Marco Tapia, ex-CIO for P&O Ports and now managing director of Sydney-based IT services firm PicNet, said enterprises are getting the "rough end of the pineapple" from the tier-1s which "want to suck every drop of blood you have".
"There is a huge degree of dissatisfaction with large suppliers [who are] sending a lot of work overseas, which is a bigger problem," Tapia said.
"People are getting sick of [offshored] service and are tending to use small companies like ours which bend over backwards to make [customers] happy."
Last month, an online poll by Computerworld asked whether organizations would try smaller IT services firms in 2006. An overwhelming 57 percent of respondents answered "yes, the tier-1s are too slow and expensive", while 14 percent are not prepared to "take the risk", and 29 percent already selectively use smaller firms.
Tapia agrees with the survey results saying it is a "good sign" but doubts the shift towards tier-2 and tier-3 suppliers will occur this year, because it will "take longer to realize the poor level of service" now received.
"If I had a big contract, I would break it up to small suppliers and bring management control in-house," Tapia said, adding he would get better service and value. "Companies can save 50 percent because an hourly rate [of a tier-1] can be A$200 (US$149) or more. Even if it is 40 percent less, you will save a lot."
When asked about the prospect of introducing complexity by having more than one IT supplier throughout the organization, Tapia said the reverse is true. "[Ultimately] it may even reduce complexity, because most tier-1s are arrogant, difficult to deal with, and much more demanding," he said.
PicNet is a 16-person firm with clients such as the Commonwealth Bank.
Tapia believes it is particularly difficult for smaller firms to win government contracts because of a "flawed" tendering process.
"It's very difficult for companies like us to compete in government, because the size of tenders are so enormous only the big companies can afford to have people working on them," he said.
"The tendering process is a disaster [and] government management of IT contracts is totally wrong."
PicNet has been a government-endorsed supplier for two years and in that time has answered two tenders, which, in Tapia's words, "have been a complete waste of time".
"A tender for a A$2 million project is the same size as that for A$15,000," he said. "Smaller players cannot compete in that environment, [because] companies can spend more time answering the tender than doing the work."
Global services firm Capgemini's vice president of technology services, Bradley Freeman disagrees with Tapia's claims because "there is room in the market for both" and customers should be using them for "totally different purposes".
"Our clients use us for transformation through technology [and] we work with the 16-person businesses because they have niche skills and are good value for money," Freeman said, adding the tier-1s give the mid-tier providers sub-contracting opportunities they would otherwise miss out on because of the sheer scale of the services contract.
Freeman said this is most obvious in government work where Capgemini "has the machinery" to do the tendering and is happy to bring in a consortium of niche suppliers.
On the question of cost, Freeman said on an average daily rate basis Capgemini is competitive with any tier and "we rarely hear about expense as an issue".