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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 insists open standards order will apply to COTS

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The UK government has insisted its open standards order will require proprietary commercial software suppliers use open standards in all government systems, despite the edict not actually saying anything about commercial software, and even appearing to exclude it.

If UK open standards policy - introduced Thursday - will indeed do what the government says it will, it will break the primary means commercial software suppliers use to assert monopoly power over their customers.

Such a move would be a landmark in the history of computing. But the government slipped it out out with muted fanfare last week, and then did its best to avoid answering awkward questions about it.

The crucial question is why the policy neglected to address commercial or off-the shelf software (COTS) producers explicitly, when its extent was otherwise stated clearly for every possible eventuality where pressure or convenience might cause government bodies to ignore the open standards order.

COTS companies Microsoft and Oracle, who dominate UK public IT spend, had opposed the open standards policy so fiercely they caused the government to hold it back for two and a half years. The policy was about breaking their hold over public sector IT in the first place. Their opposition had nearly succeeded in burying the policy altogether. Now it had been published it didn't mention them at all. Had they been given a get out?

Other crucial questions included whether the Cabinet Office has any power to impose the policy without enacting legislation, and whether the intransigence of COTS producers will make them automatically eligible for official exemptions built into the scheme.

Say one thing

The Cabinet Office insisted its policy would extend over COTS producers.

"The Open Standards Principles document is clear that for all new government IT expenditure government bodies must specify compulsory open standards, unless an exemption has been agreed," said a Cabinet Office spokeswoman.

"As we consider there is no difference between COTS and bespoke systems in this regard, we have not further specified any difference in the Open Standards Principles," she added.

Computer Weekly has nevertheless learned through unofficial channels that the Cabinet Office is now examining ways to append an official clarification to the policy, to address COTS producers explicitly.

The Cabinet Office might say it applies. But on paper it may not.

The Open Standards Principles decreed 40 "absolute requirements" for open standards in government computer systems. Some of these may have some influence over government purchase of COTS software. But the carefully-worded document did not claim explicit power over COTS. It even appeared to exclude it.

Gerry Gavigan, chairman of the Open Source Consortium, a software trade group, said questions must be asked about why the policy was "silent on COTS".

He said the Cabinet Office might also be unable to enforce the policy unless it enacted it in legislation. It would anyway only apply to central government departments. Most public sector IT spend occurred elsewhere.

"Gruyere has a lower hole density," he said. "But none of this would matter if the intention is there."

Official view

Graham Taylor, chair of Open Forum Europe, an open software trade body backed by Oracle, and who has been industry's main liaison and collaborator with the Cabinet Office policy team, said he believed the open standards policy would apply to COTS.

The policy might not have addressed COTS directly. But a policy background paper had given vague attention to a COTS question that had been asked in the UK's public consultation on open standards, also published last Thursday.

The government said in the backgrounder it had some sympathy for the idea that its policy should apply to COTS as well as bespoke government systems. It did not say it would. Just that an overwhelming majority of people in the public consultation said it should.

The backgrounder, the government's response to the consultation, said this rationale "would appear to be appropriate."

It did not matter to Taylor that this rationale had not been turned into an explicit clause in the policy.

"Buying a piece of software off-the-shelf is no different in terms of the principles to going out to a tender on an integration contract or something," he said.

He believed it the policy didn't need to be explicit about COTS. It included a clause that would require government departments to specify open standards in their procurement frameworks. He believed this was enough.

The policy also restated oft-ignored EU procurement regulations that should normally prevent COTS producers being handed undue power in public procurements: it re-forbade public bodies from using trade names as parameters in procurement competitions.

All of these conditions - that did not explicitly apply to COTS but did at least imply that they might - would also be subject to exemptions. Government departments could opt-out of their implied obligations to apply the policy to COTS when they thought there was no choice but to ignore them.

It could be imagined, for example, that a software monopoly that effectively imposed its own proprietary standard as the market standard, might prevent open standards emerging or might simply prove unmovable, or might give cursory support for open standards that would win a contract but prove so unworkable in practice that a revert to its own standard would be inevitable.

