Memorandum submitted by British Telecommunications
1. Since we are moving into the area of
delivering "new wave" solution, PFIs and PPPs are becoming
increasingly important to us. In common with the rest of industry
the rising cost of these is a concern to BT. We believe this is
due to the increasing reluctance of government to accept risk,
provide guaranteed income and to come up with requirements which
are relatively clear to deliver. Early PFIs were easier to address,
so income from them could be calculated and banks were happy to
lend against the opportunity. They are less willing to do so now
and this is more the case with information & communications
technology (ICT) projects (which have always been considered more
risky) because the return is commercially obvious.
2. Furthermore, there is an idea circulating
in the public sector that "not for profit" PFIs are
desirable. Banks do not share this view, particularly where refinancing
deals are seen by public sector buyers as a means of getting their
hands on any proven profit stream, even if the department concerned
did not want to share in the risk at the outset of the initial
3. We are unclear if the OGC is doing enough
to get the commercial realism of this across, or are they leaving
too much to their subcontractors, PUK, to do? Increasingly, PUK
have taken on more of what we perceive is OGC policy work, because
OGC have not had the people to undertake this task. As PUK become
more established as an adviser, is there a danger, that OGC will
4. Working with the OGC on PFIs in the past
we have had one major concern. Dealing with OGC on any subject
has been fraught with difficulties, unless one had a personal
and longstanding relationship with someone within the OGC. Trying
to find the right person to talk to if you do not know them is
difficult. We understand that other Government departments have
a similar problem. Organisation charts issued by the OGC are difficult
to interpret. As a very large organisation BT has similar problems,
however we have installed systems to simplify the location of
the right contacts (eg CCAT for account ownership).
5. We commend the OGC for introducing the
Gateway Review Process on major projects. We have adopted the
principles of this process for complex and risky projects. We
understand other government departments have found it useful too.
6. The OGC has continued to use the concept
of framework supply agreements, developed by the now subsumed
CCTA, to reduce the length and cost of procurement of ICT equipment
& services. This is compared to using the full EU process
of issuing all tenders in OJEC (Official Journal of the European
Community) publication. These contracts are let to suppliers who
provide the most competitive prices. The agreements for some services
only involve one supplier, simplifying the procurement process
(and by extension the associated cost), whilst arguably, reducing
choice for the departments or Government agency (the users) choosing
to use the framework agreement for procurement. Other frameworks
have several suppliers for each service or product category, giving
the users choice via "mini-competition" tenders amongst
7. Frameworks agreements (eg G.CAT) have
been operated for a number of years, however, we not sure what
the formal legal status of framework contracts iswe are
not aware of any real agreement from the EU about the legality
of such an arrangement.
8. The current operational model for multi-vendor
framework agreements consist of:
A contract between the OGC and a
supplier, including pre-agreed terms & conditions
A code of practice agreement between
the OGC and users (government departments & other eligible
Supply or service agreements between
the contracting authority (user) and the supplier using pre-agreed
terms & conditions.
This is a well established process. An example
of this for the GTC is shown for illustrative purposes:
Cost to suppliers of doing business via Framework
9. All OGC framework contracts require the
suppliers to track and report sales via the framework agreement
to the OGC. This tracking places an additional burden of administration
that increases the cost of sales through the framework agreement.
Additionally, there is the cost of bidding to be included in the
framework contract, as well as bidding for business in mini-competitions.
Currently we are assessing the benefit, in terms of additional
business gained and reduced costs (eg from standard terms &
conditions) against the increased cost of administration and bidding.
The current feeling is that the return is closely balanced, though
this is not substantiated by fact.
10. A management fee, payable to the OGC,
is also levied on the sales through the framework contracts. We
would like to see a minimum sales threshold below which there
will be no management charges. We believe this will ensure that
there is an incentive for the OGC to actively promote the use
of these frameworks. This will be of particular benefit to smaller
organisations that wish to participate in framework contracts.
11. We would also like to see some recognitionperhaps
in the way of reduced management chargesfor marketing activity
undertaken by suppliers to promote framework contracts, particularly
in the early days of a framework contract. We would expect to
see this recognition account for around 50 per cent of the cost
to the supplier of such joint activity. This will encourage the
supplier(s) to help promote the framework contract and the role
of the OGC. The credit will alleviate the cost of this additional
promotional work, while maintaining normal sales activity to prevent
a dip in sales revenues during the take-up phase of the framework.
