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CSC paid 0.5% tax on £1.5bn outsource

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Public Accounts Committee chair Margaret Hodge rebukes Starbucks for low tax payments - 12 NOV 2012.pngComputer Sciences Corporation has paid just half a percent in tax on £1.5bn income it earned from the 10-year outsource deal it did with with Royal Mail in 2003.

The revelation comes from Computer Weekly's analysis of eight years of accounts published to date by CSC Business Systems Limited, the private vehicle Royal Mail put its IT division into when it privatised that part of its backoffice in 2003.

In the week MPs on the Public Accounts Committee rebuked multinationals Amazon, Google, and Starbucks for paying little or no tax while making £billions in UK sales, Private Eye also reported tax-avoiding arrangements used by other major government IT suppliers: Accenture, Capgemini, Fujitsu, HP, and IBM.

Delving into the accounts of CSC's Royal Mail deal sheds some light on how IT suppliers can win big government contracts by cutting prices to kamikaze-levels. And then make up the difference by ruthlessly cutting costs. They avoid disaster in the interim by claiming tax rebates.

The losses are built into the outsource model, say accountancy experts. Non-payment of tax is built in too - since companies only pay tax on their profits. But a loss-making outsource will still generate income for its parent - in the form of inter-group payments that go unrecorded under UK accounting rules.

Shady

Should multinationals be taxed on inter-group payments that get recorded officially not as repatriated profits but costs taken out before profits are calculated for taxation? That's what the Public Accounts Committee was getting at this week.

For IT outsourcers, the question is whether sustained losses can be justified when buyer and seller effectively set the costs and revenues of the deal when they set it up. Or whether the industry is predicated on an unsavoury system of officially-sanctioned tax evasion and back-door cuts.

CSC Business Systems Limited - Tax credits and Income - 2004 to 2011.pngCSC made a cumulative loss of £12.4m on its £1.5bn Royal Mail contract. It started turning a meagre profit in 2009 after it had finished cutting 63 per cent of the staff (1,082 people) it acquired under the deal.

It got £61.6m of tax credits when it was making a loss. And has since going profitable paid only 0.5 per cent tax on its £1.5bn income - that's £7.8m.

The shape of this arrangement would have been set out by CSC and Royal Mail when they got together to do the deal in 2003, said the director of a big-ten accounting house, who asked to remain anonymous.

Set up

"Generally for a long term contract Step 1 is what are we going to do. Step 2 is what will it cost. You budget for that over 10 years and price it accordingly.

"Part of the pricing strategy might be, 'We can do it more efficiently if we cut back on staff. And that would have been planned from the outset," he said.

CSC Business Systems Limited - Income, Costs and Losses - 2003 to 2011.pngThe planning can be seen clearly in the accounts of CSC Business Systems Limited, its Royal Mail outsource venture, which reported fairly consistent income and expenditure for the duration of the contract.

The contract had a mid-way renegotiation built into it. That passed on to Royal Mail, in the form of lower prices, the lower costs CSC was enjoying as a consequence of the 1,000 job cuts it made in the first years.

Otherwise it was business as usual, year-in, year-out: losses, tax credits, job cuts and opaque inter-group payments; followed by meagre profits and minuscule tax payments on a £1.5bn business.

If it was standard practice to run an outsourcing contract like clockwork, why was this clock running so badly that it never had any money to pay tax?

Lost profit

"The fair question is why a company has gone for 10 years, turned over £1.5bn and hardly made any money out of it," said John Brace a forensic accountant with Harwood Hutton and former president of the Association of Chartered Certified Accountants.

"Why have they not made any money on £1.5bn of turnover? They made £35m in recent years. But the net result is they have not made a row of beans out of £1.5bn. Is that the intended plan, or is it incompetence, or is it just bad luck?" he said.

Lee Ayling, IT outsourcing expert and management consulting partner at KPMG, said: "They've taken a bunch of costs in the first years and then made a profit in the last part.

"That's very typical for an IT outsourcing contract. They take a bit of business where they can essentially restructure the cost profile into a shape they can make a profit on."

CSC Business Systems Limited - Wages, losses and tax credits - 2004 to 2011.pngCSC got a tax credit of £43m for its Royal Mail business in 10 months it traded in its first fiscal year.

It cut 500 staff in the period. £17m of the tax break went to its parent as a write-off against its losses. It got that back in cash. The rest was raised against capital it laid out for the Royal Mail unit.

At the end of the period it recorded debts to its parent of £53.9m. It cannot be known how much CSC Business Systems Limited actually paid to its parent company that year. Nor any year. UK accounting rules do not require them to be reported.

The IT outsource industry usually does this within accounting rules. Although CSC is subject to an ongoing fraud investigation by the US Securities and Exchange Commission that includes its UK business, there is no reason at all to suspect CSC of foul play in its Royal Mail outsource. It has itself taken steps to route out financial errors and sack people responsible. Everything looked above board in the accounts of CSC Business Systems Limited to the three senior accountants who looked at Computer Weekly's summary of its numbers.

Business as usual

It was not only above board. It was par for the course, said the experts.

"There's nothing here that looks remotely surprising or remotely worthy of criticism. It's absolutely bog standard," said the accounting director who did not want to be named.

Par for the course, that is, to run at a loss, hide inter-company payments made before tax is calculated and only claim meagre profit for the tail of the contract.

Turning a cynical eye over the numbers, Brace said the outsource model might be a way for public bodies to pass the buck for downsizing. The outsourcer goes to the union with its losses in the first year and says, 'If we don't make cuts we could all be out of a job'.

However, he said, "One has to be careful about what conclusions one draws. It might all be perfectly straight forward - they went into the contract knowing they were going to suffer a bit of pain in the early years and that it would pan out and start operating reasonably well."

A government source said today it was looking at making an upfront declaration of tax and revenues a requirement of public bids. But such an idea would be fruitless (the government already knows what tax companies pay - and anyone can see it in their accounts) unless it either publishes a league table, or sets a tax bar below which companies will be prohibited from supplying government.

CSC was unavailable for comment.

UK goes royalty-free... but not for COTS

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230px-Moses041.jpgThe UK laid down the law on software standards yesterday, finally fulfilling a policy commitment that has floundered for more than than two and a half years.

The government ordered public bodies to purge their computer systems of proprietary software standards, those data formats and interfaces over which dominant software companies had made property claims established under US patent law.

It decreed that public bodies must instead implement non-proprietary, open standards; under rules it had codified so tightly that it left little room for doubt that it had at last found the courage of its convictions.

Well, almost. The policy didn't appear to apply to "commercial, off-the-shelf software", those ubiquitous, proprietary software packages against which government had formulated its open standards policy in the first place. It was written in reference only to bespoke systems. But let's not spoil the party by picking hairs, for a moment at least.

Disregarding COTS, the policy was far cry from the prevarication that has characterised UK technology policy since 2010, when the coalition was elected. The government committed its open standards pledge to paper in 2011. The proprietary software industry immediately protested at what would amount to the confiscation of its means to assert monopoly power. The protest was led by COTS suppliers Microsoft and Oracle. The government's resolve was so weak it recanted.

Papier-mâché

Now reinstated, UK policy promises to stand as a fortification against the US software patent system's seemingly irrepressible colonisation of European computing and law. (As long as you disregard COTS, of course).

If the UK had not got its mojo back and revived its policy the collapse of Europe's prohibition on software patents would have been certain. Brussels had already pawned its own open standards policy.

Yet after such a fitful beginning it must be asked whether the government had ever invested any more faith in open standards than was necessary to sell election-winning ideas to voters, and whether it has now found only enough resolve to paint a papier-mâché policy in bold colours to silence critics, while kicking the heart of the matter into the long grass.

Papier Mache Egg.pngThe heart of the matter was semantics: if you took what was by definition a proprietary standard and called it an open standard, would it dupe everyone when put at the heart of an open standards policy? This was the central question the Cabinet Office used to justify 17 months of almost perpetual public consultation and industry debate. It was so absurd that a papier-mâché resolution seemed inevitable.

