Oh dear, DXC: Outsourcer loses two UK.gov contracts

Department eXits Contracts: Biz falls prey to in-sourcing move

By Paul Kunert

Posted in Business, 9th November 2017 10:58 GMT

Exclusive The Department for Work & Pensions has not renewed a pair of contracts it held with Frankenfirm DXC Technologies – a loss the outsourcing business was lamenting in its latest financial results.

El Reg can reveal that the government department opted not to renew the legacy HP Hosting and Desktop agreements that were in place for years: the Hosting deal was signed in 2015 and worth around £150m; the Desktop management piece was valued at £316m over five years from 2013.

Multiple DXC sources that either worked on the contracts or were close to them confirmed the changes. "The DWP decided to in-source," one insider told us.

Another claimed the Hosting was being moved to Crown Hosting, "DWP has expressed a desire to be free of all DXC contracts by March 2018 when the desktop [agreement] comes up for renewal. Anything that can be virtualized is being placed in AWS." Not everyone we spoke to agreed with this summary.

Crown Hosting was set up in 2015 as a way for departments to house legacy systems in data centre facilities run by a joint venture, 75 per cent owned by Ark and 25 per cent owned by the government. The programme signed up the Cabinet Office as a customer but has since made slow progress.

Techies close to DWP told us the legacy stuff was due to be migrated to Crown Hosting cloud platform by February next year but some questioned if that will be achieved.

"DWP is the home of legacy VME systems that they have been trying to convert to other platforms for years, if they’ve pulled that off to a cloud platform, that will be really quite something. Moving one of those, let alone an interconnected suite of them is neither cheap nor easy."

The boss at a cloud provider claimed DWP were due to "move off DXC for internal facing apps" by the close of February or "incur massive penalties".

"The target is Crown Hosting and some workloads have already moved, I believe DXC are performing the migrations. There are also a volume of external facing apps that will remain with DXC and they negotiated some sort of limited extension."

The cessation of the contracts was not performance-related but more that DWP felt it could manage the contracts itself more efficiently, one industry watcher claimed.

The loss of the contracts were mentioned by DXC management on a conference call last night to discuss financial results for Q2 (ended 30 September) of fiscal ’18.

CEO Mike Lawrie - whose strategy over the past five plus years has been to cut headcount - said, “in terms of the UK we continue to see a run-off there… it's more a reflection of some of the contracts concluding but we still see pressure in the UK.”

He said “every client” was “trying to figure out how they can improve their current IT operation”. Plus ça change, plus c’est la meme chose.

DXC, born out of the spin-merger between CSC and Hewlett Packard Enterprise’s Enterprise Services subsidiary in April, filed revenues for the last quarter of $6.163bn, down 3.5 per cent in constant currency.

The Global Business Services division brought in sales of $2.31bn but excluding the impact of purchase price accounting, revenues slipped 4.3 per cent to $1.03bn.

Global Business Services reported turnover of $3.14bn but again excluding the purchase price accounting, the top line decreased 4.8 per cent to $836m. The US Public Sector unit grew 5.5 per cent on a pro-forma combined company basis to $710m.

Net profit was $256m compared to a loss of $15m in the prior year quarter.

The Reg sent a bunch of questions about the move to the DWP, and we received this response: “We are upgrading our previous systems to a state-of-the-art hybrid cloud solution, which means we can do things faster and with better value for the taxpayer.”

DXC refused to comment.

Updated

A DWP spokesman has sent us an additional prepared statement: "We have no desire to be free of all DXC contracts by March 2018: we will continue to work with DXC (and other leading technology partners) through the flexible partnerships which now characterise our commercial relationships. It is also untrue that we will ‘incur massive penalties’ if we don’t ‘move off DXC’ [by that timeframe]." ®

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