Say another

The Cabinet Office fumbled over the question of COTS on Friday. It excused the policy with the same reasoning Oracle's open software campaign group did: that the powers implied in the policy backgrounder were enough: that an explicit power in the policy was unnecessary.

This did not make sense for a policy that had been necessarily pedantic. The government had conducted a two-and-a-half year review to settle a semantic question that had been at the centre of its conflict with COTS suppliers: the question of what an open standard actually is.

The pedantic policy also clarified the semantics of its own language so there could be no uncertainty that when its principles stated something "must" be done this was an "absolute requirement"; and when they stated that something "should" be done, it was conditional. It left no stone unturned in the specification of requirements it said government government bodies to meet to be compliant with the policy. Furthermore, the government's two-and-a-half-year review had been motivated by a fear that its policy might be subject to a legal threat from COTS producers if it didn't get it right.

COTS was conspicuous for its absence.

The policy's intention, however, was clear. Government bodies would be required to build open standards into their user requirements. They would work as a community on the identification and promotion of compulsory open standards. A complex set of requirements would ensure they put enough thought into their choice of standards, so they faced the same sort of economic and systems questions that had led the government to back open standards in the first place.

When the government later clarified its position on COTS, it said it was obvious that in respect of all these measures COTS would get the same treatment as bespoke software. So it did not need to distinguish between them in the policy, it reckoned.

And anyway, said a Cabinet Office spokeswoman, the policy said it would apply to "all new government IT expenditure". That meant COTS as well as bespoke systems.

But it had defined "all government IT expenditure" as "new systems" or "extensions to existing systems". That implied not COTS. It also implied the inherent difference between COTS and not COTS: possession, power and influence.

So when it came down to brass tacks, in the face of intransigent and potentially litigious COTS producers and procurement officers given to the path of least resistance, would the open standards policy apply to COTS or not?

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.

Cornwall caught in bed with BT as councillors raise red card

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Patient Mr Alec Butteriss using Bosch Telehealth device in South Yorkshire.jpgCouncillors might have put Cornwall's privatisation on probation. But the council had already begun acting as a joint venture partner with BT.

They voted unanimously Tuesday to suspend a proposal to put up to £800m of public services into a company in which BT would own a majority stake.

BT planned to transform it into a hub from which it would manage the privatisation of other council services around the country, and to operate a telehealth business.

Councillors withheld their approval and said they wanted to scrutinise the deal properly before approving it.

But a "confidential" BT brochure mailed to councillors by Cornwall's own executive last Friday said Cornwall was already working with BT on bids for business from other public authorities.

"We are already in three competitive bid situations for Telehealth/care with Australia Telehealth, Northumbria Telehealth and Hampshire Telecare; where we have named Cornwall as our partner," it said.

"And have an expression of interest from others including Surrey."

BT had been one of two companies competing to acquire Cornish public services. The other, Computer Sciences Corporation, pulled out last Wednesday - just two days before BT's admission that it had already been operating as Cornwall's partner.

Thumbnail image for Steve Double, Cornwall Council.jpgCouncillor Steve Double, who had led the process for the Cabinet till his resignation last week, told Cornwall Council chamber Tuesday that competition law had forbidden councillors from having proper scrutiny of the procurement.

This had apparently suited Kevin Lavery, Cornwall Council CEO. He had written, in his books on local government privatisation, that councillors should be engineered out of the council executive's decision making process. That's what Councillor Jan Powell told the chamber on Tuesday.

Lavery's attempts at local government privatisation had last run into trouble when he was CEO of Newcastle City Council in 2001.

Kevin Lavery - Cornwall Council CEO - kevin-9.pngHe tried to form what was then a pioneering strategic partnership, with BT.

Councillors opposed him. He resigned and they tore up BT's bid. Lavery spent the the best part of the next decade doing outsourcing on the supply side, including a stint as head of local government at BT.

Now a council worker again at Cornwall, he has had no specific meetings with BT. History is repeating itself all the same.

Fresh air

Yet things will be different from now on, Councillor Double told his colleagues before Tuesday's vote.