Indeed the heart of the matter was well hidden when the government announced the reformation of its policy yesterday.

Transparency

Cabinet Office minister Francis Maude announced the details at a private conference barred to the press. His PR department issued the usual promotional guff, neglecting to mention how it had resolved the key policy question. Its technology spokesman took a holiday. Its press department claimed ignorance and snubbed requests for information. It leaked the announcement to the press selectively.

The heart of the matter was hidden deep within in a policy document that itself been placed obscurely.

Public bodies must use open standards that comply with the government's definition, it said: see footnote.

There is a definition, said the footnote, but: see glossary.

There are many ways to define an open standard, said the glossary - for ours: see annex.

An open standard, said the annex, is one that is royalty free - one that effectively gives no credence to property claims.

This was a resounding victory for the open movement, for the government, and for common sense. But the Cabinet Office had buried the nub so deeply that you could be forgiven for thinking it had something to hide.

Perhaps it hadn't found heart enough to see the policy through. This was the question the Cabinet Office refused to answer when it first declared for open standards in 2010: what power did it have to tell government bodies what technology they should purchase? What sanction could it enforce if they refused?

Francis Maude.pngThose non-plebeians privileged with an audience with Maude yesterday morning were given the message unequivocally.

Commandments

"Our Open Standards Principles... set out that Royalty Free open standards are key to levelling the playing field for open source and proprietary software in government IT," he told them.

Any residual doubt about his sincerity was eradicated by the "principles" themselves: the most authoritarian system of administrative dogma put to paper since Moses took a retirement job as food-ration monitor on a Kibbutz.

The principles contained within them 40 commandments the Cabinet Office said government bodies "must" implement as "an absolute requirement".

Each accounted for a different loophole through which a proprietary software company might inject one of its own standards into the UK's computing infrastructure.

Government bodies must write their choice of open standards into their systems specifications and procurement frameworks, it said. It would make no difference if they built their own systems or outsourced the work.

Existing systems would be marked for decommissioning if they could not be made complaint. Government accounting officers would be required to publish "legacy" exit strategies and commit to a deadline. They would have to seek approval for exemptions with detailed justifications.

Senior Responsible Owners of public IT projects would be made accountable for open standards and asked to base their decisions on a complex set of user, economic and legal criteria. All meetings and justifications would be published.

Liberty

John Winthrop.jpgIt seemed almost puritanical. It envisaged a community of public bodies conjoined by open standards, their disparate computer systems acting as one body, united under the covenant handed down to them in the Open Standards Principles.

This was the problem for protesting proprietary software suppliers, whose opposition was based in the enlightenment values of the market. The UK had no right to impose its authority on their property rights. There was a threat of legal action.

It came down ultimately to a question of liberty. But the answer was not straightforward and the Cabinet Office may have fluffed it.

Those users, software programmers, open source companies, public bodies and treasury officials who laboured under the imposition of monopoly rents proprietary software producers had claimed over standards might have found their own recourse in John Locke, the father of American Liberty: that they might not "be subject to the inconstant, uncertain, unknown, arbitrary will of another man"; that they might not constrained as slaves, under the dominion of will, or restraint of US [software patent] law. Technology had not turned property into an imposition in Locke's time, not directly anyway.

The Cabinet Office may not have seen this when it slipped out its statement on open standards yesterday. Proprietary software producers had stuck dogmatically to the idea that government must allow them to do as they please.

The Cabinet Office therefore presented its policy as its own right, as a customer, to determine how it spent the £16bn-a-year it did on computing. Its policy made no direct imposition on the market.

COTS

The UK Open Standards Principles nevertheless contained among their 40 commandments, by which it had so carefully covered every eventuality, no reference to commercial, off-the-shelf software.

Its "absolute" requirements - those decrees of what departments "must" do - would apply to "document formats". But no more. The policy was about IT projects. It imposed no requirements on government purchasers of COTS.

The Cabinet Office was today unable to say whether this was an oversight or an intentional omission. A spokeswoman insisted the government had committed to apply open standards to COTS in its response to the public consultation which it also published yesterday.

But it had not. 82 per cent of people who responded to the consultation said the open standards policy should treat COTS just the same as it treated bespoke software.

The government response document said merely that this point of view "would appear to be appropriate".

But this view was not appropriate enough for the government to make it an "absolute" commandment in its policy document, the UK Open Standards Principles.

If there was any doubt about this, the reader could refer to the annex, where along with the definition of open standards the Cabinet Office had set out in no uncertain terms the semantics of the very specific language it had used in its decrees.

Thumbnail image for Oracle package.jpegThere it said "must" meant "absolute requirement". There was also "should", which was not absolute: it meant "recommended", and described those instances where the Cabinet Office conceded that there might good reason why a government department could not use open standards.

It didn't even bother with "would appear to be appropriate". We all know what that means.

Cornwall outsourcing revolt spreads to London

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Barnet protest film gathering - 22 OCT 2012 - EDIT II - 767188768.pngLondon Barnet Council is to vote on whether to oust its leader on Tuesday in a revolt over a plan to outsource 70 per cent of council services to an IT company.

The move follows in the wake of a rebellion at Cornwall council last week, where a vote of no confidence forced out council leader Alec Robertson, and councillors suspended a plan to outsource £800m of public services to BT.

A member of Cornwall's scrutiny panel yesterday called for an explanation from the council after Computer Weekly revealed how Cornwall had been working with BT before the council approved the outsource or a contract had been signed.

Councillor Alison Moore, leader of Barnet Council's Labour opposition, and who called the vote to oust Councillor Richard Cornelius, Conservative leader of the London Borough Council, said the Barnet outsource looked "in complete disarray".

"Given the level of risk involved in the procurement... and the gambling of £1 billion of council tax payers' money, Council resolves that the Executive Leader be removed from office."

Barnet Council Labour Party Leader Alison Moore - EDIT - Alison Moore 1f.pngMoore accused Barnet of obstructing democratic scrutiny of the plan, which proposed outsourcing up to £1bn of public services in two, 10-year contracts called collectively One Barnet.

She said Barnet had scrapped a scrutiny panel it set up to oversee the outsource. Councillors who were not members of the council Cabinet had not been allowed to scrutinise financial details of the deal. The Cabinet had been given brief views of financial papers in certain meetings as long as they handed them back at the end.

The motion said the programme hadn't saved any money and it had been running three years. It had actually increased council costs by £663,000. The council executive had meanwhile disagreed over what outsource business model they should use.

Councillor Cornelius was not available to answer the allegations. Barnet Council press office said it was unable to answer party political allegations.

Money

Barnet's website said One Barnet was forecast to save £111m. A third of "total projected baseline savings" had been delivered by the end of 2011/12, it said. It said this was equivalent to an annual saving of £5.7m.

But Barnet has not let either of the two major contracts at the heart of the One Barnet programme. The first will see either BT or Capita acquire IT and other backoffice functions next month and rent them back to the council for £750m over 10 years.

The second will sell transport and environment services to either Capita or EC Harris, in a £275m contract to be awarded in January. Both deals could be boosted with 5-year extensions that may inflate their value to the outsourcers considerably.

A spokeswoman for Barnet Council said One Barnet had already established two cost saving programmes. One was a shared legal service with Harrow, another London Borough Council. Another was a team of "community coaches" who helped people living chaotic lifestyles avoid spinning out of control. Neither service had been outsourced.

Unison, a public sector union, has helped organise the Barnet Labour Party campaign to stop the £1bn outsource. Last week it broadcast a film called The Billion Pound Gamble, which the local paper said examined local fears about the outsource.

It also organised a petition in which almost 3,000 residents called for referendum power over the decision to sell off public services.

Opposition

John Burgess, Barnet Unison branch secretary, said in a recent written statement that the council's outsource was "designed to divest itself of responsibility" for public services. "We are concerned big business views Barnet Council services as simply a line on a spreadsheet," he said.