We would suggest that the special recognition be terminated when
a specific sales level is attained or after a period of two years
from the award of the contractwhichever occurs first.
12. Most of these comments apply primarily
to framework contracts covering more complex services eg GTC &
S.CAT, particularly if there are multiple suppliers.
Aggregation vs Innovation
13. The use of single supplier frameworks
(eg GTM for mobility products and services) clearly makes the
market significantly less attractive to all potential suppliers
other than the incumbent. It is an understandable aim of HMG to
gain maximum value by aggregating total spend to reduce tariffs
and generate savings. However, aggregation with one supplier,
taken to its logical conclusion over time, brings some dangers:
The creation of a single dominant
supplier can reduce the propensity to innovatethe route
to much greater savings and improvements in efficiency and effectiveness
The policy is inflexible as it becomes
difficult to reverse. The logistical and administrative issues
associated with large-scale changes in suppliers make switching
to a new supplier a long, costly and time consuming process. It
could in itself result in inertia and slower Government response
to changing market opportunities.
14. The balance between cost reduction and
innovation can be illustrated by the following example within
HMG has a concern about the relative high cost
of inter-network mobile calls for Government mobile phone users,
but it is BT's view that perhaps a more significant cost is office
to mobile phone/mobile phone to office traffic. Innovation using
fixed/mobile convergence technologies can substantially reduce
these costs yet HMG, when compared to the corporate market, has
been slow to take up these services. Is the slow take up due to
an imbalance between a tariff centred approach and an approach
that encourages more creative solutions to reduce costs?
15. The extent to which this discourages
creative thinking and innovation through reduced dialogue between
Government and other suppliers is difficult to estimate but it
is a factor and must be considered and balanced against any benefits
obtained from aggregating spend and using a single tariff structure
from a single supplier.
Effective Mechanisms for Generating Value For
16. BT recognises the benefits of having
a low, Government related tariff structure and flexible billing
arrangements. A major barrier to suppliers in attempting to provide
these services in the past has been the fragmented procurement
policy employed in some areas of Government. Framework contracts
address this requirement.
17. However, there are some Government departments
and organisations, in conjunction with their suppliers which are
separately centralising procurement processes in order to improve
service, billing and tariff structures. In some instances this
has now been stopped, with these departments opting to use the
OGC framework contracts. We hope that this trend continues as
the cost of bidding for OGC frameworks as well as departmental
frameworks represents an additional cost. Both frameworks guarantee
a "ticket to play" rather than a real revenue generating
sale, thus increasing sales costs as we have to maintain a sales
force to sell on the back of the "ticket to play".
Lack of Clarity
18. There are several frameworks contracts,
that in our opinion, overlap with one another, eg G.CAT2, GTC,
GTC2 and S.CAT2. This lack of a clear boundary makes it difficult
for users to determine which framework agreement to use. For instance
there is some overlap on managed services between GTC & G.CAT2.
In addition, we believe the market is unclear why there are two
quite different managed services frameworks (GTC & GTC2).
19. This problem is exacerbated by the unequal
publicity given by the OGC to some contracts (those more established
eg G.CAT) over others, especially those which have been more recently
20. This lack of clarity will lead to potential
users being disinclined to adopt this new method of buying. The
lack of clarity is evident from the separate promotional activity
undertaken for each of the frameworks, by quite separate managers,
none of which position the role of the other OGC contracts.
21. Each potential user is also required
to sign a separate Code of Practice with the OGC to use each framework.
We believe this should be simplified, by one Code of Practice
applying to all OGC framework contracts.
22. Most of the above problems are an indication
of the infancy of the OGC and we believe that a strong central
marketing function, driven by user requirements, can reduce this
Summary of Recommendations
23. BT makes the following recommendations
for Framework Agreements:
Multi-vendor approach to encourage
innovation and competition
Clear positioning of the various
framework contracts, with reference to products and services covered
Active and equal promotion of all
framework contracts by the OGC.
12 November 2001