Millions of taxpayers' pounds may be spent to tempt reluctant
suppliers to bid for Revenue's PPP contract
The Inland Revenue is considering giving millions of pounds to
major computer companies to persuade them to bid for a £4bn public
private partnership (PPP) contract they stand little chance of
winning.
The unprecedented payment to shortlisted suppliers, in return for
submitting detailed bids, is under serious consideration because
the Revenue wants genuine challengers to the incumbent, EDS, when a
10-year contract to run the nation's tax systems comes up for
renewal in 2004.
The deal is being combined with a separate contract for national
insurance systems. The total contract is worth up to £4bn over 10
years and more than £6bn over 18 years.
Some suppliers, including IBM, had indicated that they might be
unlikely to commit their "high-fee earners" for up to two years, at
a cost of between £5m and £10m, to compile a bid for a contract
they would have little chance of winning. They said they may bid if
their costs are met.
In 2000 the National Audit Office (NAO) and the House of Commons
Public Accounts Committee expressed concern about the risk of the
Revenue being locked into the contract with EDS. In 1995 when the
contract with EDS was worth about £1bn the NAO warned that it could
take five years to transfer the Revenue's IT operations back
in-house because of the complexity of the task.
A Computer Weekly investigation has discovered that the scale and
complexity of EDS' operations have since grown, and the original
cost of the contract has risen almost 300% to £2.8bn - £400m more
than when MPs expressed concern about the rising costs in April
2000.
Networks of systems that support the working families tax credit,
self-assessment, child support, student loans and PAYE are included
in EDS's responsibilities.
The Revenue says the risk of lock-in to EDS is "manageable". Its
chairman, Nick Montagu, has told MPs, "We will make sure that the
competition is not just a token to meet European requirements, but
a proper one."
IT suppliers say the only serious rival to EDS was Accenture
(formerly Andersen Consulting), which runs the Revenue's national
insurance recording system, Nirs2. However, Computer Weekly has
discovered that EDS and Accenture are planning a joint bid for the
new contract.
Some IT executives believe that such a bid would be unassailable,
partly because of the risks to the continuity of service if the
nation's tax and national insurance systems are passed to a company
with no experience of running both systems.
In a letter, Treasury minister Dawn Primarolo has told her Liberal
Democrat counterpart, Matthew Taylor, that there are "certainly
risks in changing suppliers" but they can be managed. One risk is
that a serious problem during the transition could interrupt the
flow of tax and national insurance funds to the exchequer or worse,
throw both systems into chaos.
So anxious is the Revenue to have a serious competition that senior
officials have been touring the boardrooms of major US IT
companies, including CSC and IBM, giving presentations to encourage
bids. "It took some time to convince our US directors that a
potential client with $6.5bn to spend would be pitching to us,"
said a UK services company executive.
Taylor said that the new disclosures make a mockery of the open
competition process. "There is no possibility in these
circumstances that the taxpayer can get best value," he said.
Richard Barrington, director at the Office of the E-Envoy, said the
Revenue's contract was the first IT outsourcing deal of its size to
come up for renewal. "It is difficult to see how other companies
will step into the breach. The whole of government is watching this
with interest."
Primarolo's letter to Taylor says the Revenue will not consider
funding bid costs in the initial phase of the competition. "However
it will review this position as competition progresses," it said.