and also manage cash flows
with profitability. And that's why most of the SPs do not go
directly and bid for the projects. They have realized that all the
tier-1 SIs too have huge challenges in preparation of bids,
solutioning, architecting, and managing the solutions which are
delivered to the government customer with winning bid. Hence, they
are working closely with 3 or 4 large Sis as sub-contractor or a
preferred partner in consulting and services. “There are several
government opportunities that exist for SIs like us. UID, City
Surveillance, APDRP, Police Department Modernization, Postal
Department Computerization, etc, are opportunities worth several
thousands of crores. Though, we cannot be a prime bidder in many of
these projects due to our size, we can be a partner in the
consortium. It is a pity, that midsized companies are not provided
with level playing ground in many of these opportunities. We have to
become a sub-contractor to some of the large players,” asserts NR
Panicker, chairman and MD, Accel Frontline.

KV Jagannath, MD, Choice Solutions
feels that most of the government projects do come in as integrated
projects mode as their funds are allocated through planning
commission for specific agenda. This puts SPs like Choice Solutions
in a most challenging position, as these projects come with high
degree of entry barriers in the form of pre-requisites and
qualifications. “All these projects like NeGP, SWAN, CSC, SDC, UID,
and others come with unique opportunity to learn, and contribute to
the good of the society. This allows us to demonstrate our passion as
well, because it provides opportunity to test your ability and
execution capabilities for this scale of operations. The
opportunities for midsize solution providers are to work with large
SIs and support them in consulting and services if it suits
organizational DNA. In our case, we have successfully built a sizable
team with great passion to look forward for success,” says
Jagannath.

Stringent
Prequalification Process

Even though the
mid-sized SIs have the requisite skills, the specifications are made
in such a way that only large players can bid for many of these
projects. The commercial terms while dealing with government agencies
are still in the old age. Invariable payments get stuck for long
durations making it really unviable for smaller companies to bid and
win. Even the pre-qualification criteria for government sector deals
have favored the larger SIs, leaving behind lesser opportunities for
tier-2 partners. According to Sanyal, “The
prequalification process should be designed in such a way so that it
creates an ecosystem. The government should not keep an exorbitant
turnover benchmark. It's very important to note that we are going
towards the ICT era and we do not have enough SPs to cater to these
ICT requirements. It is because at the basic level we have not
created the ecosystem. Therefore, the roots must also be taken care
of.” “When you are trying to take steps toward the ICT era in all
walks of the society, you need applications and content. There is no
content policy in the country and we do not see any attempt towards
this as well. For example, in RTI Act, government has said that
everything has to be in electronic record. But no efforts are being
made to see that these electronic records are created in the specific
time period. And since government has not created the ecosystem,
these SPs are not even making an attempt to reach out to this
segment. You cannot just say that companies like TCS, Wipro, HCL can
handle each and every project of the government. There has to be the
involvement of many other players as well,” adds Sanyal.
Ironically, we are not seeing any initiative from the government to
create an ecosystem in the short time. You cannot have a digital
economy without having a comprehensive digital view. There has to be
amendments in the e-gov mechanism. Government has to create conducive
atmosphere for the solution providers. Govt has to see, master mind,
and nurture that if they want to create a digital economy, then there
has to be the involvement of other players. If this does not happen,
then there will be highly skewed development of the ecosystem, which
in turn, is a dangerous sign for a country like ours.

Echoing his views on the same, Pawan
Khurana, CEO, QuantM Net Technologies, says, “We are seeing a huge
change in the buying patterns of the government sector customers.
Things have changed a lot in the last 1 year. Most of these deals
have now been converted to either BOOT (buildown- operate- transfer)
or PPP (Publicprivate partnership) models. Thus, the deal sizes has
become large and exorbitant for smaller players. Besides, most of
such deals have very rigid prequalification criteria and the bidders
are required to have strong financial muscles. As a result, most of
such deals get outsourced to big players.” Khurana further iterated
that apart from pre-qualification, there are also changes in the bid
evaluation approach adopted by the government. Most of the large
deals in the government sector now follow what is termed as 'quality
and cost-based' selection process. This means that the traditional
way of choosing a vendor based on the lowestbid in pricing is not
followed any longer. A lot of these projects allocate certain
weightage to factors like technology, team, and so on. As a result, a
bidder who quotes a marginally higher price might also get selected
in the process due to his superiority in other factors.