Robert Rams, Barnet council cabinet member handling the outsource, has been reported saying: "I don't believe residents are concerned about who provides back-office services to the council."

Barnet issued a written statement this afternoon.

Councillor Richard Cornelius - London Borough of Barnet Council leader - EDIT - 140244500.pngIt quoted Councillor Cornelius, who said: "The One Barnet Programme is our model for dealing with incredibly difficult financial circumstances all local authorities now face."

Barnet needed to "transform" the way it worked if it wanted to "provide high quality and flexible services", said the Council leader's statement. It needed to do "better with less".  

"Residents are more concerned about the quality of services and how much council tax they pay than whether the council delivers a service directly or gets a third party to do it," it said.

Barnet press office said the council was required to cut £72m, a quarter of its budget, by 2015. It said the two outsource deals would transfer 767 employees, a quarter of its workforce of 3,180 people, to the successful bidder.

Councillors in Cornwall say they are still being refused full scrutiny of the outsource even after they ousted the council leader and put the deal on probation.

Widespread initiatives to sell council services to outsourcing companies have suddenly looked more uncertain after the financial failure of Somserset's Southwest One deal with IBM this year, exposed in Computer Weekly, and the revelation that their business model - that puts once disparate public bodies into competition to run one another's services - has not been fully explored in democratic proposals.

UK open standards and the proprietary ecosystem

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Thumbnail image for Oak Tree Ecosystem.jpgThe coalition government was elected on the promise that it would resolve the notorious problems that had turned public sector IT into a disaster story.

It expressed some firm ideas. Then it had second thoughts. Now two and a half years on, its flagship policy has stalled.

What happens next will depend on the results of a public consultation, due imminently. The government's dilemma is how to implement the policy.


The question for the consultation is what the policy really means.

Essentially a Conservative policy, it held that the IT market was stagnant: IT projects were expensive because a lack of competition had inflated prices; IT projects were disastrous because technology itself had also stagnated. Since there was no competition, there was little innovation. And since there was little innovation, there was no competition.

The government's founding coalition agreement said in 2010 it would solve both problems. It would back open source software, a disruptive technology that was cheap and innovative. And it would promote competition by breaking public IT contracts up into smaller components.

Today

George Osborne with Liam Maxwell.pngThe man behind the reforms, deputy government CIO Liam Maxwell, insists government has made progress.

This progress was demonstrated last week, he says, when the government launched gov.uk, a website. It was built using open source tools.

Maxwell reckons the government has also cut £400m off its ICT bill of around £16bn by breaking some of its larger contracts up.

Yet the keystone of both these policies has still to be put in place. That is a third policy - its policy on open standards. Without it, the government IT strategy is a dead duck. It could neither remove the market barriers to open source software nor break its IT systems up in the way it wants if it didn't have open standards.

The problem was described recently by your correspondent in another place, thus:

"The market problem had been derived in the first place from technology's inherent need to work together, as a coherent system. The way it did that was using standards of communication, so one part of the system could co-operate with another, sharing applications, functions and data.

"The problem was that technology markets had coagulated into competing ecosystems based on their own proprietary standards. Dominant ecosystems used their standards to lock competitors out, stagnating the market.

"The coalition proposed that it would place government functions and data in the broadest possible ecosystem to ensure no single supplier or technology was so powerful that it couldn't be swapped with any other.

Thus contracts could be disaggregated and dominant suppliers replaced without causing problems for existing systems, while open source software could be deployed because it wouldn't be locked out by a proprietary ecosystem's standards.

"The government would do this by employing open standards - standards that can be used by any market participant and implemented in any technology without restraint."

But the three leading vendors of proprietary ecosystems - Apple, Microsoft and Oracle - opposed the policy.

They protested. They wanted the right to make proprietary claims on open standards, by claiming royalty payments. The government had said the thing that distinguished an open standard was that it did not countenance proprietary claims. The matter will be settled when the government publishes the results of its consultation.

Proprietary ecosystems

Microsoft has meanwhile sought to explain its opposition to UK policy by claiming its dominant proprietary ecosystem benefits the economy.

Asked to explain its position, it pointed to a 2009 study by IDC that said its Windows ecosystem would generate £18bn of revenues for UK companies that year.

For every £1 of revenue Microsoft generated in the UK, its supply chain partners would do £8.84 of business. Across Europe, companies in Microsoft's ecosystem would generate €110bn revenues.

Thumbnail image for For every $ spent by Microsoft in Europe.pngBut a study published by the United Nations University Institute for Advanced Studies found that for every €1 spent on proprietary software - in an ecosystem defined by proprietary standards - €0.86 went back up the supply chain to a company outside Europe.

In contrast, said the UN study, spending on open source software - operating necessarily in an ecosystem delimited by open standards - resulted in about three times the amount of money staying in the region where it was invested.

Its numbers had apparently proven the point that always seemed obviously so: the owner of a proprietary ecosystem would enjoy the spoils, though his cronies might get rich too. He wouldn't get nearly as rich if he joined the open standards ecosystem, but a lot more people would get a share of the spoils.

Carlo Daffara - Connecta.it.png£80bn

Carlo Daffara, the study's author, says his further calculations show that the UK saves about £80bn-a-year by using open source software. This figure is unpublished. You read it here first.

The saving comes, he says, from the way in which open source software is developed: collaboratively, with applications and functional components being shared freely, so anyone can adapt them or deploy them in their own systems.

It's the re-use that saves money, as Maxwell had been saying when pushing these ideas in Conservative technology policy papers. It also makes software less prone to error. Both advantages rely on open standards.

This was the basis of UK policy. But the government has been hiding in a bunker since the conflict between proprietary technology companies and their open source competitors became a battle of global proportions.

This conflict has made the UK look like an island, and the government seem ready to become a cowardly appeaser. It made a bold stand. But there is a strong likelihood that the Cabinet Office will abandon its open standards policy or fudge it in a way that makes it look one way and act another.

But the Cabinet Office should take heart after the humble appearance of Sir Tim Berners-Lee at the opening ceremony of the 2012 Olympics.

Sir Tim had of course created the greatest of all the world's technology ecosystems, the World Wide Web. He has written that the Web's inestimable commercial and cultural benefits were possible only because it was built using open standards. He appeared at the Olympics like a benign master of ceremonies, gently waving from the centre of a whirlwind of steroids and trumpery, like the personal embodiment of open standards: miraculous and fragile, yet when defended resolutely, triumphant.

MPs get in a funk over open source

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Conservative Open Source Report Summary - Front Page - Mark Thompson - 27 JAN 2009.pngThe Conservative's open source technology strategy may have reached its culmination at a low water mark with the coalition government's renegotiated contract with Computer Sciences Corporation.

Cabinet Office minister Francis Maude and chancellor George Osborne presented open source software as the antidote to the Labour government's "catastrophic" NHS National Programme for IT - and a recipe for cheaper and less botched government computing all round - when they launched their technology strategy in 2009.

Now four years on, what they have done instead is reconfirm £2bn the £2.9bn contract CSC originally signed under Labour, and dropped that bit of it that would have given them the means to open source the goods.

But the original Conservative tech policy was floated on a stream of opportunistic press leaks and anchored with a fishy tie-in with the then Conservative Parliamentary Public Accounts Committee chair Edward Leigh.

The coalition government's lack of progress since raises questions about whether it is prepared to put its weight behind the policy.

Spin

A party insider told Computer Weekly the NHS element of Conservative open source policy was spun to latch on to then current news about NPfIT - the National Programme, Labour's NHSIT disaster.

George Osborne - Edit.pngOsborne floated his open source policy on 27 January 2009, the same day the Public Accounts Committee published a report warning NPfIT wouldn't be delivered till 2015, four years late and at a cost of £12.7bn, because of BT and CSC in particular.

The weekend before the Public Accounts Committee released its report, Osborne's team did a last minute edit of his unpublished 2007 open source policy backgrounder.
Francis Maude - Edit.pngThe day the committee report came out, Osborne leaked his backgrounder to the tech press.

