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Government preferential pricing deals with AWS and Microsoft under scrutiny in wake of CMA probe

With AWS and Microsoft both the focus of an antitrust probe by the UK competition watchdog, the government is being urged to reconsider the renewal of its preferential pricing deals with both firms until the investigation is concluded

The UK government is facing calls to pause plans to renew a couple of its soon-to-expire preferential pricing deals with Amazon Web Services (AWS) and Microsoft, in light of the UK competition watchdog’s investigation into anti-competitive behaviour within the UK cloud market.

These deals permit public sector IT buyers to access AWS and Microsoft cloud services at discounted prices and are widely credited with accelerating the adoption of their respective technologies across central government and beyond in recent years.

A year-long investigation into the inner workings of the UK cloud market by communications regulator Ofcom recently concluded that discounted pricing schemes like these could be stifling competition within the sector as they financially incentivise buyers to use one firm’s services over another’s.

With the Ofcom investigation going on to conclude the sector should be subject to further probing, on anti-competitive grounds, by the Competition and Markets Authority (CMA), the government is facing calls to take pause before renewing two preferential pricing deals involving Microsoft and AWS that are up for renewal soon.

Scoping out the investigation

The Competition and Markets Authority (CMA) investigation will run until April 2025 and centres specifically on investigating concerns raised by communications regulator Ofcom about the alleged anti-competitive behaviour displayed by Amazon Web Services (AWS) and Microsoft.

The offering of committed spend discounts by AWS and Microsoft to end-user organisations is one of four areas the CMA confirmed on 17 October 2023 that its investigation will be concentrating on.

This is because, according to Ofcom, the offering of such discounts by AWS or Microsoft could be seen to discourage IT buyers from sourcing cloud services from multiple providers, and could make users less inclined to buy services from different suppliers as new needs emerge.

There are several other areas the CMA has indicated its investigation will initially focus on. These include looking into whether technical barriers are likely to prevent cloud users from switching between providers or contribute to them getting locked in to their platforms.

The Ofcom report also raised a red flag about the fact some cloud providers charge egress fees, which are sums of money that customers are charged to transfer their data out of the cloud, and this is another area the CMA has earmarked for further probing.  

The final area the CMA will focus its investigation on is the software licensing practices that cloud providers employ to see if they disincentivise customers from using rival cloud providers.

These three-year agreements – termed Memorandums of Understanding (MoU) – are overseen by the government’s procurement arm, the Crown Commercial Service (CCS).

Nicky Stewart, former head of ICT at the Cabinet Office, said if there was “no option but to renew these contracts” then they should be subject to “competitive procedure” or renewed by CCS for the minimum duration.

“[This would] enable the government to look for alternatives and await the CMA outcome,” she told Computer Weekly.

“They certainly shouldn’t be negotiating blanket terms via MoUs that could remain in force long after the CMA investigation ends, but [CCS] will be between a rock and a hard place as it will want to protect the discounts they already have through the current MoUs.”

Computer Weekly contacted CCS to confirm if it had a view on the CMA investigation, and to clarify if the probe would have any bearing on its dealings with Microsoft and AWS while it plays out. CCS referred the question on to the Cabinet Office to respond to, but the latter declined to comment.  

A tale of two agreements

The AWS MoU, known as the One Government Value Agreement (OGVA), commenced in October 2020 and is set to expire this month (October 2023).  

According to data shared with Computer Weekly by public sector market watcher Tussell, at least 12 contracts – issued via the G-Cloud 12 framework – were awarded directly to Amazon since its MoU went live, with a combined total of £313,089,507.

In a brief statement to Computer Weekly, a spokesperson for CCS confirmed the organisation was looking to renew the AWS agreement and that “further information” about this would be available in due course.

The Microsoft MoU goes by the name of the Digital Transformation Agreement 2021 (DTA21). It went live in April 2021 and is set to expire in April 2024, but – at the time of writing – CCS was unable to confirm “at this stage” if it would be renewed next spring.

According to Tussell’s sales data, not as many deals appear to have been done via DTA21 as through the OGVA agreement, with the analyst house flagging four that make reference to the agreement in its systems.

The deals include two with Bristol City Council, with one valued at £4m awarded in June 2021 and another in June 2023 for £7m.

There is also a two-year contract for the provision of Microsoft Azure licences to the Cabinet Office that appears to have been issued in May 2021 under DTA21, but was called off under G-Cloud 12, valued at £4.72m.

While the value of the contracts issued under DTA21 seems relatively paltry in comparison to what AWS has made during the lifetime of the OGVA, it appears there could be a reason for that.

“The amount of money spent directly with Microsoft does not always seem that much because they do so much business through their third-party resellers,” an analyst contact told Computer Weekly, on condition of anonymity.

Tighter scrutiny required

With the MoU renewal dates looming large on the horizon, the idea of introducing a moratorium on public sector multiyear cloud deals involving either Microsoft or AWS has been floated by various UK tech market stakeholders in conversations with Computer Weekly in recent weeks.

However, Owen Sayers, an enterprise security architect at Secon Solutions, who has 25 years’ experience working within the UK’s internet security framework, does not think that would be possible to enforce.

“I am not sure if there is anything legislatively relevant [to allow this], but as a minimum – given the current circumstances and the fact the CMA announced this review and the disquiet [it’s caused] in the industry – I don’t think it would be unreasonable to expect any government body making further investment into either AWS or Microsoft at this time to make a very clear case and justification for doing so,” he told Computer Weekly.

Simon Hansford, the former CEO of the now defunct public sector-focused cloud provider UKCloud, is calling for closer scrutiny of any MoUs that are renewed between CCS and AWS or Microsoft while the CMA investigation takes place.

UKCloud, incidentally, was the subject of a winding-up order and fell into liquidation in October 2022, with its demise largely attributed to the growing amounts of government IT spend being put Amazon’s way in the wake of the US-based public cloud giant’s first UK datacentre region opening in late 2016.

Furthermore, Hansford is well-versed in how the CCS MoUs are intended to work, because UKCloud signed one with CCS in November 2021, which was pitched at the time as allowing public sector users to access the firm’s services on “preferential commercial terms” to ensure public sector organisations achieve maximum value for money.

Speaking to Computer Weekly, Hansford said the preferential pricing MoUs are created with “the desire to provide best value for taxpayers”, but it would be wrong to renew them at this time.

“Renewing the contracts [would] ignore the existence of [the CMA] inquiry, which may have far-reaching consequences for the cloud services market over the coming years,” Hansford told Computer Weekly. “A straightforward renewal of the contract would be a grave mistake.”

He added: “The investigation by the CMA includes [a look into] commitment and exclusivity deals and should not be overlooked.”

Computer Weekly contacted the CMA for comment on this article, with particular emphasis on establishing whether it could intervene in preventing these MoUs being renewed, but it declined to comment. 

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