UK govt office admits ability to negotiate billions in cloud spending curbed by vendor lock-in

After slew of AWS deals signed under MoUs, CDDO says current approach might weaken its position

Exclusive The UK government has admitted its negotiating power over billions of pounds of cloud infrastructure spending has been inhibited by vendor lock-in.

A document from the Cabinet Office's Central Digital & Data Office, circulated within Whitehall, seen by The Register, says the "UK government's current approach to cloud adoption and management across its departments faces several challenges" which combined result "in risk concentration and vendor lock-in that inhibit UK government's negotiating power over the cloud vendors."

The paper also says that if the UK government – which has spent tens of billions on cloud services in the last decade – does not change its approach, "the existing dominance of AWS and Azure in the UK Government's cloud services is set to continue."

Doing nothing would mean "leaving the government with minimal leverage over pricing and product options.

"This path forecasts a future where, within a decade, the public sector could face the end of its ability to negotiate favourable terms, leading to entrenched vendor lock-in and potential regulatory scrutiny from [UK regulator] the Competition and Markets Authority."

The document has been circulated under the heading "UK Public Sector Cloud Marketplace." It is authored by Chris Nesbitt-Smith, a CDDO consultant, and sponsored by CDDO principal technical architect Edward McCutcheon and David Knott, CDDO chief technical officer.

The stated concerns of vendor lock-in follow a number of mega-agreements with major cloud vendors signed under Memoranda of Understanding (MoU). For example, AWS, the world's largest cloud provider with a dominant market share, signed a deal worth up to £450.3 million ($569.7 million) with the Home Office under the auspices of the One Government Value Agreement (OGVA). Other deals have been signed with tax collector HMRC and the Department for Work and Pensions, bagging AWS a total of around £900 million ($1.138 billion) under the MoU, which has since been updated to OGVA 2.0 and will run until October 2026.

It has been suggested the OGVA has achieved an 18 percent base-line saving on its cloud deals.

AWS collected 76 percent more direct public sector revenue from the UK government in the fiscal year 2022/23 compared with the earlier year, according to figures from public sector spending researcher Tussell.

The document cites challenges with the government's current approach to cloud adoption, including the length of time it takes to adopt cloud services, as departments "typically experience a six-nine month period often costing £500k+ to activate and deploy" them. Its approach is also hampered by inconsistent cloud environments, which result in an "absence of a standardised approach" leading to "inconsistencies and reinventions of low-level cloud architecture, security, and compliance across departments, posing risks, inefficiencies and challenges of understanding equivalent controls in data sharing agreements."

The paper lists four other challenges to cloud adoption in UK government. The document proposes a solution which involves a "UK Public Sector Cloud Marketplace service," in partnership with major cloud providers. It would offer "consistently secure, well-architected cloud environments that can be rapidly deployed."

"This service promises to level the playing field for all departments, ensure adherence to the best security and compliance practices, and enable the government to negotiate more effectively with cloud vendors, thus leading to better deals and cost savings," the paper says.

However, it remains unclear how the CDDO would execute such a strategy without the help of the Crown Commercial Service, an executive agency and trading fund that also sits within the Cabinet Office.

In fact, it says there is a key risk to succeeding with the proposed approach if the CCS is "unable to create a commercial implementation that will be compliant and non obstructive for pre-approved spend."

Speaking to The Register, one expert close to the arrangements said: "If the government is questioning its negotiating power, then perhaps you ought to believe them."

The expert said the AWS contracts had seen the government's commitment to the cloud platform quadruple in deals any incoming government would find nearly impossible to back out of. The UK will vote in a general election before the end of next January, with the opposition Labour Party currently well ahead in the polls.

The experts pointed out that the AWS deals were structured such that AWS had offered larger discounts for upfront payments, with commitment to minimum spending year-on-year.

The individual close to the negotiations said the proposed strategy lacked detail and a plan for how it would influence a procurement strategy led by the CCS and individual government departments, which have well-established commercial teams of their own.

A spokesperson at AWS told us: "Government departments using AWS are not only enjoying cost savings of up to 60 percent but also supporting a vast ecosystem of smaller companies, across the UK, that offer products and services that complement and help customers take full advantage of AWS.

"Amazon recognises that its status as a supplier to the public sector is a privilege which has to continually be re-earned through the quality of our services and the value for money that we bring for UK taxpayers. We know they will only remain customers for as long as we are able to deliver on both of those things."

The Register has asked the Cabinet Office, Microsoft Azure and Google Cloud to comment.

Competition watchdog the CMA has already taken an interest in the broader cloud market in the UK. ®

Updated to add on April 5:

A Government spokesperson has been in touch to say: "CCS agreements offer the widest range of suppliers for the cloud market, including 5,000 suppliers on G-Cloud 13, with 91 percent of them SMEs.

"Government's Cloud First policy is kept under regular review to ensure it reflects the latest guidance and recommendations, and states that organisations should always scrutinise their selection of vendors.

"As per the government's Digital Roadmap we endeavour to make significant savings by leveraging our combined purchasing power, as we seek to to shift to a 'buy once, use many times' approach to technology."

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