It had in fact been gathering dust in Osborne's draw for nearly two years. It was now unofficial Conservative policy: open source software would cut IT costs and "free government bodies from long-term, monopoly supply situations" such as its NPfIT contracts with BT and CSC.

A week later, The Times newspaper and Computer Weekly scooped the nethermost reserves of poop from the bottom of the Conservative policy headquarters' mudslinging barrel and slung them right in the then Labour government's bullseye.

It was a big bullseye. IT bodges had been par for the course since Labour took office in 1997.

The Times' had done an exclusive investigation of government IT bodges. But it was old news. The paper had dug right down into the archives, dragged up a clutch of rotten old IT bodges and slapped them up as an exclusive investigation.

Outrage

Leigh was so gullibly outraged he told The Times: "As a result of The Times' investigation I am going to immediately ask the Comptroller and Auditor-General [the head of the NAO] to investigate the whole matter of government IT spending and in particular the contracts highlighted in the paper."

The old dog must have had a short memory, because he forgot to mention he had already handled most of these IT bodges as chair of the Public Accounts Committee. And that's how The Times and Computer Weekly new about them in the first place.

The Times' investigation, published on 2 February, involved simply taking a bunch of old stories about IT budget over-runs and adding up the numbers. It said the total cost of Labour IT budget over-runs was over £18bn.

Edward Leigh and Dog.jpgBut £10bn of that came from the NPfIT cost over-run the NAO recorded in a report it had submitted to Leigh's committee three years before, in 2006. The NAO reviewed the situation again in May 2008 and stuck it in another report to Leigh's committee. After conducting its usual hearings into the 2008 NAO report, the committee then produced its usual report about the NAO report. That's the report the committee had published on 27 January - one that Leigh had been talking about in all the papers.

Now a week later, he was calling for the NAO to produce a report about The Times' report about his committee's report about the NAO report about NPfIT, as though it was the first he had heard of it. It was an outrage. It really was.

More outrage

Most of the rest of The Times' £18bn budget over-runs had come from HMRC's Aspire contract with Capgemini. The NAO had reported on this one in 2007. So had Leigh's Committee. So had the press.

Leigh had said in a 2007 committee press statement "the forecast figure is some £8.5 billion...compared with the original estimate of nearly £3 billion". Now two years on, The Times had reported it again. Leigh was outraged.

And most of the rest of The Times' £18bn came from the publication just 18 days before of Leigh's own committee report into the Ministry of Defence's Defence Information Infrastructure. That was about £5bn over-budget - a terrible state of affairs, really. But The Times' had learned about it from Leigh's committee, and they had both got it from the NAO about six months before. Now The Times was regurgitating it again, and Leigh was outraged like it was the first he'd heard of it.

Most of the rest of the £18bn came from Leigh's Committee's 2003 report into the Courts Service Libra project. Libra's cost had more than doubled to £400m, said Leigh in 2003, drawing from NAO numbers given him earlier. The cost had more than doubled to £500m, said The Times in January 2009, drawing from Leigh's earlier work. Leigh was outraged.

The rest of The Times' investigation regurgitated old news about three cancellations: a DWP benefits processing system from 2006, and police and passport websites from 2007. Ah and there was the National Offender Management Information System - then still work-in-progress for the NAO. Leigh was outraged.

Investigation

Leigh was so forgetful that no sooner had he called for an NAO investigation of The Times' investigation of the committee report on the NAO report than the whole idea of an NAO investigation was forgotten, like it had never even been officially proposed at all.

It hadn't. The NAO recorded no official request from Leigh for such an investigation. The NAO in fact never conducts general studies. So it says. So Leigh's committee would have been surprised if the NAO had done a general report into government IT bodges, because it has for the last 30 years worked to a Standing Order by which it examines about 40 of those non-general NAO reports every year.

This was all nevertheless important enough for Osborne to pitch in with a commentary in The Times on 3 February.

Osborne said: "Yesterday's report in The Times that government...IT is running nearly £19 billion over budget was genuinely shocking".

It seemed nobody had read any of Leigh's old committee reports. Or they were so far back on his shelf that everyone else had forgotten about them as well.

But at least Osborne had an answer to this old problem that he had known nothing of till The Times regurgitated it.

The solution, he said, was to stop handing out big IT contracts to the same old big suppliers and break them up into manageable chunks using open source software and open standards. Maude, then head of the Conservative Party's Implementation Unit, was to lead the work.

Now nearly four years on, the coalition government has still to reach a significant milestone on either its open source or open standards policies.

The big departments of state have continued to sign large contracts with the same old large suppliers. The same old large suppliers have opposed the coalition's open source and open standards policies, just as they oppose the contract transparency the coalition government promised as well.

The Tory top team may have been so desperate to put nails in Labour's coffin in 2009 that it would have said anything to get the vote - even that it would use open source software. The two parties were clambering over one another to make the most convincing noises about IT bodges. Labour's own open source policy had been gathering dust for years.

NHSIT deal too good to be true

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Fairy tale for a sick child.jpgThe Department for Health has refused to divulge details of a deal that was meant to fulfil its promise to scrap the NHS National Programme. It may have done such a bad deal that it daren't allow public scrutiny of it.

It struck an "interim" conclusion of an extraordinarily protracted contract dispute with lead National Programme supplier Computer Sciences Corporation last week.

But it agreed to accept a less well endowed version of the software it originally contracted from CSC in 2003 - a Patient Administration System - because the supplier has still not finished it. The government is also considering putting up more central funds to cover the cost of trusts that seek to acquire systems outside of the NHS contract, Computer Weekly can reveal.

Just a week after the department said it had "saved" £1bn after concluding contract renegotiations with CSC, its refusal to divulge specific financial details has raised the prospect it will be getting less for more - not, as it promised - more for less.

£1bn "saving"

The department has been so evasive about the details of what pricing it agreed in the CSC settlement - negotiations over which were led by the Cabinet Office - that its own trumpeted saving no longer looks credible.

Thumbnail image for Chris Grayling, health minister, on the day of his removal from the Department of Health.pngThe little it has been prepared to say was buried last Tuesday under the news maelstrom caused by the government's Cabinet reshuffle.

After more than a week of cat and mouse games over the facts of the deal, the department has said nothing more than would imply it had written CSC a blank cheque.

Thus almost two years to the day after it said it had already scrapped the programme, and a year after it said it was still dismantling it but more rapidly than before, it slipped out that it hadn't really scrapped it at all. It has since refused to say anything more about it than vague and evasive restatements of the stultifying public relations statement it made last Tuesday.

The department said it saved £1bn by scrapping an obligation for NHS Trusts to buy CSC systems. It portrayed this as a liberation of the NHS from the last Labour government's communist-leaning, top-down diktats. But what it actually meant was that it had merely removed a commitment to implement a predetermined number of systems from its own contract with CSC.

It would not say precisely how it calculated the £1bn - coincidentally, the same amount CSC wrote off against the contract last December, seven months after the two parties struck their last but aborted interim agreement.

Slippery

And it has been issuing slippery replies to questions about pricing settled in the agreement. When CW asked how much money it had put up for CSC systems under the agreement, it said disingenuously it understood the question to mean CSC systems delivered outside the programme, for which of course there was no money. It dragged out this misunderstanding for seven successive working days.

When CW asked how much money it had put up for each Trust installing CSC's software, it said it could not say how much because the software and support terms were variable. It said the same for those 10 Trusts already delivering CSC software, which were handled separately by the CSC settlement.

"It would be misleading to give specific figures," said a department spokesman in an email.

How then had it determined that it had saved £1bn, if it did not know how much it was paying?

How could it even have renegotiated its CSC contract without agreeing a price?

And how could NHS Trusts use the central IT funding it had set up for them, if they did not know how much was available?

Had the cost-conscious coalition government written CSC a blank cheque?

Thumbnail image for CSC India Headquarters.pngComputer Sciences Cowpowayshen

CSC itself proved as evasive after the deal was announced last Tuesday.

