Government increases G-Cloud tax by 50 per cent
Suppliers and G-Cloud watchers 'horrified' by uplift in admin fee charged by Crown Commercial Service
The government has increased the fees suppliers must pay it on sales made through the G-Cloud framework - prompting a backlash from some suppliers and experts - as part of wide-ranging changes to the framework.
The Crown Commercial Service (CCS) and Government Digital Service (GDS) completed a "discovery" process into G-Cloud ahead of the upcoming ninth iteration, looking to go back to basics on the framework to make improvements for all involved.
The actions based on the discovery process were released yesterday evening, one of which was a plan to increase the fees it charges suppliers.
"CCS is rolling out a change to its funding model," said the G-Cloud blog. "The management charge for G-Cloud 9 will be increased from 0.5 per cent to 0.75 per cent of all charges billed by the supplier to the buyer. This is in response to the 2015/16 Government Spending Review."
According to CRN calculations on G-Cloud data released by the CCS, the average size of a single transaction through the framework last year was £17,298, meaning the fee a supplier would pay CCS on that transaction would rise from £86.49 to £129.74. On larger deals, the fee increase could rise into the thousands of pounds. Last year, the largest deal size through the framework was £1.75m, meaning on a deal of that magnitude, the fee would jump from £8,747 to £13,121.
Roger Newman, senior partner at consultancy DeNove, which focuses on G-Cloud, said the increase is significant.
"What horrifies me is the fees," he said. "They're trying to shift the charge to vendors, as opposed to their users. But I am not sure how, because so many innovative suppliers are operating on very, very slim margins. How well are they going to be able to accommodate this? Or will they pass it on to users? It seems to me like CCS is trying to take the path of least resistance, rather than be in a leadership position to the UK buying community. They're taking the easy option and it's a shame. I think putting the charges up by 50 per cent in today's world, when we are being told to be more efficient - did they really need to do it?"
Mark Evans, commercial director at Imerja, said any increase in an admin charge is "not welcome news, particularly in the current climate".
"The general direction of these government frameworks, using a portal approach, is driving the market to be self-regulated, with published prices and products and services," he said. "But if you're going to have a self-regulated market, what's the justification of a management fee? What are they delivering [extra] if it is being delivered by self-regulation? [There is a] risk of oversimplifying it, and I appreciate they manage the process and there are agreements we have to sign up to. But once they are all in place, [it is done], so why the additional charge?"
The government had to re-issue the latest G-Cloud figures at the start of this year after it appeared that spending in October slowed significantly on the month before, which some suggested was Brexit-related. The CCS swiftly clarified that it was not to do with Brexit, but just an issue that not all the data from suppliers' reporting efforts had been logged in time. On top of this, over the course of G-Cloud's life, some suppliers have claimed that not everyone reports their G-Cloud spend as they should.
Mark Elkins, director of G-Cloud analyst New View Market Services, told CRN that an increase in fees could discourage suppliers from reporting accurately.
"It's quite an uplift," he said. "Will it encourage people to report their figures if it adds a percentage onto your costs? In the end, it will be the public sector paying that increase in prices. We've already had GDS say… not everything has been fully reported. Why would you go and shoot yourself in the foot? The onus is on the supplier to report this."
A Crown Commercial Service spokesperson said:
"We are increasing the percentage supplier levy on the new G-Cloud 9 framework by one quarter of a per cent after five years of holding it at a very low level. This will be offset by the commercial benefits delivered to our customers across government and the wider public sector."
Change ahead
The increase in the admin fee that suppliers will have to pay is just one of a number of changes that will come into force with G-Cloud 9 following the discovery process. G-Cloud 9 will open for applications in March and buyers will be able to procure through it by the end of May.
From the next version of the framework, there will be just a single iteration, rather than two at once, as it has run since the beginning.
"We have decided that G9 will replace G-Cloud 7 and G-Cloud 8," said the blog. "This means we will have consistent information about all services to bring more of the G-Cloud buying journey online. Buyers and suppliers will be able to use one set of contracts for all their G-Cloud services."
On top of this, the usual four Lots of G-Cloud - IaaS; PaaS; SaaS; and Specialist Cloud Services, respectively - will be reduced to just three Lots: Cloud Hosting; Cloud Software; and Cloud Support.
"We learned that the existing Lot structure was confusing for some users as it wasn't an accurate representation of the cloud technology market," said CCS. "We're changing the names and descriptions of the services that belong in each Lot so that they're more clearly defined. This will make it easier for users to understand which technology and support should be provided through G-Cloud."
DeNove's Newman cautiously welcomed the move, claiming that simplifying it to three "makes sense".
Other changes to the framework include enabling suppliers to edit their service listing online, and allowing them to reuse and review answers from previous applications on new versions.
Rob Anderson, public sector analyst at GlobalData, said that the changes based on the discovery process were "not as radical as we were expecting", but said they go some way to addressing some of the issues suppliers and buyers faced.