Public Sector

How governments become addicted to suppliers like Fujitsu

Interest in Japanese’s firm’s public sector deals – worth $15B in the UK alone since 2012 – spikes

Analysis Since the broadcast of a television drama telling the story of the Post Office Horizon scandal — one of the most serious miscarriages of justice in British legal history — calls have mounted for those responsible to be held to account.

Leaping into focus is Fujitsu, the supplier of a controversial £2.3 billion ($2.94 billion) accounting system, Horizon. Between 2000 and 2015, 736 managers of local Post Office branches around Britain were criminally convicted of financial fraud when errors in the system were to blame. Some of them spent time in prison and were left bankrupt after the wrongful accusations. At least two subpostmasters committed suicide in the wake of the accusations, one taking his life after the Post Office said he owed the branch hundreds of thousands of pounds.

In 2020, six former Post Office subpostmasters caught up in the Horizon scandal became the first to have their names formally cleared after the Court of Appeal quashed their wrongful criminal convictions. The court quashed 39 more convictions in 2021. A statutory inquiry was launched in 2021.

While politicians and commentators call for convictions to be overturned and compensation claims to be expedited, media outlets have also been adding up how much government work Fujitsu has won during the sorry saga.

The Financial Times calculated that the Japanese vendor had won £4.9 billion ($6.25 billion) — jointly and as sole bidder — since the courts ruled the Horizon system was not robust in December 2019. It reckons the figure is £3.6 billion ($4.6 billion) since British prime minister Rishi Sunak entered front-line politics, according to the analysis of data compiled by public procurement research firm Tussell.

Broadcaster ITV said Fujitsu had won more than 150 government contracts since the Post Office stopped prosecuting its staff over financial discrepancies. Meanwhile, Sky News announced Fujitsu had won £6.8 billion ($8.68 billion) in public contracts since 2012, also working with Tussell.

While the public and the mainstream media may be shocked at the figures Fujitsu has been winning, Register readers may not be. After all, El Reg has covered many of these deals as the ink dried, as well as questioning why a proper inquiry was not launched sooner. The question is why a supplier of the system behind the Post Office scandal — the inquiry is yet to determine whether it is culpable for the system's failures — has been rewarded with a small fortune in work.

To understand, look at one of the deals far removed from central government and London's self-perpetuating media machine.

What Northern Ireland's libraries can tell us about government procurement

In January 2020, Libraries Northern Ireland, which runs public libraries in the territory, extended an IT services contract with Fujitsu worth £12 million ($15.3 million) after running out of time to complete the tender process. The 29-months extension came after Fujitsu won a five-year deal worth £25 million ($32 million) in 2013. That contract included an option to extend for two years, which Libraries NI took in 2018, with the total value eventually amounting to £33.6 million ($42.9 million). The contract was set to end in April 2020.

The contract notice explained moving to an alternative supplier was not advisable as "the system and licenses are not readily interchangeable or interoperable. Any attempt to transfer systems without an adequate transition period poses an unjustifiable risk of business disruption and total network failure."

In August 2022, NI Libraries finally announced the winner of the competition for a strategic partner to "deliver modern and innovative IT services." Fujitsu won the £27 million ($34.5 million), seven year deal.

Account management teams within large IT contractors are better resources than commercial teams within clients, and they have worked on more deals...

It's perfectly possible the global tech firm was the best supplier bidding, but the provincial book hoarder is not the only government body which seems to have a Fujitsu addiction.

In March 2022, UK tax authority HMRC has awarded Fujitsu a £250 million ($319 million) contract for managed desktop services (MDS), extending a deal that dates back to 2017.

In October 2020, the HMRC also awarded Fujitsu a £168.8 million ($215 million) deal without competition to ensure critical applications running customs checks were still in place while the much-delayed replacement was finished. It later said the Customs Handling of Import and Export Freight (CHIEF) system would end its life in September 2022. It is now expected to retire in March 2024.

In 2021, the Home Office handed Fujitsu a £5 million ($6.3 million) contract to support a border system beset with delays.

