The House of Commons watchdog has criticised Andersen Consulting's
Nirs2 deal, while the supplier denies the accusations made by the
Public Accounts Committee. Hazel Ward investigates
The influential House of Commons Public Accounts Committee (PAC),
and its chairman, David Davis, last week warned the Government that
it risks being held to ransom by its IT suppliers.
In the PAC's report on benefit fraud and the troubled National
Insurance computer - Nirs2 - the select committee warned ministers
they must "look again at the balance of benefits and risks
underpinning decisions on ownership of intellectual property rights
in major government systems".
In 1995, Andersen Con- sulting won the contract for the Nirs2
system by bidding £100m less than its competitors, but it kept the
intellectual property rights to the system, which it valued at
£100m.
Under the terms of the contract, Andersen was to take over the
existing Nirs system and build a replacement for which it would
take responsibility until the end of 2004.
If the Government subsequently wanted to change supplier, the
rights would then have to be purchased from Andersen.
The committee said the Government had failed to consider the
implications of allowing the intellectual property rights for Nirs2
to stay in Andersen's hands.
The PAC urged the Inland Revenue to seek joint ownership of
intellectual property rights for such systems to enable it to
continue to use the system after the contract ends.
"In our view the Inland Revenue should look again at the balance
of benefits and risks underpinning decisions on ownership of
intellectual property rights in major government systems."
As Geraint Davies, Labour MP and committee member, pointed out
during the hearing, "In some senses, Andersen has got us over a
barrel due to hopeless negotiation by the Inland Revenue.
"It strikes me that Andersen Consulting comes along, claims it
can do this system for less money than it actually can, quicker
than it actually can do it and shares some of these costs, but ends
up owning the intellectual property which it can test on the back
of the taxpayers' problems and then export that product to South
America... and make a lot of money out of [the system]."
The contract was the first awarded under the Government's
much-touted Private Finance Initiative (PFI), a measure designed to
shift all risks and cost of late delivery, or poor performance,
from the public sector to the private sector.
However, since the system went live in July 1998, it has been
beset with problems and delays, which, to date, have cost the
public purse some £38m in compensation to pension companies, more
than £2m in compensation to the public, and a further £14.1m to
clear the backlogs.
With the number of outstanding problems down to 550, from over
4,000, the Revenue said it was confident the system would reach a
"steady state" by April 2001.
"Progress continues to be made in business recovery, following
delays caused by earlier problems. A plan has been agreed with
Andersen Consulting for delivery of the small amount of
non-priority functionality that remains outstanding," the Revenue
said.
The Revenue admitted that that some 128,000 pension cases were
waiting to be reviewed, as a result of problems with Nirs2,
although it was possible that many cases would not require
alteration.
t National Insurance Fund 1998-99 and Wider Issues of Fraud and
Error in Benefits Paid by the Department of Social Security, Public
Accounts Committee, HC 350 9.
Managing the problems raised in Nirs2 development
| Status
date | Cumulative
no | No. of
probs | Cumulative
no. | No. of
probs | No. of
probs |
| | of probs
raised | remaining
open | of probs
closed | opened in the
period | closed in the
period |
| 31/12/98 | 1,919 | 1,589 | 330 | N/A | N/A |
| 31/03/99 | 3,277 | 2,138 | 1,139 | 1,358 | 809 |
| 30/06/99 | 3,885 | 2,202 | 1,683 | 608 | 544 |
| 30/09/99 | 4,265 | 1,111 | 3,154 | 380 | 1,473 |
| 31/1/00 | 4,382 | 833 | 3,549 | 117 395 | |
Source: PAC