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CMA probe into IT systems supply to UK schools

It appears the CMA is looking into whether a decision by Education Software Solutions (ESS) to change its existing contract terms gives rise to competition concerns. ESS supplies digital information networks to most of the UK’s schools and told its clients in November 2021 that it was swapping its one-year rolling contracts for three-year ones and some schools now claim they were not allowed enough time to seek alternative providers.

In 2021, the CMA investigated the merger of ESS and ParentPay, a payment platforms business, after private equity fund Montagu acquired ESS from Capita, but the CMA ultimately cleared the merger in a decision issued on 12 July 2021.

The CMA noted in its merger decision that there are high barriers to switching management information system software (MIS) and schools’ switching between providers of MIS has been limited (c.4% of all schools per annum). Whilst schools are increasingly willing to switch from Montagu’s MIS software (SIMS) to cloud-based alternatives, SIMS is still the largest MIS in the UK, supplying over 60% of schools, a position it has held for a significant period of time. The CMA considered the risk of the merged Montagu/ESS entity foreclosing competing software providers, noting also that third parties had raised concerns about the merger potentially leading to increased prices and reduced choice. However, the CMA cleared the merger, concluding that there were no strong foreclosure incentives, as such could reduce the quality of SIMS relative to other MIS software, thereby increasing the likelihood that a customer switches away from SIMS.

It is now being reported that ESS’ attempts to extend the term of its contracts to be more long-term has triggered a large number of complaints from schools and councils, thereby attracting renewed CMA interest. Whether that interest results in a formal opening of investigations, e.g. concerning an alleged abuse of dominance, remains to be seen.