Committee of Public Accounts

Press Notice No. 10 of Session 2003-04, dated 26 February 2004


Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, today commended the negotiation of improved prices for software for the public sector but urged the Office of Government Commerce to keep up the momentum by ensuring that all Departments are aware of the deals in place.

Mr Leigh was speaking as the Committee published its 10th Report of this Session, which examined the Office of Government Commerce's negotiation of the Memoranda of Understanding with software companies, how to get the maximum benefit from the Memoranda, and issues relating to dominant suppliers and new sources of supply. OGC has negotiated Memoranda with Microsoft, Sun Microsystems, Lotus/IBM, Corel and Oracle, to enable all parts of the public sector to take advantage of negotiated prices for software. When setting up the Memoranda, OGC estimated the public sector would save around £100 million over the three years from March 2002. Departments are responsible for determining their own software requirements and purchasing what they need; in 2001-02 they spent around £610 million on software, £100 million of which was spent on over one million licences.

The Committee found that OGC was able to negotiate a succession of discounts from dominant software suppliers because it secured close and sustained co-operation across the public sector. The OGC is now embarked on discussions with Microsoft to determine whether better prices can be achieved through an improved Memorandum and it will be important that bodies in the public sector are ready to act in concert again, so that the OGC can negotiate from a position of strength.

Open Source software, already in widespread use for server applications, may in future provide departments with a viable alternative to existing software suppliers for a broader range of functions including desktop applications, opening up the marketplace to wider competition and potential improvements in value for money. The present OGC trials with IBM have recently been supplemented by a second deal with Sun Microsystems. This deal offers a useful second front to explore the viability of this potential new source of software. If the results show that open source software is practical, particularly in respect of integration with existing systems, departments should be ready to apply the lessons learnt to their future purchasing decisions.

Departments should benchmark prices against those available through the Memoranda when considering options for purchasing software. If a decision is taken not to use the Memoranda, then there needs to be clear evidence that the alternative procurement route will deliver better value for money.

Where departments plan to make use of the specialist skills and purchasing power of contractors to procure software, they should make sure that the contractor is aware of the Memoranda, and that any benefits arising from the use of such discounts are factored into the overall deal secured between contractor and department.

Initial take-up of the Memoranda has been less than OGC anticipated, with some departments lacking awareness about the deals in place. OGC is focusing its publicity and awareness campaigns on those who are not procuring software through the Memoranda. OGC should track the progress of these campaigns and take further action if awareness and take-up of the deal remain lower than expected.

10% of departments do not maintain reliable market information on IT suppliers, their software products or the longer term developments in the IT sector. OGC should identify and work with these departments, for example by encouraging them to attend OGC's information and support events, so that they can deal with suppliers on a more even and professional footing.

The Memoranda negotiated by OGC have, to date, saved £49 million in direct price reductions. OGC does not, however, hold information on the extra savings that might have been achieved if those departments who have not used the Memoranda had done so. OGC should determine how the savings achieved compare with what might have been secured with levels of higher take-up.

OGC estimated £36 million direct price savings over three years from March 2002, but £49 million savings had already been achieved by September 2003. In the light of their increased knowledge of the marketplace, their greater experience gained from successive deals, and the opening of discussions with Microsoft, OGC should see whether an improved Memorandum offering further savings is possible.

Mr Leigh said today:

"OGC has done well to negotiate improved prices with leading software companies and this has already saved the taxpayer £50 million in direct costs. I urge OGC to keep up the momentum by renegotiating with suppliers and, equally importantly, by ensuring that all Departments are aware of the deals in place. The effort in getting good prices on the table must be made to pay off fully with all public bodies taking advantage, especially as OGC estimate that another £30 million of savings are in prospect if they do."

Notes for Editors

1.Staff of the Committee will forward to Mr Edward Leigh requests for press comment on this Report-Tel: 020 7219 5708; fax 020 7219 2782. ISDN facilities are available for broadcasting purposes.

2. This Report can be accessed via the internet from around 11.00 am on the day of publication.

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