Disclaimer : None of the numbers in the post are researched!
The UK Government contracts out its software development to systems integrators. In order to stay competitive, the system integrators off-shore the software development to places in the world where it is cheaper to hire developer. Places like India, China and Eastern Europe. And quite frankly if they were not driving down the costs, we the British Tax Payers would want to know why.
The reality is that the cost savings of off-shoring are not as mouth-wateringly good as they initially look. The off-shoring argument is simple. A developer cost £50,000 in the UK and only £10,000 in the off-shore location, i.e. An 80% discount. (Made up numbers before anyone asks)
However anyone who has worked with off-shore teams will know that they bring additional overheads.
- You need two sets of (middle) management. One for both the on-shore and off-shore team.
- You need more formal processes (additional process overhead).
- Time zones mean you only have a fraction of the day when both teams are in the office.
- Small delays creep in due to having to wait for the other team to be available. The delays have a compound effect.
- There are often inefficiencies in communication due to language.
- Off-shore companies often have higher levels of staff turnover which means you have a lesser chance of retaining high quality staff and the benefit of gelled teams.
- More chance of building the wrong thing.
Off-shoring people are smart and they have worked hard to address these issues. The reality is that the savings are not in the 80% ball-park but more likely to be in the 25% – 30% zone. But that is before we include the “building the wrong thing” factor.
The real benefit of off-shoring is liquidity. Access to a greater pool of quality programming talent. Those hiring during the Dot-Com era will remember the days when it was impossible to hire decent developers. I remember times when you had decide on the day whether to hire a Java developer or they would be snapped up by someone else.
For most UK organisations, the economic argumant for off-shoring sort of makes sense. For the UK Government IT, it does NOT make sense. The UK Government gets a 50% discount on hiring developers in the UK. Once this is factored in, the arguments for off-shoring fall apart.
Where does the 50% discount comes from? Easy. Developers in the UK pay income tax and national insurance in the UK. Off shore developers do not pay tax in the UK. In fact, given that the system integrators are mostly US Corporations, it is likely that almost NONE of the investment by UK Government IT will come back as tax revenue.
Its time for UK Government IT to have some tough discussions with the systems integrators so that we can claim our 50% discount.
There is an argument that we do not have enough developers in the UK. Perhaps this will provide the stimulus to invest in IT developer skills in the UK.