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G-Cloud's "biggest single barrier" - two year contracts in a world of 13 year outsourcing deals

Stuart Lauchlan Profile picture for user slauchlan April 25, 2016
Summary:
Derby City Council is a big G-Cloud fan, but there's a major barrier to further engagement with the framework - its two year contract requirement. Time for the Crown Commercial Service to heed the buy side tough love?

Will Laing
Laing and O'Reilly

Earlier this month, The Scottish Borders Council announced that it had signed a 13 year, £92 million outsourcing deal with CGI. That’s right - a 13 years long contract.

That’s the sort of multi-year, multi-million pounds, old style public sector contract that should have become a thing of the past by now, what with the perceived trend towards smaller, more agile arrangements better shaped to keep up with the changing pace of technology. 

One reason that such a signing can still take place, may well be local government’s ongoing addiction to outsourcing. The local government outsourcing market in 2015 saw the total value of contracts signed by councils up 23% year-on-year, according to the arvato UK Outsourcing Index.

Moreover, those local government contracts are getting bigger and longer, with average values growing by 30% year-on-year to £37.8 million and contract durations rising 29% to an average of 66 months. Even by those numbers, the Scottish deal is extraordinary!

It’s perhaps no coincidence that at the same time as local authorities are happily signing their ICT away to suppliers for extended durations, local government has proven to be the least responsive when it comes to commodity cloud services adoption via the Digital Marketplace, formerly the G-Cloud.

There are 433 local government authorities in the UK. Only 183 of these have made any purchases via the Digital Marketplace. Of those that have, the total spend, out of the more than £1 billion of overall Digital Marketplace business transacted, comes to just £50 million - 5% of the overall total. And to top that off, half of that £50 million is attributable to just five councils.

Two year itch

So what’s the problem? Apart from the outsourcing fetish, there’s one perceived barrier to cloud adoption that gets a fairly regular airing and that’s the two year limit on contracts conducted via the Digital Marketplace. This, runs the argument, puts buyers still used to the old-style ten year type of contracts off.

Or as Nick O’Reilly, ICT Director, Derby City Council, bluntly puts it:

It's probably the biggest single barrier to us doing more on G-Cloud.

Now, it needs to be stated here that this is tough love coming from O’Reilly. Derby City Council is a G-Cloud believer. It’s put 12 contracts through the framework to date, a £2 million spend in total.

But it hasn’t been easy to get that far, at least in part because of the need to bring the in-council buy side along. O’Reilly explains the biggest challenge he’s faced has come from the business side  who are:

not used to the idea of buying from a catalog.

They were nervous about it. It's not the traditional way we go at things. In terms of software, they're not seeing their legacy incumbent software suppliers. They've very scared that those suppliers might not be on the framework or might drop off the framework.

If I'm buying a highways system, then the owner is the head of highways department. I've got to persuade them that this is the right way to procure it, particularly when they find that their incumbent supplier that they've used for the past 18 years isn't on the framework.

Against that backdrop, two year contract durations are an added complication, says O’Reilly:

I don't want to change my social care system more than once every five years. Every time we change it, it takes a long time and there's a lot of cost per change. So for some of the large business applications software, two years is just not tenable. There's no leverage to persuade my business colleagues to do that. That's where any framework that has a two year limit is going to fail in what it's trying to achieve.

There have to be some limits. If you're not testing the market and stick with your incumbent supplier for so long, then you're not getting the best value for money for the taxpayer. I'm not arguing for no limits. I'm just saying two years is too short and is not operationally tenable for big business applications software. I don't even want to change my election software every two years. It's about getting the balance right between stability and change.

O’Reilly wants to see more flexibility introduced:

If my customers are telling me, ‘No more than once every five years’ and I'm taking that message back to Crown Commercial Services (CCS), they need to start listening to their customers and saying, 'Actually, two years, as a one-size-fits-all rule, is not working for all occasions'. We need a more flexible, more agile approach.

Miscommunication?

But according to one manager at the Government Digital Service (GDS), the two year limit is being misunderstood. GDS Head of Commissioning at the Digital Marketplace Christopher Short says the two year marker is there to prompt a re-evaluation of the market and technology options:

We're not saying that you can't continue with your supplier after two year. What we're saying is that technologies are changing so quickly that you need to go back and have a look. What we're saying is that at the two year point, you go in and do your searches and you look at what that search has created.

You then take into account all the costs, including off-boarding your current supplier, on-boarding onto a new supplier, any training needs for your staff on a new system. If then one of the new products is more cost-effective then yes, you would change. But actually, how often is that going to happen? It's an expensive thing to do, to change products.

Will Laing, Senior Relationship Manager for Local Government at CCS, understands O’Reilly’s complaint and has heard it many times from customers. There are historical reasons why the two year requirement was put in place, he argues:

The two year limit was partly determined because central government's IT outsourcing procurements were absolutely catastrophic disasters that were very long lasting. What we wanted was that buyers couldn't sign up and say 'We'll take a look at this again in 15 years'. We wanted ‘quick in, quick out’  and you should be assessing value against the market every two years. There's actually nothing wrong with that advice.

But things have changed since G-Cloud was first launched, he explains:

When the Coalition government came in in 2010, Francis Maude had a really, really close interest in procurement. He didn't like the way that central government did the same things over and over and over again. CCS was established as effectively the single conduit for services and procurement function for central government and operating across the wider public sector.

John Manzoni has been Chief Executive of the Civil Service for some time now and his view is quite different. If you look at the public sector procurement expenditure, in total it's about £220 billion. Only about £40 billion or £50 billion of that is in Whitehall. So a commercial guy like Manzoni is saying, what are we doing about the rest? So there's a focus to be much more engaged with health, education and local authorities. That's a new operating order for us.

What that new order means is a re-examination of the current terms and conditions of the Digital Marketplace, resulting in a meeting this week between CCS, GDS and local authority representatives to explore alternative options. Laing says:

We are going to have to think about how we manage how we can potentially look at what sort of flexibility there might be, without losing what is effective commercial discipline of the G-Cloud model as it was first established.

For his part, O’Reilly’s message to the CCS, GDS and the Cabinet Office is simple:

Having a one-size-fits-all, two year rule does not work for my customers and my customers are your customers. So, please listen to your customers - having a rigid two year rule does not work.

My take

The idea of any public sector body signing up to 13 year deals in this day and age makes me feel positively nauseous. Local government really does need to get over its outsourcing obsession - it’s not healthy for the council tax payer’s purse!

That said, the two year contract cap is something that is scaring the horses, in large part through poor communication - again - from CCS et al. Expecting users of the Digital Marketplace to go back out to check the state of the tech nation regularly is a good idea, but two years is proving an unappealing period.

So, something between two and thirteen then? The Digital Marketplace is an iteratively evolving beast, so there’s room for manoeuvre here and time to get it right. But the key has to be making life easier for O’Reilly and his peers at other local authorities to preach the G-Cloud gospel to sceptical business users.

Disclosure - O'Reilly, Short and Laing were speaking at Think Cloud for Local Government.

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