Cabinet Office slammed after it advised users to ditch UKCloud as more investment approaches

The Cabinet Office is under fire after advising public users of a UK-based specialist cloud service provider to find alternative suppliers, over concerns about the company’s financial security.

Computer Weekly has seen evidence that at least one major government department has told suppliers whose UKCloud hosts they should switch to a different hosting provider.

Multiple independent sources told Computer Weekly that the decree came from the Cabinet Office, which warned that all public sector clients of UKCloud – a small and medium-sized company specializing in the cloud for the public sector – should look for alternative suppliers.

A source told Computer Weekly that departments and their suppliers are being instructed to migrate from UKCloud for business continuity reasons because the company may stop trading in January 2022. However, a source close to UKCloud described this proposal as “categorically wrong”.

The Cabinet Office allegedly spent weeks getting clarity from government departments and IT suppliers about their reliance on UKCloud’s services.

It is now known that at least one division has been guiding suppliers since late October to begin preparations to leave UKCloud as a result.

Computer Weekly has asked the Cabinet Office to confirm or deny that it was advising public sector users and IT suppliers not to continue to rely on UKCloud’s services, due to concerns about the company’s financial situation.

In response, a Cabinet Office spokesperson said: “We are monitoring the financial position of all of our suppliers. It would not be appropriate to comment on speculation about a particular company.”

At this point, Computer Weekly understands that the Cabinet Office has been in regular contact with UKCloud about its financial position, as the company has sought to reassure the department about its business resilience and future growth prospects.

UKCloud is one of the few cloud providers to have preferential pricing deals with the Cabinet Office via its procurement arm, which aims to incentivize public sector buyers to use its services by offering them discounted prices on its products and services.

The source of Cabinet Office concerns about the future of UKCloud is believed to be linked to the Companies House filing dated September 2021, which confirmed that the company needed £30m in additional funding to continue trading and implement its investment strategy.

The document confirms that the UKCloud Board of Directors appointed advisors 14 months ago, in September 2020, to prosecute investors on its behalf.

The document states that “the company needs additional financing in order to implement its investment plan, which may be difficult or costly to obtain.”

Computer Weekly contacted UKCloud for an update on how its search for an investor is progressing and a company spokesperson told him that “fundraising discussions” are at a “very advanced” stage, with the company expecting to close a “significant investment round” in the very near future.

A spokesperson said UKCloud is a successful and resilient company. “We are a leading provider of cloud computing, with strong revenues, ambitious goals and a proven track record of enabling and accelerating digital transformation across the public sector.

“This investment will help enable UKCloud to tap into a strong desire to transform cloud computing in the UK and beyond.”

Uncertainty about the company’s solvency may have rocked the Cabinet Office, but suppliers and sources close to UKCloud have opposed the department’s instructions to abandon the company, claiming it could force the company out of business prematurely.

A source close to UKCloud said: “The Cabinet Office’s behavior on this matter is completely reprehensible.” “It is hard to see what is gained by undermining a successful British company in this way.”

This sentiment is shared by many sources within UKCloud’s community of 300 sellers and partners.

“If 90% of your client base is from the public sector, the Cabinet Office actually takes it for granted. [they will fold] A source from one of these suppliers said:

Another resource source said, based on the discussions read in the government, “[UKCloud’s] The potential funding issue became a statement that they would stop trading,” and they were told they had no choice but to switch to another resource.

“We have been told we cannot use UKCloud anymore. It is indisputable because a decision has been made,” the supplier added.

The situation is a major reversal in the fortune of the company, which, as of 2017, was the third-largest public sector cloud service provider, based on government G-Cloud sales data.

Meanwhile, data detailing every UKCloud contract between 2014 and 2016, compiled by public sector market monitor Tussell, shows the company secured multi-million pound contracts with several major government agencies, totaling £12.2 million, during this period of time.

This includes a £7.3m contract with the Home Office in 2015 and another £1.33m contract with the Driver and Vehicle Licensing Agency (DVLA) in 2015. This period also saw the conclusion of several deals, totaling £2.28m, with the Department of Justice. .

According to UKCloud’s 2017 financial report, which saw it post a profit of £4.4m, the company appears confident there will be more contracts of this size on its way in the coming years.

“UKCloud will benefit significantly from the upcoming wave of large legacy hosting contracts due to be renewed in the coming years by working closely with the partner ecosystem and existing suppliers,” the report said.

But the following year, UKCloud reported a dip in profits, revenue and customer usage amid increased competition for public sector contracts from US cloud giants Amazon Web Services (AWS) and Microsoft after opening their data center territories in the UK in late 2016.

In anticipation of US cloud giants stepping up their presence in the UK, market watchers at the time warned that local SME providers, such as UKCloud, would find it difficult to secure public sector contracts, particularly when it came to competing on cost.

As Computer Weekly reported in the spring of 2016, it was suggested that “some major buyers” within the public sector were intentionally delaying their digital transformation plans until Amazon, Microsoft, Oracle and others finished building server farms in the UK.

Another source said that some former UKCloud customers have shifted their loyalty to ultra-wideband cloud service providers, but that the company’s fortunes have also been affected in other ways by the changing behavior of public sector IT buyers.

“UKCloud is doing a lot of hard work in the proof-of-concept stage in the UK government, only to get the actual contract for delivery – which could run into hundreds of millions of pounds – grabbed and given to a super-wideband cloud service provider,” the source said.

The company has sought to combat these competitive threats by investing heavily in recent years in building vertically customized cloud platforms for public sector users in the healthcare, life sciences, police and defense sectors, while also increasing its headcount on the back of widening losses.

During the 2018/19 financial year, the company posted a loss of £2.5m before dropping further into the red to £17.9m in the 12 months to March 2020.

The company’s accounts attributed its pessimistic financial performance to “low usage by a small number of customers”.

Leave a reply:

Your email address will not be published.