ESMCP - who are the winners and losers?

PickingWinnersIn one week’s time the remaining Emergency Services Mobile Communication Programme (ESMCP) bidders will be submitting their best and final offer (BAFO) and then wait to hear whether they have been successful after 18 months of bidding. The ESMCP has been one of the most complex, challenging and costly public sector procurements in recent times. An awful lot has been written and commented upon this program, most of which has been critical of the procurement process and the unlikelihood of it delivering against its goals and benefits to its end-users. Assuming that contracts will be awarded in the near future a key question for the market is who are likely to be the winners and losers?

It would be wrong to assume that the winners of this public sector procurement are the companies who will be awarded the contracts. If this was the sole criteria the predictions are relatively straightforward. The likely winner of lot 2 will be Hewlett-Packard and its key subcontractor Thales. The recent withdrawal of Telefonica O2 leaves EE as the remaining and soul bidder of Lot 3. Lot 1 is a little more competitive with four remaining bidders of which Atkins and KPR are competing head-to-head. Lot 4 folded due to the absence of a competitive field. But Arqvia is likely to benefit in the long run but potentially though a different commercial route.

A more sensible measure of success is to identify which of the bidders will be better financially compensated by their participation in this program and the procurement process. There are three key parameters that affect the level of financial compensation bidders will receive: 1) the service go live date, 2) the volume of users 3) speed of adoption. The original go live date was scheduled for early-mid 2017 however market intelligence infers that this has already slipped by 6 months. And evaluating all the other challenges this programme faces it is probable the service go live date will shift further to the right and the speed of adoption considerably slower than anticipated. The year 2019 is looking like the earliest go live date which was corroborated by the Fire Services’s decision to extend Airwave’s support up until that date. It is understood that the Ambulance Service are not too far behind in their own negotiations as well as some of the prominent Police Forces who’s own contract expires during the period 2016-2018. Within this timeframe there are a total 28 separate contracts due to expire. The finanical impact of such an outcome would be to remove circa 50% of the potential value of the forecasted lot values. But there is still room for that dial to shift to the right as more Police Forces determine it would be better to continue with their existing service or be forced due to operational needs.

Examining the individual lots in turn, it is lot 2 that looks the more precarious of the three. It has the shortest contractual term ending in 2021 leaving potentially little but no time to generate profits. It would also not be inconceivable for the Authority to take in house this capability at the time of re-compete in 2021. There is also considerable thought that by the time of re-compete 3GGP standards will have made redundant the need for an over the top voice and data app - a key component and cost driver of the existing lot 2 approach. Lot 3 fairs slightly better than lot 2 as it has a longer contractual term to earn profits. But more importantly is the strategic value of the service to EE and its potential new owner BT. The consolidation of the telecoms market as well as the significant investment required to make their service "ESMCP ready” gives EE a huge advantage at the time of re-compete and a monopolistic position which will enable them to exploit for the next decade.

So far, EE is looking to be the ultimate winner of this process. However there could be a further twist and potential scearnio to play out that would see the incumbents Airwave and Motorola come in with a last minute dash. Continuity of the Airwave service is clearly beneficial to both parties and potential extensions up to 2020 will be financially rewarding to both organisations. But if there is a critical operational need to extend the existing service beyond 2020 then this is going to become very interesting for the incumbents. With the potential ousting of these two organisations within the process and no contractual obligation to provide continuity of service beyond 2020 the power of negoitation will be one sided. If the current network also requires investment the decision window to deliver continuity beyond 2020 will have to materialise within the next 2 yrs to enable this outcome.

In summary, the winners of the ESMCP are likely to be Airwave and Motorola. EE will benefit but mainly in the second stage of the ESMCP process beyond 2023. What about the losers? Well I tip my hat to HM Government. In different guises the ESMCP has been operating for circa 4 yrs. After all that considerable time and expense it is unlikely to deliver much change or benefit prior to 2023. The likely outcome is an obselete lot 2 platform; a monopolstic lot 3 supplier and return of control to BT and makeshift solutions to rural access, london underground and air to ground connectivity. Who is to blame? Certainly not the ESMCP progamme team who under challenging circumstances did a good job. The Cabinet Office and their approach to procurement of major programmes is the culprit. Lessons will be learned from the ESMCP approach. I just hope they will materialise before the commencement of the HMRC reprocurement which is the next major public sector procurement. 

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