Other Hurdles in the Journey

Clearly, many small SIs are not in a
position to lock horns with the larger players, when it comes to
infrastructure capabilities and resources. This quite naturally is in
the favor of larger national SIs as they can bag a deal without
compromising much on pricing. In fact, one of the biggest reasons why
the large SIs did not focus much on the government sector deals
previously was because of the lower margins. But since now they have
the scope to get better margins, they are clearly trying to keep a
firm grip on this market. Panicker pointed out, “We have been doing
many government projects for the last several years. The challenges
that we face are the long gestation period, the requirement of being
lowest bidder irrespective of the credibility, someone under quoting
all the time, project failures and time overruns as many a times
there is lack of ownership in many government departments due to
frequent changes in the personnel at decision making levels.” “We
have tried but could not get into any of these SWAN, APDRP, SDC, UID
projects, as the tender terms are not favorable to our size of
companies. Besides terms being stringent, pretendering activity and
evaluation is also a long process. The other challenges are turnover
criteria, non refundable tender fees, huge value of solvency
certificates, EMD, and each time tender gets refloated for at least 2
to 3 times. Hence, big amount of EMD gets blocked. Most of these
orders are time consuming both to pick up order and to execute, as
they normally runs in to several years,” asserted Anantharam
Varayur, MD, Webcom Information Technology.

Focus Areas

While the big and consolidated deals
are getting diverted to bigger SIs, tier- 2 partners are contented
with midsized deals. Like every other customer, government sector
customers are also going for stage and phase-wise implementations,
which ensure some business for tier-2 SIs as well, as large SIs would
typically be not interested in the mid-level integration projects.
For example, QuantM Net has not been able to participate in certain
big deals because of the pre-qualification criteria. However, it has
been growing consistently through smaller deals and about 20% of its
business still comes from the government sector. The company tries
and forms a consortium, in association with a few ISVs/qualified
bidders, so that it will be able to get through the pre-qualification
barriers. “We have been able to bag a few BOOT model deals through
this approach. Once we cross the prequalification stage, it's not
tough for us to win the deal as the customers trust us more when it
comes to implementation and services. We leverage our strong
relationship with the government sector customers to break large
tenders into smaller pieces, which helps the firm to bid for these
deals. At times, we are in fact able to compete directly with tier- 1
SIs and take away the deal because of our service capabilities,
presence domination in North and close customer relationships,”
states Khurana. Jagannath says, “We are sincerely working for this
sector with the above mentioned strategy to associate with large SIs
and get the knowledge, experience and build scale to be successful.
My feedback and experience is that one needs enormous amount or
patience and perseverance. One has to clearly understand that this is
a long term game with over 3 years of commitment and investments to
see ray of hope at the end of the tunnel for success.” SR Nautiyal,
founder and MD, Spark Technologies, adds, “Government projects are
divided in 2 parts-vertical and horizontal. In vertical part,
national or global SIs are taking the project and subletting the
different portion to different mid- ized SIs. Whereas, in horizontal
part, project opportunity size is between 1 to 10 crore. Here,
midsized SIs can bid and bid execute. In the government sector,
qualification and deep understanding is the prime key of success. We
are working in this sector from the last 10 years and exploring
opportunity every time. You should have patience to gradually upgrade
your qualification criteria of bidding.” It is up to mid-sized SP
to define its own growth trajectory. With an ability to learn and
differentiate offerings on continuous basis, he can always get
associated with bigger solution providers and create credentials to
participate in bigger opportunities in medium to long term. Patience
and perseverance is the name of game. However, for a mid-sized SP,
who is working within a boundary, it is a losing game.

Projects undertaken by SPs

Accel Frontline has been involved in
projects for CRIS for unreserved ticketing kiosks, involved with CEL
for security system implementation for northern railways, involved
with datacenter implementation for SAIL, and Airport Authority. It
has also been the supplier of customized solutions for many APDRP
projects in the country. Choice Solutions has been associated with
SWAN, SDCs, APDRP and attempting work on UID, in the areas of
solutioning, architecting, and delivering long-term O&M for large
SIs. QuantM Net Technologies has always been very strategic in
government business and chosen very selective projects to work upon.
It has bagged few multi-million projects in the recent past which
varies between different verticals in the government sector. It has
recently bagged a $2 million project by a hospitality branch of the
government to implement their on-site/ off-site retail IT systems.
The on-site IT system implementation contract includes network IT
infrastructure procurement/ sourcing, delivery, installation
(structured cabling, switches, racks, firewall, servers, computers,
software and point-of-sales), configuration, network and system
integration, ISP provider integration, and security implementation.
The site implementation phase is to be completed before the end of
September 2011. QuantM has also set up an enterprise class IT
infrastructure for a financial government body, which included 1000
square feet data center build with designing, deploying, integration
and the management of infrastructure. Spark Technologies has been
working in the government sector for the last 10 years. Last year, it
bagged and executed a major project during Commonwealth Games, value
worth Rs 7 crore. Webcom Information Technology has done campus- wide
networking in most of the defense establishments, PSUs and space
research organizations. Other areas in which it has diversified its
focus is CCTV, access control, and energy management. Recently, the
company picked up an order from one of the PSUs for upgrading their
existing time and attendance system to the state-of-the-art biometric
system.