Councillors would be permitted to scrutinise the BT deal, where before the details had been withheld. While CSC and BT where in competition, procurement law forbade councillors from seeing the details of their bids, Double told Councillors. Now the council was simply giving the business to BT, they could see the details. Competition law didn't apply when there was no competition.

This is what it would take for public representatives to be permitted to see a bid to privatise their services before they were called upon to approve it. They would get all the facts to settle the public/private debate. Lavery would meanwhile be vindicated if BT's plans passed muster.

The first signs were however that the new transparency was not actually very enlightening. Not in the way it was supposed to be.

Things started moving as soon as CSC dropped out last week. The council executive joined BT in wooing councillors ahead of Tuesday's big vote. It pulled half of them into a meeting on Wednesday where four BT sales managers inundated them with promises and forecasts of greatness and prosperity. The only minuted, critical voice came from Unison the union.

Neil Rogers - president of Global Government for BT Global Services - neilrogers3.jpgThen Friday, the council executive sequestered the services of Cornwall's scrutiny office, which was meant to have taken an independent position on the outsource, to email a BT promotional pack to councillors.The scrutiny office also helped BT and Cornwall executives organise a promotional roadshow they did last Thursday. The email included a sales letter from Neil Rogers, president of Global Government for BT Global Services, and the "confidential" BT brochure.

Hot air

The brochure, styled as a "business plan", set out an incredible vision for "BT Cornwall".

BT wanted to build a "Global Centre of Excellence" for telehealth and telecare in Cornwall. It would do this by assimilating assets acquired from Cornwall's NHS Trusts. It would turn Cornwall into one node in a network of "business hubs and Centres of Excellence" it was building from its outsource deals across the public sector. Telehealth would become Cornwall's specialism in the national and global economy.

BT Vision for Cornwall - From BT brochure - OCT 2012.pngBT also wanted to acquire Cornwall's procurement expertise. Yet its sales patter may have misled Cornwall councillors.

"BT is currently seeking a UK base for a Procurement Centre of Excellence, from which to support other UK public sector opportunities," said the brochure.

"Cornwall Council has an established procurement service that is rated as upper quartile by government audits," it said.

"BT proposes to use its expertise to further develop the service as a tradable procurement service."

Thus it implied it might also put its national procurement hub in Cornwall as well, if it could only nab Cornwall's procurement office.

This is what councillors who supported the bid where saying.

But BT is already building a "Procurement Centre of Excellence" out of an outsource it did with Lancashire County Council last year. Now called One Connect Limited, BT Lancashire's backoffice aims, like Cornwall, to grow by assimilating the backoffices of other public authorities.

BT's "business plan" did not say how Cornwall would fit into its grand plan of global and regional "Centres of Excellence".

Might it have a mid-term plan to discard staff superfluous to the needs of a Centre's specialism? If BT had already set up procurement elsewhere, might it want to acquire Cornwall's procurement office only to strip its knowledge assets and kill it off?

It might be too soon to call it a carve-up. As well as procurement, BT acquired various Lancashire services outside its alloted specialism. It picked up payroll, HR, and IT as well. Their superfluity might not become apparent for some years yet.

BT Lancashire One Connect Limited Centre of Excellence Annual Report graphic.pngLancashire's distinct district authorities are disparate from a corporate point of view. Not all of them went in on BT's deal from the off. It might take BT the full term of its 10 year contract to acquire all their assets. Only then might it decide it doesn't need human resources in Lancashire because it has an HR Centre of Excellence in, say, Derbyshire.

Allure

For now, BT just needs to get the sale. It has 400 field sales agents leaning on chief executives in every public authority and NHS Trust in the UK.

That's what it told Cornwall councillors. And that a team of 27 people supported its sales force by firing concentrated campaigns at targeted authorities.

In Cornwall this involved producing a brochure that looked like a business plan but left out the downside risks a sensible business manager would demand to see. The document is stuffed full of pastel-coloured promises. It has all the allure of the full-moon at a rave party, rendered as a tea-shop oil painting by a pony-tailed retiree who once took acid. Some councillors went goggle-eyed over it.