Also under the Home Office's remit, a Police National Computer contract was awarded to Fujitsu in August 2022 after no other companies bid for the work. The £48 million ($61 million) deal was listed as a "Single Tender Action," indicating that it is a direct contract with Fujitsu as sole supplier. A year earlier, 413,000 records of evidence were lost from the central database.

Another Fujitsu system — inherited when it bought UK supplier ICL in 1998 — contributed to systematic errors which led to more than £1 billion ($1.28 billion) of state pensions not being paid out to pensioners.

Fujitsu is one of many...

The apparent news that Fujitsu wins so much government work has prompted breastbeating among politicians of all persuasions.

Liam Byrne, Labour MP and chair of the Commons business committee, told the Financial Times: "Ministers cannot and must not reward failure any further. It's vital there's now a moratorium on new contracts for Fujitsu until we've got to the bottom of this terrible miscarriage of justice."

The problem is that it's not just Fujitsu. In 2022, Fujitsu's partner in HMRC's £10 billion ($12.7 billion) Aspire contract, Capgemini, won a £215 million ($274 million) contract for work on systems included in Aspire, which began in 2004 and was supposed to last 10 years. The contract was extended multiple times but was again supposed to end in 2022. HMRC denied it was extending Aspire again, but Capgemini will look after "some" of the same systems included in the mega deal, as will Fujitsu, which has won similar work.

The general gnashing of teeth in the media belies the government's problem with Fujitsu and many other so-called "strategic" tech suppliers (Accenture, Capita, CGI and IBM are also among them, according to Tussell).

A commercial director at a global firm once told me, "they do it to you much more than you do it to them." He meant that account management teams within large IT contractors are better resourced than commercial teams within clients, and they have worked on more deals. A client might renegotiate or procure a big deal once every few years; the supplier will manage several a quarter. Meanwhile, vendor-side executives get bonuses for maximising revenue and margins.

The same is true on the technical side. When clients outsource, skills go with the work. Being retained by the client is rarely the best option in terms of pay or experience.

The combined dearth of technical and commercial skills within a government puts its bodies at the mercy of the big contractors. How can you hope to re-procure a system or secure value out of the suppliers if you don't understand enough about what the system does? Commercially, how can you renegotiate or manage the contract if you don't have the commensurate skills and experience? While this is the case, it is less risky to go with an incumbent supplier than to find an alternative, presenting suppliers with the upper hand in terms of their margins and performance. The government can't simply press ctrl alt delete on the system.

Yet, we don't see the technical or commercial skills in government to deal with the challenges. In fact, the opposite is the case.

Chair of Parliament's spending watchdog Meg Hillier said last year that the government's technology programs are "hobbled by staff shortages, and a lack of support, accountability and focus from the top… The government talks of its ambitions for digital transformation and efficiency, while actively cutting the very roles which could help achieve them."

There is no sign of budgets for the necessary upskilling. The Autumn Statement forecast £61.7 billion ($79 billion) in discretionary fiscal tightening in the coming final year, with £28.0 billion ($35.7 billion, or 45 percent) to come from reductions in departmental spending.

Meanwhile, the UK government is embarking on another multi-billion wave of major IT contracting. HMRC is in the middle of its £7 billion ($8.9 billion) Technology Sourcing Programme.

All of the major Whitehall departments are procuring shared services deals, which will see them move ERP systems to the cloud, and some departments combine with others to use the same systems in multiple billion-pound projects of staggering complexity. Watchdog the Infrastructure and Projects Authority has already sounded a "Red" warning on HMRC's project – the £500 million ($638.3 million) procurement launched in December. Other departments have launched their competitions, although funding is in doubt beyond the current spending review, which ends in 2024-2025.

When the media focus on Fujitsu dies down, under-resourced and under-skilled public sector tech and commercial teams will experience painful fiscal tightening, the same tech giants will return to the trough, their shareholders will reap the benefits almost regardless of performance... and the world of government IT will continue to turn. ®

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