EXCL: Government warned of ‘serious risk’ to services as UKCloud customers hit with sevenfold price increase

Written by Sam Trendall on 18 November 2022 in Features
Features

Customers that cannot pay fees seven times higher than contracted price face a race against time to migrate data from collapsed £40m public sector hosting firm. PublicTechnology investigates.

Credit: Bethany Drouin/Pixabay

Companies and public bodies relying on UKCloud hosting services have been hit with a massive increase in costs that – for those unable or unwilling to pay – could threaten the delivery of key public services.

It was announced on 25 October that the public sector cloud specialist had been placed into liquidation. Gareth Allen from the Insolvency Service was appointed by the High Court as the official receiver and liquidator, with Joanne Robinson and Alan Michael Hudson of Ernst & Young appointed as “special managers” to support the liquidation process and oversee the company’s ongoing business.

Given UKCloud’s role in supporting public sector systems and services – both through direct hosting contracts and engagements with other tech suppliers – it is understood that the Cabinet Office has provided some funding to support the ongoing operation of the company’s infrastructure until around the first week of December at least.

Documents seen by PublicTechnology show that initial communications sent by the special managers to the UKCloud customers promised “business as usual”, to as great an extent as possible. Contractual terms would remain the same until further notice, and the liquidators indicated that they would pursue a strategy of seeking a buyer for the business as whole, or the transfer of contracted services to a new provider. 

But, about a week into November, an update informed customers that the liquidator and the special managers had reviewed the operations of UKCloud and concluded that the firm could only continue to provide services if a “significant uplift” in prices was applied. The price hike took was also introduced retroactively: applied to all hosting fees from the beginning of this month.

Invoices indicate that customers are now being charged seven times more than the terms of their existing contracts – meaning a firm spending £50,000 a month on hosting, for example, is now being asked to pay in excess of £350,000.

The letter announcing this price rise advised customers that failure to pay the increased charges would mean that continuity of “critical services” could not be guaranteed. The conclusions of a further review to determine prices from 1 December onwards will be communicated to customers by 25 November at the latest.

Migration timeline
With the firm's operations being supported, in part, by public money, the huge increase in cost has been attributed to a legal requirement on the part of the liquidator to ensure the firm does not operate at a loss.

The cost of achieving this now seems to be significantly borne by the firm's customers.

One SME software supplier to the NHS told PublicTechnology that, in the months before UKCloud’s collapse, their firm had conducted an exploratory exercise mapping out a possible migration from the UK-based cloud firm. This had concluded that a timespan of three months should be allowed to complete such a process.

Since the liquidation, the firm had been working hard to expedite this. But for those that cannot or do not pay the enormous additional costs for service provision, the timelines for – safely – moving services and systems to a new provider now appear extremely challenging.

With a direct and indirect client base that includes government departments, NHS trusts, police forces, and local authorities around the country, if any customer services are switched off, the impact could be felt on frontline services.


£16.5m
UKCloud net losses during FY20 – on revenue of £38.2m


620%
Approximate price increase imposed on customers retroactively from 1 November


25 October 
Date on which UKCloud was place into liquidation


‘Six weeks’
Approximate period for which government expects to provide some funding to ensure service continuity


2011
Year in which UKCloud – then known as Skyscape – was founded


The supplier representative said that there was now a “serious risk” of service interruption for UKCloud customers. Since the liquidation was first announced, the Cabinet Office has claimed that “the vast majority of government departments” had already moved away from UKCloud before it went bust, and that it did not “expect disruption to everyday public services” as a result of the company’s collapse.

The supplier urged the Cabinet Office to steps to ensure that this expectation is met.

“When I got that letter [announcing the price rise] was around the time that the Cabinet Office became a little less accommodating,” they said. “I think that if the message coming from them is that the priority is continuity of service, then the approach that has been taken in ramping up the fees goes exactly against that. It's completely unequitable – because there will be big companies and there will be small companies like ourselves; these increased fees are much easier for some to bear than for others. And this introduces risk to continuity of small businesses full stop – let alone the services they provide.”

Government response
In response to PublicTechnology enquiries, the Cabinet Office indicated that customers and the liquidator was being supported in the closing down of UKCloud in an “orderly” way. The department issued a near identical statement to that which was issued immediately after the liquidation was announced.

“The vast majority of departments which used UKCloud have already moved onto alternative systems,” a spokesperson said. “Those who remain on UKCloud will find alternative arrangements as soon as possible, while continuing to operate.  We do not expect disruption to everyday public services.”

“If the priority is continuity of service, then the approach that has been taken in ramping up the fees goes exactly against that. It's completely unequitable, and introduces risk to continuity of small businesses full stop – let alone the services they provide.”
UKCloud customer supporting NHS organisations

An enquiry made to Ernst and Young was passed on to the Insolvency Service which, responding on behalf of the official receiver, indicated that he could not comment on customer arrangements, nor on the progress of a potential sale of the company.

“The official receiver is engaging with all customers and the liquidation strategy continues to be developed in accordance with his statutory duties,” a spokesperson said.

Spiralling losses
UKCloud was entirely dedicated to the public sector, operating via three specialised brands focused respectively on: defence and national security; the NHS; and the rest of the public sector – including central and local government, law enforcement, and education.

The firm’s most recently published set of annual accounts – for the year to 31 March 2020 – show that the company generated turnover of £38.2m via the provision of public sector cloud services. This was a slight rise on the prior year, but net losses for FY20 spiralled from £2.5m to £16.5m.

The report for the year said: “As a key cloud supplier to government agencies and their major system integrators and ICT suppliers, UKCloud currently serves central government departments, health, defence, police, and local authorities on a large number of active revenue-generating cloud projects, and has a leading position at the heart of a very rapidly growing UK public sector public cloud market.”

Records on the government’s Contracts Finder website show that, in the last two years, UKCloud has won direct deals with customers including the Ministry of Defence, Met Office, the Government Digital Service – and the Cabinet Office itself.

It is currently suspended from all frameworks on which it features and, during the liquidation process, will not compete for any new public sector business during the liquidation process.

In 2020, the firm was one of a handful of cloud providers – alongside the likes of Google, Microsoft and Amazon Web Services – that each signed three-year memoranda of understanding agreements with the government. The commercial arrangements are designed to offer customers across the public sector discounts on hosting services. UKCloud also featured on several major procurement vehicles, including Technology Services 3 and the £750m Cloud Compute framework launched last year by the Crown Commercial Service.

 

About the author

Sam Trendall is editor of PublicTechnology. He can be reached on sam.trendall@dodsgroup.com.

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