BT promo people taking note.pngNot so Nigel Pearce, Liberal Democrat councillor for Bude South, who said in Tuesday's debate: "The problem with this bid is there's too much marketing."

"There's very little information on the finance," he said.

"And also about the operation, how its going to work, the nuts and bolts. We do need to avoid some of the flannel-speak."

The choice, however, was clear. It was the difference between the soothing noises made by BT's army-sized sales and marketing department and the infamous Barnet Graph of Doom that claims to show how council budgets will be squeezed so severely by 2030 that they will need to flog off their services. The logic is peccable.

BT's marketing conjured a vision of Cornwall as a high-tech hub, networked not just across the Country but the Commonwealth. What it actually means is Cornwall will be the site of a medical call-centre. The attraction for BT is Cornwall's unusually large population of dependants.

Demographics

Cornwall has fewer youngsters than the UK average, and more retirees, who's incomes are less then average, and half of whom are dependant on care. This is a unique asset in the world of telehealth and telecare, where services are automated, commoditized and delivered over BT phone and network cables.

The idea is that BT Cornwall becomes to the infirm what the City of London is to the rich: an international hub for the incapable and insensible. In years to come, it will employ a small army of joy-stick operators to direct drone mechanoids in the wiping of back-sides half way across the world.

BT's brochure proposed that Cornwall's uniquely dependent population would be a valuable testbed for its telehealth technologies. It proposed setting up an "R&D centre" in Cornwall to "develop new ways of delivering telehealth services".

BT Telehealth showroom - pulse_pic.jpgThis would employ five people primarily concerned with identifying innovative local firms who could be subsumed into BT Health, to give it a competitive edge with rival telehealth centres one presumes will be springing up in Bangladesh and Bolivia.

They would report to BT's real R&D centre in Martlesham, Suffolk, which employs not five but three and a half thousand people. BT recently opened a Telehealth showroom there.

For BT, the race is on for Telehealth in the UK. NHS and Social Services are abuzz with the idea. Housing Associations have a head start.

BT lost a bid to run telecare in Northern Ireland last year to a consortium led by Tunstall Health Care, the market leader, that operates a Centre of Incontinence or whatever you call it in Doncaster, South Yorkshire. It makes about £200m-a-year from 2.5m dependants in over 30 countries. It is a leader in the supply of alarm pendants for old people who take a fall.

Pressure

BT is counting on Cornwall to help it win tenders in a national government programme called 3millionlives, which aims to get 3m patients and dependants tended remotely across the NHS by 2018.

The Department of Health reckons £70bn of the UK health budget goes on care of people with long term conditions, the target market for telehealth and telecare. That's 15m people. 3millionlives will therefore turn the tap on a £23bn market, or whatever part of it can be administered remotely.

Things start moving next month. Formal tenders start in "early 2013". This may explain why BT gave Cornwall councillors an ultimatum this week: it would keep its offer on the table only until March.

Fiona Ferguson - Cornwall Council Councillor for Truro Trehaverne - Cabinet Portfolio Holder for Corporate Resources - bigpic.jpgFiona Ferguson, a member of the Cornwall Council Cabinet that backed the plan, passed the ultimatum on to councillors on Tuesday. She neglected to mention BT's own spring deadline.

But she did insist the council acted urgently. And she painted a desperate picture of the Cornish health system: "There are very serious challenges in adult social care and health," she said.

"There was a lot in the proposed contract about that. I recently spent 24 hours in Treliske [Hospital] with my father who had a fall. And there was trolley after trolley of people in exactly the same situation."

Tragically, at that very moment Carolyn Rule, Ferguson's Cabinet colleague responsible for Health and Wellbeing, was lying, collapsed outside the council chamber door.

Council leader Jim Currie interrupted proceedings to report that Rule had apparently fainted, but it was feared her situation might be much worse.

They just didn't know. Twenty minutes had passed since she left the chamber and collapsed outside its door. She was a very unhealthy colour and could still not sit up. It would be another five minutes before an ambulance arrived.

