The UK Crown Commercial Service (CCS) has come under scrutiny for a significant increase in its cloud hosting agreement with Amazon Web Services (AWS). The deal, originally signed in February 2023, saw an unexpected uplift of 89% in May 2024, raising concerns about compliance with procurement regulations. This increase, though legally permissible in some cases, has sparked questions regarding transparency and the rationale behind the decision.
What Is the Background of the Deal?
The original agreement between the CCS and AWS, valued at £1.3 million ($1.63 million), was established under the G-Cloud 13 framework. The deal was intended to span three years, providing cloud hosting services to various UK government departments. However, just over a year into the contract, the CCS approved a substantial increase in the value of the agreement, bringing the total contract value to £2.5 million ($3.13 million).
This change, according to reports from ComputerWeekly, raises alarms due to its timing and the size of the increase. The decision not to re-tender the contract, despite the significant uplift, has drawn criticism from industry experts and procurement professionals, particularly because the increase exceeds the typical allowable limit under existing regulations.
What Does Regulation 72 of the Public Contracts Regulations 2015 Say?
The increase in the contract value raises questions about whether it adheres to the rules outlined in Regulation 72 of the Public Contracts Regulations 2015. This regulation allows for contract value increases but limits them to 50% of the original contract value. For the AWS deal, the increase exceeds this threshold by 39%, which typically would necessitate a re-tendering process or a competitive procedure to ensure fairness and compliance with public procurement standards.
According to procurement expert commentary, the CCS has yet to provide a clear explanation for the uplift, leading to further speculation about the reasons behind the decision to bypass a competitive re-tender process.
Is the Change Control Notice (CCN) Following Procurement Rules?
One area of concern lies within the Change Control Notice (CCN) issued by the CCS to approve the increase. The notice does not clarify whether the contract’s value rise was within the 50% incremental range permitted under Regulation 72. While there is a loophole in the regulation that permits value increases in 50% increments, the lack of transparency has left industry watchers questioning whether the CCS adhered to these guidelines.
The situation raises the important issue of whether this approach could lead to a situation where the rules for public procurement might be bypassed or overlooked, particularly in the case of significant deals with major suppliers like AWS.
The Role of AWS in UK Government Contracts
AWS has long been a dominant player in the UK government’s cloud hosting and computing space. The company has secured numerous high-profile contracts across various government departments, including the Home Office, the Department for Work and Pensions, and the Department for Environment, Food & Rural Affairs (Defra).
AWS’s commitment to the UK market has also been bolstered by a significant investment pledge, with the company committing £8 billion ($10.47 billion) to the development of new data centers across the UK. This underscores AWS’s growing influence within the country’s public sector cloud services, potentially raising concerns about competition and the ease with which it secures such contracts.
Why Was the Contract Not Re-Tendered?
One of the primary points of contention surrounding this increase in contract value is the decision not to re-tender the deal. Under standard procurement practices, a significant increase in a contract’s value would typically trigger a competitive bidding process to ensure fairness and compliance with procurement law.
Some critics suggest that the CCS may have sidestepped the re-tendering process in favor of a faster and more efficient solution to address the increased needs of government departments. However, this approach has left many questioning whether it was the most transparent or competitive decision.
A public sector IT expert quoted in ComputerWeekly noted that while the deal was awarded under the G-Cloud 13 framework, it still raised concerns regarding whether such a substantial increase could be justified without further competition or explanation.
Could Smaller Cloud Providers Be Affected?
The shift towards relying on large cloud providers like AWS may be concerning for smaller players in the cloud computing space. Regulatory changes and financial thresholds, such as the increase in minimum insurance coverage under the G-Cloud framework, have raised barriers to entry for smaller cloud providers.
Earlier this year, the CCS raised the minimum insurance cover required for cloud providers on the G-Cloud framework to £20 million ($25 million). This adjustment could be cost-prohibitive for many smaller firms, effectively limiting their ability to compete for public sector cloud contracts. As AWS secures larger shares of the public cloud market, questions about the level of competition in the public procurement process become increasingly pertinent.
The Investigation into Cloud Pricing Practices
In addition to scrutiny over the CCS’s decision, there is an ongoing investigation by the UK Competition and Markets Authority (CMA) into the practices of cloud computing giants like AWS. This investigation, which focuses on the pricing structures and licensing models of major cloud providers, aims to explore whether these companies’ pricing practices are limiting competition and preventing smaller providers from entering the market.
Despite the investigation, it’s notable that the CMA itself is a customer of AWS, which has led to some concerns about potential conflicts of interest or bias in the investigation. This issue has yet to be fully resolved, but it highlights broader issues within the cloud computing industry that may have implications for public sector procurement in the UK.
Conclusion: Is This the Future of Public Sector Cloud Contracts?
The increase in the UK Crown Commercial Service’s hosting agreement with AWS highlights growing concerns around the transparency and competitiveness of public sector contracts. As the government continues to rely on major cloud providers for its infrastructure needs, the risk of stifling competition and sidelining smaller players in the market remains a critical issue.
While AWS’s investment in the UK data center market reflects its strong position in the industry, questions about procurement practices and the ability of smaller cloud providers to compete in government contracts are likely to persist in the coming years.
FAQ Section
Q1: Why did the UK Crown Commercial Service increase its contract with AWS by 89%?
A1: The increase was made to meet growing needs for cloud hosting services, but the decision not to re-tender the deal has raised concerns over transparency and compliance with procurement regulations.
Q2: What are the regulations around increasing contract values?
A2: Under Regulation 72 of the Public Contracts Regulations 2015, contract values can increase by up to 50% without triggering a re-tender, but this increase exceeded that limit, causing concerns.
Q3: How does the UK’s Competition and Markets Authority (CMA) relate to this issue?
A3: The CMA is investigating the practices of cloud providers like AWS, which could have implications for public sector cloud procurement, even though it is also a customer of AWS.