By the end of the week, after Computer Weekly complained about the contempt it was showing for those citizens and patients for whom it was ultimately responsible under its government contract, and the culture of secrecy within which it obscured its horse trading over public money, CSC put its top NHS man up for interview: Guy Hains, the international vice president who has led the supplier's dealings over its failed NHS venture.

But CSC pulled out the next day. It did not want to face difficult questions. News had also broken of further bizarre evidence that was alleged to link CSC to the abduction and torture of people under the US Central Intelligence Agency's demented War On Terror.

The NHS had apparently played the 'torture flights' card in its negotiations over the summer. But it dropped its concern for human rights when it signed the deal. It issued an identical brush off as had the Ministry of Defence and Transport for London when Reprieve, the charity that unearthed documents seeming to link CSC to the torture flights, asked them to justify doing business with the supplier.

"We asked CSC for clarification on these allegations. They have assured us that CSC adheres to its Corporate Responsibility Programme which includes an affirmative Human Rights statement," a Department for Health spokeswoman said in an email. CSC has not denied the allegations.

Contradiction

When CSC finally sent its own statement about the NHS contract settlement by email, it said it had agreed pricing terms with the Department for Health. It would not reveal actual numbers but figures had been agreed.

Its Lorenzo patient administration software had been cut back into a core system it was ready to deliver and additional components it had not yet finished. They were priced separately, as were services to implement and run them. None of the actual numbers were deemed fit for mortal ears.

Of the £2bn that it may be deduced the government has now agreed to pay of its original £3bn CSC contract, it was not clear whether it was reserved for payment only of those core systems, and that the optional extras would cost extra for NHS Trusts, along with the services to go with them.

And would CSC still get its £2bn if it failed to install its software at but a few Trusts?

Free market

This remains a possibility. As Hains told investors in April: it's a complicated system - it can take up to 12 months to implement it at a hospital.

"Its a 9 to 12 month programme to take the system and put it into a hospital and turn off the legacy infrastructure," said Hains. "There's usually very complex interfacing. All of that requires a huge amount of planning.

"So from day go one you are looking at switching over the first system some 9 to 12 months later. We are ready to do that. So we don't have ramp up time from the point at which we sign the agreement. We have plans in place to take on the first Trusts, and have built up their plans so they are ready to go," he said.

It is most likely therefore that the Department for Health had already established precisely how many Trusts wanted to buy CSC's software, and has got commitments from all them.

So it can remove any contractual mandate and pose as free market liberator, and still strike an agreement with CSC for a set number of systems for a defined amount - all the while churning out vapid chuff chuff from its PR department to deflect any attempts at scrutiny that might expose how bad its deal is compared to that struck by its predecessors under a Labour government.

Thumbnail image for Francis Maude launching the Conservative Technology Manifesto - 30 MAR 2010.pngBehind the chuff, the government has settled for exactly what it said it was vanquishing: a top-down, centrally funded, one-size-fits-all, national IT project with an unreliable supplier on dubious terms.

"The National Programme for IT embodies the type of unpopular top-down programme that has been imposed on front-line NHS staff in the past," said Cabinet Office minister Francis Maude in the Department for Health press release last week.

Sir David Nicholson, chief executive, NHS.png"The NPfIT has provided us with a foundation. But we now need to move on if we are going to achieve the efficiency and effectiveness required in today's health service," said NHS chief executive Sir David Nicholson in the same statement.

Under the new arrangement, the government not only de-scoped the NHS system, it extended the duration of CSC's contract another two years, to 2016.

You had to read that on the website of the US stock market regulator, the only entity privileged to get information about what CSC, Cabinet Office and Department for Health are really doing on behalf of the British people.

Bad deal

In the balance of things, the government has probably not saved any money at all. The concession it did get - a removal of its volume purchasing commitment to CSC - may be offset by the loss of a volume discount. The £1bn "saving" will mean fewer implementations, probably at a higher unit cost. It is even likely that so few trusts will sign up and can be served software before the end of the contract period that "saving" £1bn is simple.

The government is in addition seeking to provide central funds for Trusts to buy non-CSC systems. Thus the cost of the programme goes down with one supplier and up with a variety of others.  

"We have given local NHS organisations the power to make their own decisions about which IT systems they use. The Department for Health is considering the most appropriate mechanism through which trusts may access central funding to support these kinds of capital investments," said a Department for Health spokesman in rare fit of candour.

This is what passes for transparency and accountability under the ConDem government that has made such a song and dance about it. Where are all those armchair auditors Francis Maude talks about? Probably concentrating on those drips of disclosure the government makes when transparency is in its interest.

How Europe did 20 years of backroom deals with Microsoft
1999: Reseller cartel makes it nice and cosy

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Osim Uastro Zero-Gravity Full-Body Massage Chair.jpgWhile prosecutors in Europe and the US struggled to restrain Microsoft's monopoly in the late 90s, their own compadres in the European Commission's Information Directorate demonstrated in gobsmacking style just what little difference they were making, even in their own back yard.

Within six months of both the US Department of Justice and the European Commission competition directorate making landmark anti-trust moves against Microsoft's monopoly in late 1998, the the EC Information Directorate (DIGIT) had moved to entrench and extend Microsoft's monopoly over its own computing infrastructure.

DIGIT was sticking Microsoft everywhere. And it no longer had to justify doing it without a competition - as it might when, say, buying comfy chairs.

The EC had found a particular brand of chair was especially comfortable, thank you very much. Why should it bother telling other chair suppliers when it was about to spend a few more millions of Euros on chairs, when it had no intention of giving them a chance to compete for the business?

Because the procurement rules said they should. And DIGIT's excuses for doing backroom deals with Microsoft were starting to sound a bit lame.

So DIGIT found a way round the procurement rules. It wouldn't need to justify its backroom Microsoft deals anymore because it wasn't going to buy its Microsoft software from Microsoft anymore. It was going to buy its Microsoft software from a Microsoft reseller.

Comfy

This was a nice arrangement. It meant that for the first time in nearly a decade of buying Microsoft, the EC would have a fair and open competition to determine who got to supply the software that ran its PC infrastructure and tooled up its officials.

Well, a sort of competition. Only Microsoft resellers could compete to win the EC competition to find a Microsoft reseller. This somehow got past the procurement rules. A Microsoft reseller won the competition. It supplied the commission with Microsoft software.

There was just one snag, though. Microsoft had the market for Microsoft resellers tied up. So it could set the terms by which the EC did business with them. And it did.

So the EC found that after it had gone through all the cost and effort to run a public competition for a Microsoft reseller, it still had to do a backroom deal with Microsoft: to agree the prices and terms by which the Microsoft reseller would do business with the EC. It made the competition look like a bit of a sham.

"Microsoft offers different types of agreements under which price reductions and maintenance delivered by the resellers can be obtained," explained the EC report that claimed to justify doing another backroom deal with Microsoft.

"The reseller applies his margin on the retail price negotiated between the Commission and Microsoft," it said. These were Microsoft's procurement rules.

EC Informatics - Report to Advisory Committee on Contracts concerning Microsoft - 21 JUN 1999 - Splash.pngThe paperwork was more of a formality than usual. DIGIT made its Report to the Advisory Committee on Contracts Concerning Microsoft Software Products and Associated Services on 21 June - just nine days before the last Microsoft licensing agreement ran out.

There wasn't much bother about it all. The EC could only really gift its business to Microsoft after prospecting the market to ensure it really had no alternative. There would be no point running a competition for a software supplier if Microsoft was the only game in town.

Formality

As it happened, Microsoft did have a monopoly. It was therefore, to all effect, the only game in town.

It had in fact 95 per cent of the operating system market. It had a similar share of the market for office software. It was using its monopolies to extend into other areas of software like the internet, which had earned it a wrap on the knuckles from the US department for Justice just six months before. And it it was extending its monopoly into servers, a situation that the EC competition police were investigating at that very moment after complaints in 1998 from Microsoft rival Sun Microsystems. Microsoft wasn't really the only game in town. That's just how it seemed to procurement officers, and the market.

