Microsoft bans SME partners from selling its services via government's Cloud Compute 2 framework

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The decision came to light after the government’s procurement arm, the Crown Commercial Service (CCS) began notifying suppliers on Friday 17 November 2023 about whether or not they had succeeded in securing a spot on the four Lot framework, which is valued at £1.35bn.

Documents passed to Computer Weekly confirm that Microsoft is one of 12 cloud providers to have secured a spot on the framework’s first Lot, which is geared towards public sector IT buyers who want to buy cloud services directly from the hyperscalers.

The framework’s second Lot is for public sector IT buyers that want to procure the services of the providers in Lot One indirectly through a third-party reseller or managed service provider. There are 39 suppliers on that Lot. 

The way the framework is structured means that the providers in Lot One have to grant permission for the suppliers in Lot Two to resell their services.

Computer Weekly can reveal that Microsoft told CCS in its framework application that no partners would be permitted to resell its services through Cloud Compute 2, which has resulted in at least a handful of pure-play Microsoft resellers partners being banned from participating in the framework.

Microsoft partners that are permitted to resell the services of the other hyperscale cloud providers who have secured a place on Lot One can still participate in Cloud Compute 2, but will – Computer Weekly understands – be banned from selling Microsoft services through it too.

One of the affected partners, who spoke to Computer Weekly on condition of anonymity, described the turn of events as “disheartening” given the amount of investment they have made in becoming a specialist Microsoft cloud partner over the years.  

“By saying no, Microsoft has basically ruled out their entire distribution network and partner channel and it completely defeats the object of the framework, which was supposedly designed to be more SME friendly,” the source said.

“We’ve put a lot of time and effort into applying for a place on the framework and to become a highly accredited Microsoft partner in the first place, and it’s all gone to waste because they’ve just said no.” 

Cloud Compute 2 at a standstill

Now CCS has notified the suppliers that have secured a place on Cloud Compute 2, the procurement process has entered what is known as a standstill period, which typically lasts 10 calendar days, and is set to conclude on Monday 27 November for this particular framework.

During this time, suppliers are invited to challenge the outcome of the contract award decision, and Computer Weekly is aware that Microsoft partners have already appealed to CCS to overturn the Microsoft decision.

The response from CCS to these appeals suggests the government’s hands are tied because Microsoft has exercised its right – as per the framework’s terms and conditions – to ban third parties reselling its services, in a copy of the response seen by Computer Weekly.

“Lot 1 Bidders were asked…‘Please confirm that you allow the resale of your services in Lot Two’. Lot One bidders were permitted to answer ‘No’ to this question without it affecting their bid for Lot One,” stated CCS in its response.

“As your named Lot One Cloud Service Supplier selected ‘No’ in response to this question, you have been unsuccessful in your bid.

“We appreciate this is unwelcome news, but the decisions for your exclusion is in accordance with the Award Process for Lot Two,” the response concluded.

The source added: “Maybe Microsoft don’t realise the gravity of what they’ve done, but from their point of view, it’s an entirely stupid decision because I’m sure they have a part of their business that is highly motivated to sell into the public sector, and they’ve prevented their partners from helping with that.”

Another source, with close working knowledge of the Cloud Compute 2 framework, described it as “the tender from hell” and that any supplier who did take the time to apply for it must have been particularly motivated to bid, which will make Microsoft’s decision all the more disappointing.

On this point, Computer Weekly reported earlier in August 2023 about complaints raised by government IT suppliers about how difficult and arduous the application process for Cloud Compute 2 appeared to be, particularly for SME suppliers.

“It’s quite staggering…and Microsoft is usually all about its resellers and generally doesn’t make any bones about the resellers being its preferred route into the public sector, so it really doesn’t make any commercial sense,” the source continued.

For this reason, there is a prevailing school of thought among the Microsoft partners Computer Weekly has spoken to for this story that the decision to ban them from reselling the firm’s services through Cloud Compute 2 might have been made in error.

“We think it’s a submission error on Microsoft’s part but ultimately CCS would have gone back to Microsoft and double-checked with them. I’ve seen that happen many times,” said another source, who works for a public sector procurement consultancy.

Indeed, Computer Weekly has been told of instances where CCS has gone back to potential suppliers to double-check their framework applications after human error or a glitch in the online tender system has thrown out a surprising result.

Another affected partner, who spoke to Computer Weekly on condition of anonymity, said since CCS contacted them on Friday 17 November to tell them their framework application had been unsuccessful, they had repeatedly attempted to raise the issue internally with Microsoft to little avail.

“We’ve been trying to escalate the matter within Microsoft to see if they understand what they have done, and trying to get to the right person inside of Microsoft who would understand the impact this will have in the public sector, in the hope they will approach CCS to ask if they can revise their submission,” the source said.

“I’m not sure CCS would let them change their response and there may not be time before the standstill period ends for anything to change, but it would be in their interests to do so, because they want this framework to be a success.”

Particularly as data shared with Computer Weekly previously suggested the first iteration of the framework, which went live in May 2021 and is due to expire in May 2024, was not widely used by the public sector because it was – in the words of one source – “impossible to use”.

The general consensus among the Microsoft partners and government procurement experts Computer Weekly spoke to for this article is that it is unlikely that CCS will allow the tech giant to have a do-over of its submission if an error has occurred.

“If it was cock-up rather than Microsoft actually turning its back on its SME resellers, then it will be almost impossible to reopen the procurement process without holding a full competition again, which would be a double time and cost whammy for all concerned,” said a source.

Computer Weekly contacted CCS for comment on this story and was told it would be unable to discuss the matter while the standstill period remained ongoing. A spokesperson for the organisation said: “As required by the Public Contracts Regulations 2015, we cannot enter into any dialogue with external parties regarding the intended results of this procurement until it has concluded.”

Microsoft also said it was unable to comment on the story.

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