Fear

Thankfully, Rule got a clean bill of health at the hospital. She had a check-up and was released later that day. But it was a worrying reminder of the sort of pressures felt by the health service in a rural county like Cornwall, where people were often far from help.

Julian German - Cornwall Council Councillor - Independent - Roseland - bigpic.jpgThe dilemma was stark. Councillor Julian German had spelt it out earlier.

If Cornwall didn't do a deal with BT, "there won't be a world-wide Centre of Excellence for telehealth and telecare in Bodmin," he said.

Neither would there be a "procurement Centre of Excellence in Cornwall", said German.

Neither would BT deliver the promised cuts in those services it acquired from the council.

Neither would it create 1,043 jobs that would be "committed in contract".

BT's proposal had actually only guaranteed 350 new jobs. It had estimated that business might also grow quickly enough to create another 512 jobs.

The other 181 jobs in BT's 1,043 forecast were people it already employed at a "Truro retail facility". BT had promised not to make them redundant for the life of the telehealth contract. It was like a number from a dodgy dossier.

But you got the idea. The choice for Cornwall was whether or not to invest its resources in BT's telehealth gambit.

The original reason why Cornwall had started down the path that led it into talks with BT in the first place was now forgotten. Was it to pass the buck for a backoffice cull? Whatever it was, it was now second place.

Cornwall's priorities and all other alternatives would now be held up for comparison against against BT's business plan, that pastel vision that had infected the collective mind of Cornwall's Council Chamber on Tuesday like a mall shopper's retail lobotomy.

Councillors had stopped to recover their bearings. But BT had become the default setting.

The Department of Health, incidentally, refuses to talk of its telehealth initiative in terms of market-size and supply-side opportunities.

It likens telehealth to the introduction of the stethoscope: an inconspicuous tool that will slip into the complex arrangement of systems and people that make the National Health Service work.

The department insists it will leave local trusts to incorporate the technology in the way they see fit. It has not insisted Trusts can only do telehealth if they sell off their assets and go into business flogging the services themselves.

It betrays no sign of embarking on a frenetic pursuit of a corporation's marketing dream; nor that it has adopted the false dilemma that has echoed hypnotically around the corridors of Cornwall Council: that do-nothing is not an option, unless you want to miss out on the prize. Don't miss out on the prize.

Other befoolery put to the council chamber this week included the suggestion that the outsource is not ideological or political. And that battery-level councillors cannot understand the complex contractual matters that have been occupying the Cabinet's superior minds.

Or perhaps even that Cornwall is in crisis. Lavery himself wrote in the Guardian last week that that at 8 per cent growth, Cornwall's economic success is second only to the City of London.

Perhaps councillors will gather their wits by considering whether Cornwall needs BT as much as BT needs Cornwall, or whether BT needs Cornwall as much as Cornwall needs BT.

Cornwall privatisation hangs in the balance

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Cornwall Council's unpopular plans for back-office privatisation are hanging in the balance after councillors complained they didn't know enough about it to give it their consent.

The proposal to outsource £800m of council services to either BT or CSC would turn Cornwall into a pioneer for a radical new model of local government in which councils become aggressive commercial competitors.

Cornwall's plan would put it in direct competition with an outsource venture in nearby Somerset, which has been struggling ever since Cornwall refused to join it in 2007. Somerset's venture, called Southwest One, had struggled because it couldn't drum up enough business. Now both Cornwall and Somerset will be climbing over one other as they try to convince other councils around the UK to privatise their back-offices using each of their profit making ventures.

The free-for-all was launched when the coalition government introduced an 'anything goes' law for local authorities in March. Called the general power of competence, it allowed councils to operate services for profit.

But with councillors and electors struggling to understand the implications of the change, and to comprehend why Cornwall should be embracing it, the Conservative-led council has already come near the point of no return in its deal-broking with BT and CSC.

Council leader Alec Robertson said yesterday he would put the privatisation proposal to the mercy of the council later this month, when councillors will vote on whether to keep it.

He had already told councillors it was too late to go back after they voted against the proposal on 4 September. But they called a no-confidence vote against him, to be held on 16 October, and opposition Labour councillors organised a petition to bring the issue back before the council chamber.

