Government to IT suppliers: Does it hurt yet?

When I was a schoolboy, there was a popular if rather sado-masochistic playground game called Chinese burns. This involved grasping your opponent’s wrist with both hands, and twisting their skin in opposite directions. They then did the same to you. The loser was the first to yelp in pain or admit that it hurts. For added psychological pressure, if you felt you were gaining the upper hand, you would shout “Does it hurt yet? Does it hurt yet?” loudly in the face of your rival.

Boys, eh?

I have an image of Cabinet Office minister Francis Maude and others in government IT procurement doing something similar to their biggest IT suppliers. The difference being that nowadays, the IT suppliers are no longer allowed to take a turn at applying the Chinese burn after years of watching their public sector clients grimacing and trying not to confess how much they were suffering.

Take Oracle, as the latest example.

It was revealed last year that 70% of all software licences used by government are from Oracle – data collated from 18 central government bodies showed that of 17.2 million software licences purchased, 10 million were for Oracle software.

In January, the Cabinet Office cited Oracle as one of two worst culprits, alongside SAP, in response to exclusive Computer Weekly research that revealed some Whitehall departments are paying up to three times more than others in ERP licence costs.

This week, the government finally revealed that its annual spend with Oracle has been in excess of £200m – and that figure is to be reduced by £75m annually thanks to a newly-agreed licensing deal with the supplier.

One of the clauses of the new contract is that Oracle will treat the government as a single customer and apply the same levels of discount to all IT buyers. That’s another way of saying that Oracle has been ripping off Whitehall for years by offering lower discounts to some government users than others, based presumably on nothing more than each department’s skill as a negotiator.

“The relationship with the UK government has always been very special to Oracle. We are honoured to support its initiatives and to stand together in meeting the changing IT needs of the 21st Century,” said Oracle CFO Safra Catz in the carefully phrased statement accompanying the new deal. That’s £200m per year of “special”.

Minister Maude added: “The days of the government paying different prices for the same goods or services are over.”

Does it hurt yet?

Take Capgemini, as another example.

The IT services firm leads the Aspire consortium that holds one of the biggest multibillion-pound outsourcing deals in the public sector, with HM Revenue & Customs (HMRC).

It’s a fairly typical, old-school outsourcing contract, where the supplier charges hundreds of pounds every time a light bulb needs to be changed.

Earlier this month, Maude announced a £200m cut in the price of the Aspire contract.

Furthermore, HMRC CIO Phil Pavitt told a Computer Weekly CW500 Club meeting this week that the renegotiated contract also involves bringing certain services back in house, and ending Capgemini’s exclusivity for new projects. From now on, the supplier will have to compete for everything – Pavitt cited one example already where a small Silicon Valley supplier bid several hundred thousand pounds for a project, against a quote of many millions from the incumbent. Guess who won the business?

Oh, and by the way, that Silicon Valley firm had approached Capgemini twice to offer its services and been rebuffed both times.

Does it hurt yet?

One of the IT leaders in the CW500 audience asked Pavitt, “What was it like beating up Capgemini, and did you enjoy it?”

Pavitt gave a politician’s answer, citing the fact it was a win-win situation, that Capgemini is still HMRC’s main IT supplier, and that everyone was happy with the outcome.

If I was a betting man, I would lay plenty of money that privately he loved every minute, and that Capgemini’s wrists are red raw.

Does it hurt yet?

Let’s come back to SAP, cited alongside Oracle as the worst culprit for over-pricing ERP. HMRC is rationalising its seven different versions and installations of SAP into a single common platform. As a result, the department has handed back thousands of SAP software licences that were being paid for, but not used.

Does it hurt yet?

Meanwhile, the G-Cloud framework and the CloudStore services catalogue are forcing suppliers to be open and transparent about pricing, and it’s already shown huge discrepancies between the fees charged by many of the existing suppliers to government and the new challengers breaking into the market.

That’s got to hurt.

It is a shame, of course, that it has taken this long; that it’s taken the worst economic crisis in living memory for Whitehall to reform its relationship with the IT industry.

For years, private sector CIOs will no doubt have scoffed at their public sector colleagues, convinced that they were the best negotiators, that they had their suppliers where they wanted them, that they were getting the best price and the best service. Those crusty old Whitehall mandarins, all bogged down by bureaucracy and purchasing laws, what do they know, eh?

Every private sector CIO should look at the scale of the price cuts and the contractual changes now being forced by government on those suppliers- who certainly didn’t offer a penny voluntarily – and question whether they really do get the best deal, and ask whose hands are wrapped around whose wrist in that relationship. And they should look at their raw skin and ask themselves, “Does it hurt yet?”

Enhanced by Zemanta
Data Center
Data Management