Councils ICT product margins soar to 21%

Written by Colin Marrs on 30 July 2015 in News

Councils are paying increasingly high margins for ICT products – with mark-ups growing faster than in any other sector – according to new research.

Research from price benchmarking company showed that on average, councils paid 21% mark-up on ICT products last year.

This was up nine percentage points on last year’s average of 12% - the worst performance in 20 sectors including banking, retail and manufacturing. And the research found that in one case, a council paid a mark-up of 373% on a product.

Al Nagar, head of benchmarking at KnowledgeBus, said: “The size of some of the margins is a concern.

“In all likelihood these will be products that fall below the scrutiny radar – the one-off or low volume purchases, which may be a distress item or spontaneous buy. They may also be smaller items like extension cables, USB flash drives and SD cards.

“The scrutiny of spending on these items cannot be neglected, however, as they often make up a larger than expected percentage of the budget - in some cases as high as 25%.”

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On average, across all industries, margins dropped from 21.1% to 19.6% in 2014. Housing associations reduced their average mark-ups from 24% to 20% during the year. But one NHS organisation paid a mark-up of 920% during 2014.

The report said that it could be difficult for ICT buyers to be aware of the proper margins they should be paying because the trade costs for technology products varies more frequently than other products.

“A new pencil will cost a similar amount today as it did 12 months ago as the product will stay the same,” it said. “The nature of technology, however, means that better models and alternatives are constantly landing on the market, and they devalue existing products.”

Knowledge base recommended that ICT buyers put contracts or frameworks in place to ensure suppliers only ever charge an agreed maximum margin above the trade cost on all sales.

Socitm, the representative body for public sector ICT workers has said that councils should be paying only 3% margins at most.

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