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Analysis

Government getting to terms with IT procurement?
Clive Longbottom By: Clive Longbottom, Head of Research, Quocirca
Published: 13th July 2012
Copyright Quocirca © 2012
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Many are the tales of the public sector getting poor deals in IT (well, in many areas of procurement, actually). Finally, however, it looks as if someone is getting a handle on what public sector procurement could—and should—be like.

From the outside, it often seems that public sector procurement has either suffered from a lack of negotiators who have the capability to stand up to IT vendors, or who have a lack of understanding as to the purchasing power of the public sector. Nearly 6 million people work directly in the public sector, or close to 20% of the total working population. However, this does not include all the quasi-autonomous non-governmental organisations (Quangos) and outsourced jobs that are 100% dependent on the public sector—all of this drives the true public sector employment level account for around one quarter of all jobs across the UK. This makes any deal that covers a large part of the public sector a real crown jewel for the vendor.

Recently, the government announced that it had renegotiated its agreements with Microsoft and SAP, which would lead to savings of around £70m, with these growing to a possible £150m by 2015. The new agreements are not just based on managing to negotiate better licencing deals, however: there are also other aspects that show that the public sector is waking up to the power it can wield.

Sure, for Microsoft, it is looking at a large proportion of those 6 million workers needing to use Microsoft software. For some time, the government has been talking about the possibility of moving to an open source model—and this seems to have worked as a bargaining chip. Whereas previously, it looked doubtful that the public sector would move from tools such as Microsoft Office to something like OpenOffice, suddenly this looked as if it could happen—Microsoft stood the chance of losing up to 6 million desktops.

This could have led to further problems—these 6 million people also have home devices, and once they get used to using an alternative, they could move to it themselves—particularly if it is free to them. The further knock-on effect could be that those organisations that deal directly with the public sector could find that the fidelity of transactions is better for them if they move from a commercial off the shelf system (COSS) to a free open source software (FOSS) model. Microsoft must have felt significant pressure—and has not only agreed to lower its licencing costs, but also to hold the prices when it ups costs across the board to its commercial customers, and to its public sector customers in other countries.

On top of this, maintenance and support charges have also been controlled—and this is where the SAP agreement also scores well. Over the past couple of years, SAP has been trying to increase the amount of maintenance revenue it can gain from customers—however, the government has managed to secure a longer-term contract in place that makes the SAP environment far more cost efficient through beneficial maintenance terms. With around 125,000 SAP users in the public sector, this is one of SAP’s largest accounts—and so it found that it had to respond positively when faced with real negotiation over the whole contract.

A major aspect of the negotiation that just couldn’t have been used even a year ago is the use of the G-Cloud. Previously, procurement was relatively piecemeal with different departments and each local authority dealing with their own areas—and so appearing to IT suppliers as individual SMBs or relatively low-end enterprises. Now, as the G-Cloud begins to take shape as a procurement gateway, the public sector can present itself as this super-enterprise of 6 million employees, with massive dependencies between itself and the rest of its value chain of suppliers and citizens.

Quocirca believes that the Microsoft and SAP contract negotiations are just the thin end of the wedge. Previously, the government had also renegotiated its existing agreements with Oracle and with CapGemini. Each negotiation has taken between 4 and 9 months—these are in-depth negotiations unlike those the government has entered into before, and show that the procurement officers and lawyers are now stepping up to the mark and demonstrating the same negotiation skills as the professionals from the vendors they are up against. We expect to see further large savings against standard IT contracts as they come up for review.

However, this still leaves the IT component of some of the private finance initiative (PFI) projects and other large, but poorly defined, IT projects where procurement is carried out outside of the G-Cloud/new procurement capabilities. These areas are where the biggest savings are to be made—and Quocirca is waiting with bated breath to see how the government approaches these problems.

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Published by: IT Analysis Communications Ltd.
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