House of Commons - Public Accounts

Select Committee on Public Accounts Tenth Report

2 Realising the maximum benefit from the Memoranda

4. Departments are not obliged to use the Memoranda and have been slower in taking up the terms offered by software companies than OGC anticipated.[8] There were also some organisations whose knowledge and awareness of the Memoranda was not high. OGC estimated that a further £20-30 million could be saved in the future as a result of direct price reductions from the Memoranda. In order to reach this figure OGC was planning a series of activities such as road shows to raise awareness and further publicise the Memoranda's benefits across the public sector.[9]

Market Intelligence

5. To act as intelligent customers, departments need to have reliable market information on IT suppliers' products and prices. While 90% of departments sought such information, less than half explicitly drew on the material provided by the OGC Foundation, a subscription-based service offering information, experience and support networks for those procuring and managing IT.[10] OGC has now discontinued the Foundation because the requirement to subscribe discouraged potential users and instead runs free-of-charge events. OGC believed that the 10% of departments not seeking market intelligence were mainly smaller organisations who felt they could rely on OGC as a source of market information.[11]

6. OGC does not have a formal process whereby departments are required to report the level of savings they achieve from using the Memoranda. Instead OGC relies on suppliers to report the level of discounts they have given the public sector.[12] On whether this was a reliable means to secure information on discounts, OGC said suppliers had a vested interest in maintaining accurate records so that they could control and monitor any potential illegal use of licences. OGC periodically checked with key departments to validate this information.[13]

Volume Thresholds

7. The discount each department obtains from the Memorandum with Microsoft depends on the total volume of purchases made by the public sector at that date. Once the level of purchases triggers a higher discount rate, all departments subsequently buying software can benefit—in effect gaining an additional price reduction compared with those purchasing earlier.[14] OGC estimated that the next discount threshold will be triggered early in 2004 but this will depend on the purchase of more software, in particular by the NHS. More generally, OGC intend to emphasise to departments the importance of remaining alert to the potential for triggering further price reductions when reaching decisions on future software purchases. OGC will notify departments when the next threshold is reached.[15]

Business Cases

8. Departments can upgrade software at any time and do not need to wait until their existing agreements expire. However, upgrading often involves costs beyond simply the licences such as the need to purchase new hardware and the cost of installing both hardware and software. Departments therefore have to prepare a business case for buying new software, taking into account all the various potential costs and benefits. Business cases do not, however, include the possible wider effect on the public sector that purchasing under the Memoranda may have.[16]

Outsourced Contractors

9. Some departments use outsourced contractors for their software purchases as they believe they can obtain reduced administrative costs, faster procurement and the ability to take advantage of the increased purchasing power of the contractor. Where outsourced contractors achieved savings by using the Memoranda there was a risk that these might be retained by the contractors with the result that the department did not benefit.[17] Some departments using outsourced contractors have yet to make use of the Memoranda and when the next volume threshold is reached in early 2004, OGC plan to remind departments using outsourced contractors to make sure that any benefits secured from the Memoranda are passed on.[18]

Agreements outside the Memoranda

10. Prior to the introduction of the Memoranda, the Ministry of Defence, with the knowledge of OGC, set up its own agreement with Microsoft to meet its specific needs. The Ministry estimates that it will save £17 million over four years on software expenditure totalling £69 million.[19] This agreement ends in May 2004 and OGC intend to open up discussions with the Ministry as to the best way to proceed.[20]

11. Under the Memorandum of Understanding with Microsoft, any licences bought by the Ministry under the terms of its existing deal are counted as part of the total volume of sales within the Memorandum. This is also the case with purchases made by the NHS.[21]

12. The Memorandum also contains provision for any large purchaser of licences to negotiate a higher level of discount than those normally applying under the agreement. In that case the volume of licences purchased would also count towards total sales volume under the OGC's main deal.[22]

8 C&AG's Report, para 7 Back

9 Qq 9, 49 Back

10 C&AG's Report, paras 2.21-2.22 Back

11 Qq 47, 50 Back

12 C&AG's Report, para 2.19 Back

13 Q 10 Back

14 C&AG's Report, para 1.14 Back

15 Qq 86, 89, 111, 114 Back

16 Qq 51-53, 75-80, 88 Back

17 C&AG's Report, paras 2.16, 2.20 Back

18 Q 56 Back

19 C&AG's Report, appendix 4, para 10 Back