"If the majority of councillors vote against the proposal when its brought to full council, hopefully on 23 October, it won't go ahead," Robertson told BBC Radio Cornwall yesterday.

He said councillors only withheld their approval because "they didn't have enough information to make a properly informed decision".

Doom

But while the Council Cabinet had legal power to go ahead with the unpopular deal, Robertson conceded it would be "doomed to fail" if the council opposed it, because people would make sure it didn't work.

Somerset's outsource venture had been thus doomed after the 2009 election brought in a Conservative council who opposed it. It has since embraced the general power of competence in a desperate attempt to avert financial collapse. The bid will only work if it can convince enough councils to privatise their back-offices with its venture and not Cornwall's.

When Somerset launched Southwest One in 2007 it had aimed to get 36 public bodies across Southwest England to merge their back-offices into one company. The original plan included local authorities in Cornwall, Devon, Dorset, Gloucestershire, Somerset and Wiltshire. But in the end only three Somerset bodies joined in, by selling 75 per cent ownership of their IT, accounts, human resources and purchasing departments to IBM.

Now Cornwall councillors now have to decide whether they should outsource at all. Their Council Cabinet has told them that if they don't approve the venture Cornish back-office jobs will end up being acquired by another council's outsource venture somewhere down the line; and that if they do approve it, jobs will be created in Cornwall, presumably the spoils of battle against other councils in this new private/public market.

Somerset goes national to stem outsource losses

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Somerset County Council's private sector spin-off is going national in the hope of reversing its financial losses and exploiting government cuts in other regions.

The outsource shared services venture, called Southwest One, has already begun bidding for contracts to privatize backoffices for the NHS, as well as other councils. It hopes to drum up sales it failed to generate among local authorities in South West England after launching as a joint venture with IBM in 2007.

Derek Pretty, SW1 chairman, said in his annual statement last week it was counting on government cuts to make its services more attractive to other local authorities.

"The result of cuts is that all public authorities must seek new ways to reduce expenditure. This places the company in a position of being able to provide a solution to the problems faced by Authorities," said Pretty. "The opportunities for expansion are believed to be feasible."

"SWO has responded to invitations to tender and has hosted several visits to Taunton and Portishead from interested parties - including County Councils, District Councils and Police Forces as well as NHS representatives.

"The customer base is currently restricted to public sector bodies in the South West of England. Future development is to focus on expanding the customer base to other public sector organisations throughout the United Kingdom."

Somerset Council originally intended for SW1 to run the backoffices of up to 34 public authorities across South West England when it put the tender out in 2005. It had only one other partner by the time it signed its contract with IBM in 2007 - Taunton Deane District Council - though it still held out for business with all 34 original contenders. It eventually secured three.

Now other public bodies such as London Metropolitan University are seeking to replicate Somerset, by turning their backoffices into launch assets for private joint ventures with outsource suppliers. Aping Somerset's revised strategy, London Met also intends its outsource venture to bid nationally to rip and replace the backoffices of other authorities with its own rented services.

Roop Singh, global head of consulting services for Wipro, one of three outsource suppliers short-listed for the London Met bid, said such a venture setting up from scratch would have to bring in about four or five partners before it could break even.

Then it could expect to deliver savings of between 25 and 30 per cent a year by consolidating - that is, cutting - the software, hardware and employees of the merged organisations, he said.

David Orr, a former SW1 employee who campaigns for greater transparency and accountability in outsource ventures, said SW1 had originally signed its 34 participating authorities up to a European procurement framework so they could buy its services without the usual legal hurdles. But the framework would have run out last year, he said. SW1's sales outside its core three partners have been less than 10 per cent of revenue.

SW1's posted its fourth consecutive financial loss last Thursday, while its relationship with Somerset County Council (SCC), its lead public sector partner, has descended into a legal dispute over its poor performance.

How Europe did 20 years of backroom deals with Microsoft
2003: Turn on, lock-in, clean out

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2003: Turn on, lock-in, clean out"> | More
Tripy.jpgEurope admitted it had developed an unhealthy dependency on Microsoft in 2003, ten years after it first installed Microsoft software on its computers. It vowed to do something about it. But it couldn't kick the habit.

