Way back in November 2010 I blogged here that Oracle and the Cabinet Office had announced a new MOU. I questioned why no one knew any details or where the savings would come from.
I now almost stand corrected - the deal is done, announced today (not 2010) by paymaster general Frances Maude. The details will be forthcoming.
The big headline
Some £75m savings! As Oracle spend across UK Public sector is around £200m a year this represents more than a 10% reduction over the next 3 years. This is goodness and probably class leading across the ERG targets which include around 18 of the largest beneficiaries over Crown spend - typically US mega-IT-multinationals.
Key deal highlights: -
- Although announced, details are scarce, we understand that savings will result from: -
- A single discount across public sector
- Centralised buying for all departments
- Transportability of licenses across departments
Although not announced, we have been told that the single discount will be 71.2% and a further un-announced deal element will be extending support for old versions of Oracle Applications such as E-Business Suite and Siebel. Oracle recently told users that support for old applications would be withdrawn unless there was a significant increase in support fees, or there was a costly upgrade to the latest Oracle release R12. Although that threat was pushed out after users threatened to go to third party Oracle specialists such as Rimini Street, it was still a huge budget burden on struggling IT directors across the public sector.
So are the savings real? And where do they come from?
I guess so as such claims are rigorously audited. But I’m curious to know the detail of the deal as it does seem pretty good, almost too good, and Oracle are not known for the generosity.
Based on the discount we have heard of, and our view of probable new spend over the next 3 years, we have estimated that the claimed savings are likely to come from 3 areas: -
- Single discount on forward spend for license and support - even though new license spend is likely to be low over the next few years, a simplified vanilla approach to procurement will reduce admin cost and actual discount attained. These elements together, could add up to perhaps 25% of savings.
- Reduction in budgets allocated to forced upgrades to latest releases or forced support fee hikes - if support for older versions is extended this would be a huge cost which would be deferred for 3 years. It could be suggested that deferring this spend creates a future poison chalice, but it could also be considered a real benefit as most of the departments coming under extreme pressure to fund these forced upgrades were struggling to project any material business benefit. This could represent 55% of projected savings.
- License portability. This is certainly an area we understand well and it can be a real cost reducer and avoider. It is not a concession that Oracle makes easily so hats off to the government Procurement Chief John Collington for this success. The devil is in the detail of the contract which we haven’t seen of course, and also how the facility is managed. Time will tell, but this could create 30% of savings.
So, a good deal?
It’s certainly the best centrally negotiated deal of recent years, and if the savings can be materialized then the ERG under Maude should feel that they have achieved some progress with their most difficult vendor.
It is difficult to feel though that government agendas for reducing dependency and spend on a small number of large multinationals could be set back as there is no doubt that this deal makes Oracle harder to compete with or dislodge. The support for Open-source agenda and also the improved distribution of spend to SMEs could also be set back unless the deal is managed well.