Whitehall leaders have refuted suggestions from the Public Accounts Committee that departments have an ‘unhealthy relationship’ with hyperscalers, but acknowledge areas for improvement in how contracts are shaped and awarded
A limited choice of just a handful of dominant players means that government buyers in the cloud market do “not actually have as much leverage as we think we might”, Whitehall’s procurement chief has said.
Giving evidence to parliament’s Public Accounts Committee, the recently appointed government chief commercial officer Andrew Forzani was asked about government’s relationship with suppliers of cloud services. MPs pointed to the Home Office’s incumbent £450m deal with Amazon Web Services – which was signed in late 2023 and is almost four times bigger than the £120m contract it replaced.
Committee member Lloyd Hatton suggested that this massive increase in spending “raises some serious questions”, and asked Forzani “is there not some way in which, perhaps at a central level, we should be better guiding or restricting what departments are able to do?”
“Amazon appears to be getting a lot of money from a government department without providing anything substantially different,” the Labour MP added.
In response, the chief commercial officer said that “the first thing to acknowledge is that in some of the sectors of this market there are a small number of very dominant suppliers, so for everybody there is limited choice”.
“If you want to leverage government purchasing power for something like hosting, you need to get a number of departments really aligned around requirement; that is very challenging to do,” he added. “We absolutely have an ambition to do that more, and that is going to be one of the key parts of the new ‘centre of excellence’ agenda. Of course, one of the founding principles of public procurement is competition. Departments go out with their requirements and these contracts are competed for, sometimes in a very limited market space. We accept that in some of these markets, we do not actually have as much leverage as we think we might, because there is limited choice.”
Hatton put it to Forzani that, in light of this limited pool of suppliers, the relationship between government departments and these big tech companies often can be quite an unhealthy one”.
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“I would not characterise them as unhealthy,” Forzani responded. “There are some things we have been doing, and we are going to do more. We compare and pool pricing information together across the contracts we will have with some of those providers. They are part of the partnering programme, so there is oversight to try to understand how prices might change across us as a customer. We will absolutely look to see whether we can leverage that across that relationship. That goes on. Ultimately, to get the best leverage, you would do a single deal. We are saying that, in practice, it is very difficult to line up multiple customers and requirements. We have started to do that and have an ambition to do more of that.”
Giving evidence to MPs alongside the commercial chief – whose role sits within the Cabinet Office – were two key representatives of the Department for Science, Innovation and Technology: permanent secretary Sarah Munby; and government chief technology officer David Knott.
Munby told the committee that “David and I would share the view that at the moment the way government buy cloud is not right”.
“There is real work to do on that specific point,” she added. “It is a place where it is being bought in a fragmented way, rather than thinking about overall capacity, how it evolves over time, peaks, gaps and those sorts of things. It is not necessarily about whether we have a healthy or an unhealthy relationship with the suppliers… buying cloud brilliantly is a quite specific skill.”
Excellence adventure
The perm sec reinforced Forzani’s suggestion that the new Digital Commercial Centre of Excellence, which is currently being set up in DSIT, will have a positive impact. A key early priority of the centre will be developing a government-wide strategy for sourcing digital platforms that will provide “really clear steers to departments on when it makes sense to build things ourselves and when it makes sense to buy from the market”, Knott said at the PAC session.
The CTO added that “I have spent a lot of time in the last few years working as both a large-scale consumer of and a provider of cloud… [and] there are a few characteristics” that should be borne in mind.
“The first is that… our goal would be to move beyond things like MOUs and framework constructs to [reach] the ability to contract once,” he said. “The way cloud economics works is that being able to write a commitment to a cloud provider matters an awful lot to them, and it gives us maximum commercial leverage… The second would be an approach to optimisation.”
Knott added: “One of the advantages of cloud is that you have to turn the dials up and down. We need to make sure—this is part of my team’s job, and it will be through the commercial centre of excellence—that departments are setting the dials to the right settings and that they are not overprovisioning or over-spec-ing what they need. The reason that it is particularly attractive to fix that is that, when you make those settings, it translates into cost savings the next day.”
MPs examination of government’s relationship with cloud suppliers comes after the market’s two dominant forces – AWS and Microsoft – formally refuted concerns about the competitiveness of the sector raised by the Competition and Markets Authority. However, the duo’s main competitor Google and a range of smaller players have voiced strong support for a provisional decision from the CMA to give the market leaders a special designation that would provide for more regulatory intervention.