So DIGIT's market survey came up trumps for Microsoft:

"The Microsoft range of products and services used by the Commission is only available from Microsoft," it said.

"It is not possible to acquire similar products at the same level of quality from other suppliers," it said.

That was all it said. It was the usual justification for doing a backroom deal with Microsoft: only Microsoft could supply Microsoft.

But this matter of a Microsoft reseller confused matters. Did it mean that it was no longer the case that only Microsoft could supply Microsoft, but that only Microsoft could sell Microsoft software licences that could only be bought through Microsoft resellers through a fair competition open only to Microsoft resellers? The effect was the same.

How Europe did 20 years of backroom deals with Microsoft
1996: Only Microsoft can do Microsoft

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Bill Gates at court in Utah.pngThe European Commission gave up pretending there were alternatives to Microsoft in 1996. It side-stepped new laws designed to keep public money honest, claiming exceptional circumstances. It gave Microsoft its business on a plate again.

The new law was Council Directive 93/36/EEC of 14 June 1993: coordinating procedures for the award of public supply contracts. It said public bodies had to be open about how they awarded public contracts, and give everyone a fair chance of competing for them.

Public bodies could ignore the rules and do backroom deals called negotiated procedures, said the new law. But only in "exceptional" circumstances.

Digit, the EC's Informatics Directorate, said Microsoft's exceptional circumstances were justfied under Article 6.3.c of the public contracts directive. This allowed it to contract Microsoft without telling anyone beforehand.

It could do this, "when, for technical or artistic reasons, or for reasons connected with protection of exclusive rights, the products supplied may be manufactured or delivered only by a particular supplier", said Article 6.3.c.

Digit said this meant it could do a "negotiated procedure without prior publication with the company SA Microsoft RV" because this happened to be "the only authorized representative of the products in Belgium and Luxembourg".

A backroom deal with Microsoft was justified therefore, because only Microsoft could supply Microsoft software.

Cushty

Digit's original decision to buy Microsoft, in 1992, had stemmed from its moving the European administrations onto PCs. It actually did the deal in 1993, as it was enacting the public contracts directive. Microsoft's monopoly in PC operating systems was then well established. Only a year later, the Commission's competition police fingered Microsoft for abusing its power.

Yet Digit took it for granted that there would be Microsoft operating systems on its new PCs in 1993.

"During the first half of 1993, the Commission conducted negotiations with the firm for the purchase of Microsoft licenses for operating systems (DOS / Windows), following the selection of the architecture of PCs of the Commission, as well as office software (Word, Excel, ..)," said the Digit's documentation at the time. It gave no justification.

In 1993, Digit said, dubiously, it was doing backroom deals with both WordPerfect and Microsoft because only they could satisfy its needs for PC application software.

Muscle

But it dropped WordPerfect before it had even finished rolling it out. Microsoft had used its operating systems muscle to give its PC applications a boost over competitors. Just last week, it got told off about this in court in Utah.

Novell, which owned WordPerfect in those days, had claimed damages for not having being Microsoft, which had become a handicap for Microsoft applications rivals by the time the European Commission was coming to refresh its desktop computers in 1995.

Novell lost the case last week, as it happens. It wanted damages for its operating systems business, not its applications business. The court was neverthless convinced Microsoft had given its own desktop applications an advantage on Windows 95.

Judge Frederick Motz.jpg"I recognize that this conclusion may appear somewhat disturbing because arguably it rewards Microsoft for unsavory behavior in the applications market," said Judge Motz as he threw Novell's case out on 16 July.

Microsoft had anyway stoked trouble for Novell's WordPerfect Office suite of applications in the mid-90s. Microsoft Office became a shoe-in at the European Commission.

Novell had trouble producing a version of Perfect Office that was compatible with Microsoft's Windows 95 operating system. It sold it to Corel in January 1996. Weeks later, the European Commission's Information Resources Management Board decided to give WordPerfect the boot and open backroom talks with Microsoft.

It was all going to be Microsoft now. There was no technical or market reason why - not that Digit could demonstrate. The Commission hadn't even got Windows 95 on its computers. It wasn't even necessarily going to get Windows 95, show documents released to Computer Weekly. Digit opened talks with Microsoft about whether it should migrate to 95 after kicking WordPerfect out. In hindsight it was clear that it would.

It was just simply all Microsoft: operating system, wordprocessor, spreadsheet, presentation package, database, email. In June 1996, a month after Corel released Perfect Office for Windows 95, Digit said it had done a backroom deal with Microsoft because only Microsoft could do Microsoft.

It reversed its 1992 decision to use WordPerfect as the standard format for document exchange as well. It had done this pending an industry standard being created. It standardised on Microsoft instead. Microsoft was the industry. Microsoft was the standard.

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15 FEB 1996    EC decides to throw WordPerfect out and go all Microsoft

Draft minutes of Meeting Of Information Resources Management Board on Microsoft Licences - 15 FEB 1996 - splash.pngEUROPEAN COMMISSION
INFORMATICS DIRECTORATE
service support

Luxembourg, March 6, 1996
DI/MOL/bj D(96) 6736 rev.1

DRAFT MINUTES OF THE MEETING OF IΝFΟRΜATION RESOURCES MANAGEMENT BOARD (IRМВ) of 15 February 1996

Conclusions:

The Information Resources Management Board decided to migrate to word-processing WinWord 6, as follows:

- Until October 1996, a period of preparation is necessary to allow branches to accurately plan their needs and make all arrangements to receive the texts in the new format. During this period, the General Directorates WinWord WinWord 2.0 pass 6.0. The exchange format is WordPerfect 5.2,

- November 1996 to July 1997, the migration itself is done. During this period, the exchange format is that of the issuer, that is to say, WinWord or WordPerfect 5.2 or 6.0,

- Beyond July 1997, remains only the generalized exchange format WinWord 6.0,

- Calls on branches to prepare for March 31, 1996, the draft plans for migration

- Calls on the steering unit to integrate these plans into a comprehensive plan, as well as effector budget allocations and priority to report in July 1996

- Considers that the continuation and expansion of inter-institutional relations are essential to the Commission,

- To this end, the Directorates-General must comply with the rules of production of legislative documents as part of SEI-LEG as they migrate to WinWord 6,

- Supports the IT Department, in collaboration with the General Secrêiariat, develop, install and promote the software SEI-LEG I in branches, and to ensure its use for the production of documents legislator,

- Request that the financing plan for SEI-LEG is validated and consolidated

- Request that the resources actually required multi-year project are allocated annually,

- Note that this allocation does not prejudice the possibility of using the formula of the redeployment, which could be offered at the College given the advantages of a unified office in the Directorates-General and the Translation Service.

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17 JUN 1996    Commission makes new Microsoft deal official

European Commission Report On Procurement And Contracts To Purchase Microsoft Licenses - 17 JUN 1996 - splash.pngProcurement file
CCAM (96) 234

EUROPEAN COMMISSION
INFORMATICS DIRECTORATE
Logistical support and training
Brussels, 17 June 1996
DI/SLF/CTR-IZ /cc 96_301

REPORT TO THE ADVISORY COMMISSION ON PROCUREMENT AND CONTRACTS TO PURCHASE MICROSOFT LICENSES AND MAINTENANCE THROUGH DISTRIBUTION CHANNEL FOR THE ACQUISITION OF PC SOFTWARE

3. GROUNDS FOR CONTRACT

3.1. Origin of operation

Action arising from the administrative / continuation of a previous action.

3.2. Objective of the action

During the first half of 1993, the Commission conducted negotiations with the firm for the purchase of Microsoft licenses for operating systems (DOS / Windows), following the selection of the architecture of PCs of the Commission, as well as office software (Word, Excel, ..). As of July 1, 1993, a contract was signed with Microsoft, based on the opinion CCAM * No 213/93 (see anneхе I).

