G-Cloud 9 relaxes controversial 2 year contracts rule - good news?
- Summary:
- The Government Digital Service (GDS) has announced that for G-Cloud 9 there will be the option to extend by two periods of 12 months each.
The idea behind this was to put the power back into the hands of the buyer, ensuring quality remains high and there is limited scope for vendor lock-in. The rule was very much a reaction to the public sector’s habit of taking out decade long outsourcing agreements, which didn’t react to the changing needs of users, and certainly left many buyers behind when cloud rose to prominence.
However, the requirement has always provoked quite a strong reaction from both buyers and suppliers. Buyers have argued that they find it difficult to create a business case around a two year contract term. Suppliers agree and have argued that two years doesn’t give enough time for buyers to recoup the change management costs.
Proponents of the two year contract argue that it doesn’t mean that buyers can’t carry on with the same supplier after 24 months, but it forces them to reassess their options and keeps suppliers in check.
But according to the latest legal documents for the upcoming G-Cloud 9 framework, which aims to go live in May, the Crown Commercial Service (CCS) and the Government Digital Service (GDS) have softened their positions. The latest terms state that buyers can now extend the contract for two periods of 12 months each - albeit with GDS approval and if said buyer is planning to exit away from the current supplier.
The documents state:
The Supplier acknowledges that the Buyer’s right to extend the Term beyond 24 months is subject to the Buyer’s own governance process. Where the Buyer is a central government department, this includes the need to obtain approval from GDS under the Spend Controls process. The approval to extend will only be given if the Buyer can clearly demonstrate that the Supplier’s additional exit plan ensures that:
● the Buyer will be able to transfer the Services to a replacement supplier before the expiry or Ending of the extension period on terms that are commercially reasonable and acceptable to the Buyer
● there will be no adverse impact on service continuity
● there is no vendor lock-in to the Supplier’s Service at exit
● it enables the Buyer to meet its obligations under the Technology Code Of Practice
Feedback
Given the previous controversy surrounding the two year limit on contracts, I reached out to some suppliers and those involved with the G-Cloud framework to get their feedback on the softening of the rules.
The change in the contract was flagged to me by John Glover, Sales & Marketing Director at Kahootz, a cloud-based collaboration tool that has performed well on previous G-Cloud frameworks.
Glover said that the main issue with the strict two year rule comes when people want to renew, given the resources it takes to re-procure. When the two year rule was introduced, those involved with the G-Cloud framework at the time said that reassessment should be fairly straightforward and not as laborious as when procuring first time round. However, it seems that in practice that this hasn’t been the reality. Glover said:
The amount of effort they have to go through to re-procure…the MoD is an example, they are very, very by the book when it comes to procurement. The MoD, when they were scaling up our service, they were telling their users that the contract didn’t go beyond a certain date. So then users that were looking to consume the service thought they couldn’t put all their project data in there, because they thought the contract would be running down in six months.
Also, the options of extensions are a good thing because it allows organisations that wish to switch suppliers an option of an extra year rundown on the existing 2 year contract to allow them to do that. Otherwise they’ve got a bit of a cliff edge decision.
A transition arrangement from cloud suppliers is not instant in many cases. For me its a more pragmatic route to supporting buyers.
Glover added that the change may also prompt more interest in the G-Cloud framework from local government buyers, which have been slower than central government to try it as an alternative route for procurement. Glover said that local authorities typically budget for a three to five year time period, and as a result, two year contracts are a barrier.
An obstacle to more G-Cloud sales
Lindsay Smith, author of G-Cloud Success, Analysed; Failure Explained, and previously Secretary General of EuroCloud, agrees that the extension is good news. Smith explained that if you do a search on Contracts Finder that there are plenty of projects out for tender that could be more quickly and cheaply sourced under G-Cloud - but always have a duration of more than 2 years. He said that this is evidence that 2 years is an obstacle.Smith said:
There's a bit of logic to that view. If you put together a business case and the RoI needs a longer term than 2 years to prove itself you have a dilemma - should you assume that terms will be the same? Should you assume that rules will let you renew (where they actually don't, you are meant to run a new procurement under MEAT).
The cost of running a G-Cloud procurement is not trivial for the department concerned. When you have a solution that is bedded-down and running smoothly, the cost of change can easily exceed the cost of running with the incumbent (just imagine: training 5,000 users - their being slow getting work done under a new system, data migration, implementation teething trouble, configuration and the whole requirements gathering & competition process).
So logically the incumbent is the lowest cost option... but you still have to run the process each 2-years under the existing rules. It's designing-in inefficiency. Hopefully these new changes are an answer to that.
However, he believes that the requirement that GDS needs to approve the two 12 month extensions is possibly unnecessary. Smith added:
However, there is this provision in the new contract that renewal for 12 months (and then another 12 months) can only be made with GDS approval. The dead hand of bureaucracy can't quite let a good idea go? We don't know, maybe they will publish guidance on what you need to show to get that approval.
Not far enough
However, Nicky Stewart, Commercial Director at UKCloud, one of the leading IaaS providers on G-Cloud, argues that the requirements that would allow a buyer to extend by an additional 24 months are so burdensome that it could mean that no one ever actually uses it. Stewart said:
It goes without saying that the 2 year term is to counter lock-in, and for belt braces buyers also have the right to terminate with no cause, subject to an agreed notice period (generally 30 days). The incremental 12 month extensions are very closely bounded: only for the purposes for buyers migrating away from the service; for central government, only subject to GDS spend control approval; only applicable if the buyer has given itself the right to extend at contract award, and only if the supplier has produced and exit plan six months in advance of expiry of the initial term.
So while this meets the needs of some buyers, the ability to extend is limited, to say the least, and complicated. So much so that it may not even be used by buyers, who in some cases may just opt to renew on the basis of a VFM test. None of us support lock-in, but when termination for no cause is already baked into G-Cloud contracts, I do struggle to understand why, for example, a 3 year term wouldn’t be acceptable. Particularly as Technology Services 2 Lot 3 (a separate technology framework run by CCS) will have a commoditised element with a maximum 5 year term.
My take
I do find it amazing that it’s been almost five years since the launch of G-Cloud and I’m still writing about two year contracts. But that does tell me something - that this is an issue that does perhaps need reassessing by GDS. I’ve been fairly supportive of the rule in the past, as I believed that buyers needed to constantly be thinking about the value of their technology purchases and the options that are available to them.
However, if it is proving to be an obstacle for buyers that choose to go ahead with a full-blown tender, instead of using the G-Cloud, that’s a problem (G-Cloud is a much simpler and cheaper route). There is also the point that if cloud licenses often last for 12 months, do we need a set time for a contract anyway? Maybe the alternative is putting controls in place that force buyers to reassess their options regularly, which don’t require a full procurement?
I do think given free reign, buyers will fall into old habits, which won’t end well. I also reached out to Chris Chant, who was heading up the original G-Cloud team and was seen as a driving force for the adoption of cloud in Whitehall, and he said:
“There has to be control, that was always my take. We still have a cultural preference in many areas for longer contracts. As long as GDS have the resources and culture to control, shouldn't be a problem.”