Unhealthy negotiations

Today’s report of the “successful” renegotiation of the Ministry of Health’s bulk licensing deal with Microsoft provides a text-book example of why the Government must properly mandate open standards and multi-vendor capable solutions for future state-sector IT procurement. From the article:

Mr Hesketh says the health sector is paying slightly more for software licences under the new three-year agreement. …

“We got the best possible deal out of Microsoft we could have got at this time.” …

The commission has encouraged government agencies to investigate alternatives to Microsoft products, including open-source software, but this was not an option for the sector as Microsoft is heavily embedded in its infrastructure, says Mr Hesketh.

There is no suggestion that Microsoft software is not perfectly suitable, and in all likelihood the best, choice for the Ministry at present time. But it makes a mockery of the idea of “renegotiating” a deal when an alternative supplier is, by the purchaser’s own admission, “not an option”. By definition, monopolies do not compete. At least when there is a viable alternative (even if not an ideal one), it enables price and other such factors to be negotiated to some degree and a competitive assessment to take place. Not so in a one horse race.

Nor would it be fair to criticise the current management for the single-vendor dependent situation it finds itself in. In fact, it is very likely that Microsoft was the best choice at all relevant times in the past, resulting in the current situation through no fault of anyone (and commendably smart business and great products by Microsoft). The point is that it provides an example (if another is needed) of why proprietary lock-in in the taxpayer-funded (public) sector should be avoided where possible going forward.

It would be interesting to hear some further explanation as to how the MoH can possibly claim the outcome as a “win”, when the result was it ended up paying more than the old deal – especially when the State Services Commission all-of-government negotiations broke down over price.

The article says the “win” claimed by the MoH is that each department did not need to “go through their own legal process of vetting the agreement and doing the negotiation process. We did that once rather than 24 times”. This is a highly dubious claim for several reasons:

  • In what way were the “negotiations” possibly going to be different for each department? A supplier in a monopoly position, who has already hard-balled the biggest Government procurement agency, is hardly going to negotiate 24 much smaller deals. The commercially sensible premise is “take it or leave it”.
  • If the SSC had no ability to leverage on price, there is no basis for claiming as “savings” the cost of not negotiating 24 much smaller sub-agency agreements.
  • The “marginal cost” of legally vetting an agreement of the type negotiated here should not be significant for a lawyer familiar with software procurement and licensing issues. 90% of it would be boilerplate, standard terms and disclaimers (see The allure and illusion of commercial software support). If the agreement was identical to an already “vetted” version, as would seem likely, the marginal cost would be around zero.

Equally as dubious is the claim that the deal allows “licences to be transferred between the participating health sector agencies at no extra cost should they be reformed or reconfigured”. How much of a benefit is this? Let’s see:

  • The standard EULA‘s in Microsoft Office 2007, SQL Server 2008 and Windows 7 Ultimate (to pick 3 examples) allow no-cost transfers to a third party.
  • At law, the benefits of a contract can (generally) be transferred freely “by default”.
  • In the case of any statutory reforming / reconfiguring departments, legislation is able to deal with assignment of assets (including intangibles) to the new entities.

So how is the free transfer of licenses, already provided for in the standard EULA’s, regarded as a “win”?

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