February 15, 1996, IRMB decided to choose the product WinWord 6 of Microsoft as word processing unique to the Commission (Annex 2 item 4.2) and abandon the product used WP on the Commission and had the subject of a separate agreement (Notice 105/93 CCAM, see Annex I).

During the past few months negotiating with the firm of Microsoft were conducted by the IT Department with the following objectives:

- Define the terms of the migration WordPerfect - Word (harmonization with the desktop Office suite of office);

- Specify the conditions for migration to a new technical platform (operating system of the client / Windows 95 or NT not yet determined, study in progress);

- Get the price per user decreases and the cost of maintenance to compensate for the increase in the number of users;

- Apply the same financial terms to the other institutions.

4. MARKET SURVEY

Under the provisions of Article 6.3.c) of the Directive 93/Зб/СEЕ Council, the procedure by negotiated procedure without prior publication with the company SA Microsoft RV., Which is the only authorized representative of the products in Belgium and Luxembourg.



How Europe did 20 years of backroom deals with Microsoft
1993: EC rubber-stamps Microsoft monopoly

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Microsoft Office 1992.pngEurope's ill-fated 1993 migration to Microsoft Office was rubber-stamped by a committee that failed to see how it would get locked into buying Microsoft without a competition for the next 20 years, show documents released to Computer Weekly.

The European Commission used dubious reasoning to justify its decision in 1992 to do a backroom deal with Microsoft. Officials at the time said it was based on a survey of the wordprocessing market. But they took that as justification for buying Microsoft's entire Office suite - with spreadsheet, presentation, email and database software - without opening the business up to any other competitor. And it threw the desktop operating systems DOS and Windows in as well.

"Under the provisions of Article 58 of the Financial Regulation, [the selection procedure] was carried by direct negotiation with the company Microsoft Corporation, owner of the goods concerned (MS-WORD FOR WINDOWS, EXCEL, and operating systems DOS and Windows)," said the EC Information Directorate at the time.

"The proposed contract with the company MICROSOFT will also extend to other office products offered by the company and are regularly requested from the Commission."

The EC was effectively giving Microsoft its desktop monopoly on a plate.

Article 58 of the European Financial Regulations ultimately rested on a the rule that: "Contracts may be made by private treaty...where for technical, practical or legal reasons the supply of goods or services can only be carried out by a particular contractor or supplier."

It meant the EC could do a private deal with Microsoft without opening it up to competitors.

But it had only considered the impact of its decision on the market for WordProcessers. Microsoft was even then already in hot water over its attempts to abuse its dominant market position in desktop operating systems to pin down the entire PC computing environment.

The 1993 procurement was mitigated by an EC decision to standardise its desktops on both Microsoft and WordPerfect Office. The EC chose WordPerfect as the standard format in the absence of an industry, or open standard. The rollout was expected to take three years. By the end of that term, the EC dropped WordPerfect and handed all its business to Microsoft - again without a competition.

The EC said its backroom Microsoft deal was justified in an earlier report that justified buying WordPerfect software on the same terms, again by the Informatics Directorate - now DIGIT: the Directorate-General for Informatics that is still handing the business for the entire European administration's desktops to Microsoft without a competition.

But DIGIT's WordPerfect report said nothing to justify a private arrangement under Article 58.

Anyway, it said, it wasn't justifying any decision to buy Microsoft just yet - that would be done in the later Microsoft report.

The only justifications DIGIT gave for buying WordPerfect were discounts and the empty licensing sweeteners that have become common reasons for approving packaged software procurements.

DIGIT said the WordPerfect purchase was justified by volume price reductions, and reductions for throwing out a competing product (the old market-leading Unix suite by Quadraton), and the promise of cheap rates for updates.

There was nothing to indicate a backroom deal could be justified under Article 58 of the European Financial Regulations - but it did it anyway.


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Documents obtained under European Commission Freedom of Information rules. Painstakingly transcribed in original French and processed in Google Translate.

16 APR 1993    EC justifies first bulk purchase of Microsoft desktop software

EC Justification of first Microsoft deal - 16 APR 1993 - Splash.pngProcurement file
CCAM(93)234

Bruxelles 16/04/1993
DI-SLF/B (93) GG/rd 135

INFORMATICS DIRECTORATE

Logistical support and training

REPORT TO THE ADVISORY COMMISSΙON Procurement and Contracts

CONCERNING ACQUISITION OF SOFTWARE FOR TREATMENT OF TEXT AND OTHER OFFICE SOFTWARE FROM MICROSOFT

III. GROUNDS FOR CONTRACT

The IT Department has submitted for the meeting of the CCAM 25/03/1993, a report on the conclusion of a contract with WORDPERFECT company, for the acquisition of software word processing. The report, which has obtained a favorable n...105/93 of CCAМ (see Annex I), explained the decision of the Commission to replace the current word processor, the Q-ONE QUADRATON company, for MS Word for Windows, the company MICROSOFT, and WordPerfect for Windows, the Company WORDPERFECT.

Negotiations with the firm MICROSOFT have meanwhile continued and a draft contract has been established (see Annex II). As in the case of WordPerfect, the proposed contract with the company MICROSOFT will also extend to other office products offered by the company and are regularly requested from the Commission.

The signing of such agreement the Commission will provide many benefits, the same as those mentioned in point III of the report for ACPC WORDPERFECT.

Negotiations with MICROSOFT CORPORATION also covered the strategic direction of the company based on the current and future architecture of the Comission.

IV. PROSPECTING THE MARKET

The process leading to the selection of word processors MS-Word for Windows and WordPerfect for Windows has been described in detail in the report relating to the contract WORDPERFECT CCAM.

V. SELECTION PROCEDURE OF THE CONTRACTOR

Under the provisions of Article 58 of the Financial Regulation, [the selection procedure] was carried by direct negotiation with the company Microsoft Corporation, owner of the goods concerned (MS-WORD FOR WINDOWS, EXCEL, and operating systems DOS and Windows).

The contract that the Commission has negotiated with the firm MICROSOFT CORPORATION provides that licenses are purchased primarily from authorised retailers and occasionally from MICROSOFT CORPORATION.

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5 MAR 1993    EC justifies decision to buy WordPerfect

EC Report justifying Office software purchase - 5 MAR 1993 - Splash.pngBruxelles, le 05/03/1993
DI-SLF/B (93) GG/rd 087

INFORMATICS DIRECTORATE
Logistical support and training

REPORT TO THE ADVISORY BOARD OF PURCHASES AND CONTRACTS FOR THE ACQUISITION OF SOFTWARE FOR TREATMENT OF TEXT AND OTHER SOFTWARE FIRM WITH THE OFFICE WORDPERFECT

III. GROUNDS FOR CONTRACT

The IRMB (Information Resources Management Board), in session from 16 July 1992, decided that the word processor now used by the Commission (Q-ONE QUADRATON) became obsolete, and would be replaced by word processors MS Word for Windows, of Microsoft, and WordPerfect for Windows, by WORDPERFECT. The decision was prepared by a thorough analysis of the market (see Chapter IV).

The migration is planned over three years. We must proceed with acquisitions of products concerned to benefit from the services and benefits involved. The market volume is estimated as financially and technically advantageous for the Commission to benefit from cost reductions granted by the signing of a contract with both companies.

Although negotiations were conducted in parallel with both Microsoft and WordPerfect, the report presented only for signing the contract with the firm WORDPERFECT. A further report be presented to the ССАМ as soon as the draft contract is finalised with Microsoft.

The coverage of the contract attached as we are planning to sign with the company WORDPERFECT (see Annex III) extends to other office products offered by the company that are regularly requested from the Commission, which increases the importance of the reductions granted.

The benefits of the contract include:

- Price reductions secured by the volume of purchases, taking into account the purchases made by other institutions,

- Granting a reduced rate if replacing a competing product (including Q-ONE) licensed WORDPERFECT ("competitive upgrade")

- Possibility of using a single license for training room

- Discounts on the costs of updating automatically received (with maintenance),

- Permission to install software on all workstations from originals or electronic copy, with quarterly reporting,

- Updates easier by removing the obligation to return the disks originate from the supplier,

- Authorisation for staff to use the same license at the office and at home for much of the application software, or on the desktop and the laptop,

- Access to support in a range of services and
inside information (on-line support, test versions, documentation ...).