This is no surprise when you look at the way the European Commission said in 2003 it would break free from Microsoft: we can reduce our dependence on Microsoft software, it said, by buying more Microsoft software.

This trippy reasoning was what European Commission's Directorate-General for Informatics (Digit) used in 2003 to justify doing yet another backroom deal with Microsoft, reveal documents disclosed to Computer Weekly.

The "purpose of the operation" was, said Digit, "The need to mitigate the [European Institutions'] dependence оn Microsoft software products".

European administrations, led by the Commission, had been buying Microsoft software without an open competition for a decade, in contracts known as negotiated procedures: deals done without informing tax payers and Microsoft competitors. It could only do such backroom deals with good justification.

Digit used one other ludicrous claim to justify the 2003 deal. It would promote the use of open source software in the European administrations, it said. In other words, buying Microsoft products in secret, without any competitive tendering, would promote the use of competing open source software.

Specifically, it said, the Microsoft deal would: "Prepare the ground for a scenario in which other technical solutions - particularly those based on Open Source Software (OSS) - may emerge as viable alternatives, not least because the Commission is actively promoting the use of OSS-based solutions in several policy areas," said the Evaluation Report in which Digit justified the fourth Microsoft deal on 8 December 2003.

It was absurd, junkie logic. And Digit, its official papers addled by its dependence on Microsoft, was making the same hopeless claims of reform: it would kick the habit if it could just get one more fix.

Closed minds

Digit's anticipation of open source alternatives echoed the caveats it made when it first moved its IT to Microsoft in 1992. It was done then in anticipation of the creation of open standards of software communication, which would prevent it becoming locked-in to Microsoft software using Microsoft standards.

The 2003 ambition was shown to be as fruitless as the 1992 ambition when nearly 10 years later again, on 21 October 2011, the Commission's Information Resources Managers for Infrastructure decided to upgrade to a Microsoft suite based on Windows 7 and Office 2010.

EU law permitted these backroom deals, but they were only permitted for three years. Digit in 2003 signed its fourth successive backroom deal with Microsoft since 1993. It would refresh Microsoft software infrastructure for 31,400 PCs and 850 servers, helping cement Microsoft's monopoly by endorsing it with the weakest of justifications.

There had in 2003 been a clamour for public administrations to consider open source software as an alternative to the Microsoft monopoly. Let aside that Digit claimed open source software was not mature enough to be taken seriously. Not only were national administrations demonstrating it was, but open source was not the only alternative to Microsoft. The appearance of open source in Digit's justifications for doing more backroom deals with Microsoft implied the only real choice was Microsoft or nothing: we've looked at this open source thing that people are talking about, but its not what its cracked up to be - hence we've got no choice but to do another backroom deal with Microsoft.

Thumbnail image for EC Digit - Evaluation Reports for Microsoft Negotiated Procedure - 4 JUL & 8 DEC 2003.pngIt gave the suggestion that Digit was taking software competition seriously. But it betrayed how Digit either did not understand or did not care that the conditions for competition in business were not enough to ensure competition in software. Software platforms had to be kept open just like EU rules said markets have to be kept open. But EU procurement rules didn't say Digit had to use open standards, only open procurement procedures. If the European Commission really wanted a competitive software market, it would have at least to back open standards as it said it did in 1992.

Open wallets

Digit instead became so complacent about its Microsoft deals that it didn't even bother opening backroom negotiations for its 2003 deal until four months before the last contract expired. When it did start talking to Microsoft it learned that Microsoft had changed the rules. It had changed its licence terms to lock customers in to a strict upgrade cycle, and to ensure its sales were more consistent.

This was perhaps the monopolist's prerogative. There was no evidence that Digit had really factored such disadvantages into its deliberations. Its negotiations over its renewal of Microsoft's contract dragged on unexpectedly because the new terms were so unfavourable. The new terms would make the EC pay in advance for future upgrades, making decisions like whether to adopt Windows 7 a done deal.

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


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