In addition, contract negotiations have also covered the strategic direction of company WORDPERFECT according current and future architecture of the Commission (cf. Annex IV - Statement of Direction).

IV. MARKET SURVEY

The "Committee for Users of Word Processing and Electronic Mail", which is chaired by Secretary-General of the Commission and comprising substantially all of the Commission appointed a Technical Group to study the market "word processing" and provide a report. The findings of this report a summary of which is appended it led to the recommendation of the products of word processors MS Word for Windows and WordPerfect firm MICROSOFT WINDOWS for the firm WORDPERFECT.

After a consultation conducted by the Secretary General of the Commission with officials from other agencies, IRMB endorsed the recommendation of the Technical Gгоuре by its decision of 07.16.92 (Annex I),

V. PROCEDURE FOR SELECTION OF CONTRACTOR.

Under the provisions of ..Article 58 of the Financial Regulation, was carried by direct negotiation with the firm WORDPERFECT CORPORATION, owner of the product WORDPERFECT,

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16 JUL 1992    EC Information Resources Management Board WordProcessing Strategy

EC Information Resources Board recommends WP standard till better option - 16 JUL 1992 - Splash.pngLuxembourg, July 23, 1992
DI - (92) 5257 MOL / пс

INFORMATICS DIRECTORATE

SPECIAL MEETING INFORMATION RESOURCES MANAGEMENT BOARD (IRMB)

ON THE CHOICE OF A STRATEGY FOR WORDPROCESSING

July 16, 1992

Summary of Findings

Both products Word and WordPerfect for Windows (multi-size 5.1) are allowed to coexist and Commission. The official exchange format by default between the two systems will be WordPerfect format pending the availability of standardised solutions.

As for the fixtures of migration: the IRMB notes the importance of migration Translation Service and its implications for all services. This migration is scheduled over a period of 3 years until 31/12/1995.

In order to have a global and concerted evolution in the DG, they are encouraged to prepare for the end of the year, migration plans. The IT department is at their disposal if they wish, to help make these plans

The technical topics include:

- Improvement of converters,

- Integration with e-mail service,

will be handled by the IT department is asked to allocate the resources.

In the field of e-mail, IRMB stresses the importance of the timing of the development of products used, both within the Commission and with other institutions,

The IRMB notes the need for concerted action, consistent and transparent within the Commission on the next generation of e-mail.

Anexes:
1. List of Participants
2. Letters of Secretaries General of other institutions


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6 JUL 1992    EC Secretary General recommends Microsoft Office procurement


How Europe did 20 years of backroom deals with Microsoft
1992: Open standards doomed from outset

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EC Sec Gen Committee Recommends Microsoft and WordPerfect desktops - 6 JUL 1992 - Splash.png
The European Commission has been trying - and failing - to avoid being locked into proprietary Microsoft technical standards since 1992, it has been revealed in official documents released to Computer Weekly.

Its failure then led directly to the decision last year that ensured the EC will in 2013 have been buying Microsoft software for 20 years without a competition. In fact it was 20 years ago this month that EC officials made the original decision.

The Commission's Committee for Word Processing and E-Mail made the historic decision to use Microsoft desktop software on On 6 July 1992. It was backed up over the following month by various official bodies.

Under the chairmanship of  David Williamson, then EC Secretary General, now Baron Williamson of Horton, life peer in the UK House of Lords, the committee seemed determined to avoid being locked into Microsoft.

It already had some idea how its decision could have serious consequences for software competition. The US Federal Trade Commission was already investigating Microsoft for abusing its market power. In a case that was taken up just a year later by the US Department of Justice and the EC itself, the FTC had accused Microsoft both of giving its desktop Office software advantageous access to the proprietary hooks in its Windows and DOS operating systems, and of tying its operating system customers into commercial arrangements that included its Office software as well.

The EC committee wanted to avoid getting locked into Microsoft. But there was no international standard to govern the exchange of information between users of its computer systems - and between its officials and the outside world. It had no choice but to use proprietary standards.

Despite its best intentions, the EC ended up rolling desktop PCs with Microsoft operating systems across the European administration and its sister institutions between 1993 and 1996 - and signing a deal that tied Microsoft Office in as well.

The European Commission thought it had a way to keep Microsoft in its place. It balanced the Microsoft deal by signing a deal with WordPerfect as well. So in 1993 EC budget holders could buy Microsoft Office or WordPerfect Office.

But that was not all.

"The official exchange format by default between the two systems will be WordPerfect format pending the availability of standardised solutions," said the report of Lord Williamson's Committee on 6 July 1992.

This was backed up on 23 July 1992 - 20 years ago this Monday - by a communication of the EC's then IT department, the Information Resources Management Board (IRMB).

There might not have been any open standards - and that might well have played right into Microsoft's proprietary interests. But the EC wasn't going to allow it.

All these good intentions came to nothing however, when three years later the EC turned its entire desktop ecosystem over to Microsoft. It was by then pursuing the software giant on an anti-competition rap itself. But it gave Microsoft a deal to supply everything - from its operating system through to word processors, spreadsheets, databases and presentation software across the entire EC.

The EC had within just three years become so irrevocably tied in to buying Microsoft that the software giant would dominate its desktop environment for the next 20 years. Last year it signed a deal to implement Microsoft operating system and application software across more than 36,000 desktops across the Commission and other EU institutions.

It is still fighting for open standards that will stop it being locked in to Microsoft and other proprietary software vendors, still fighting Microsoft in court over monopoly fines it later imposed for abusing its market power with proprietary standards, and - as of last week - still bringing new competition cases against the software giant for tying people into its proprietary systems.

So what went wrong?

Some answers will appear on these pages in coming days.


Document

The European Commission, in answer to a document request, sent Computer Weekly a copy of the original committee decision by which it first decided to adopt Microsoft desktop software in 1992.

The original was obscured during a scanning process at the EC after it was faxed, and supplied only in excerpt. The document is currently unavailable in its entirety. The original document can be accessed by clicking the image above. The translation is available below.

That document was painstakingly transposed in the original French, then translated using Google Translate.

07/13/92 12:07 FAX
July 6

Word Processing and Electronic Mail Users Group

CONCLUSIONS "WORD PROCESSING" [TO] THE ATTENTION OF IRMB (*)

Aware of the difficulties that arise when choosing a single [product], the group notes that the selection of the products [WORD for] Windows and WordPerfect 5.1 meets preoccupations of [all] DG's who wish to leave Q-Office. He [recommend] Therefore to retain these two products for the [platform] DOS / WINDOWS.

For UNIX platforms, X, MOTIF ... group RECOMMENDED WORD ...
when the services concerned wishes to leave the fam ...Q-office products.

Given the inter-institutional constraints, and [need to] maintain good efficiency of the operation of [the institutes] group recommends that the official format for exchange by default, sender and recipient do not have the same product, size WORDPERFECT 5.1. the choice of exchange format is trans ... pending the availability of meeting the basic standards means that the responsibility and guarantee [End ...] dependent default conversion service that does not use the WORDPERFECT, that the service be a transmitter or receiver electronic courier .

Exchange format adopted assumes that institutions do not change, the short and medium terms, their ... current. The Group therefore considers that the Commission indispensable assurances in that direction before making a decision.

The long term will be some [specific] advance between the institutions, to meet to exchange, based on international standards, between the [service] the Commission, other institutions, and outside world.

The group recommends that the conventions of use, including manual typing, are stable under the coordination and general secretariat in collaboration with others concerned, such agreements must have a value binding facilitate electronic transactions, including conversions.

The group attracts the attention of the IRMB the need to access very carefully migration to new systems the importance of providing the necessary budgetary resources.

The group intends to report to IRMB 12 months in light of experience.





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