Since late February the Inland Revenue has been seeking a strategic
partner to deliver technology services when its ongoing contracts
expire in 2004. The company that is awarded the contract will
support the Government's tax, national insurance and tax credit
systems, in a deal expected to be worth £4bn.
To inject some competition into the tendering process for the
outsourced technology services contract, the Revenue launched
Aspire, an initiative that offered potential bidders carrot and
stick incentives to tender.
Writing in Computer Weekly in March, John Yard, the Revenue's
director of business services, referred to "a number of players in
the industry that can deliver what we need", and said that he would
be looking for "best value - not just value for money but value in
delivery capability".
However, at the time, Computer Weekly predicted that the contract
was unlikely to go to any bidder other than the present incumbents
EDS and Accenture, which were thrown together when the Revenue
assumed control of the national insurance branch of the Department
of Social Security.
Four months later, our fears are proving well founded. From a
paltry four tenders, a shortlist of three has been announced, and
the bids submitted by BT and Cap Gemini Ernst & Young look
likely to lose out to the one compiled jointly by EDS and
Accenture.
So convinced are they that EDS and Accenture have the contract in
the bag, that outsourcing giants IBM, Computer Sciences Corporation
and Fujitsu Siemens are not even bothering to tender.
From where they stand, spending up to two years and millions of
pounds compiling a bid looks like a waste of time - particularly
given that, with public sector organisations rushing to embrace
e-government and the private sector looking at outsourcing IT as a
means to save money, there are rich pickings for outsourcing
specialists elsewhere.
The Revenue's big mistake was to outsource its core processes to a
single supplier, EDS, back in 1994. Since then, EDS has insinuated
itself ever deeper into the Revenue's IT, so that it would now be
extremely hard for it to extricate the Texas giant from its systems
without severely compromising business continuity.
Now the repercussions of the mistake are being seen. Despite the
Revenue's valiant attempt to introduce some competition, the
tendering process has underlined just how weak its hand is. Unless
it can somehow help to engineer a consortium behind either BT or
Cap Gemini with the strength to compete, it will have to
renegotiate with EDS and Accenture. The challenge then will be to
wring some extra value from a partnership, which will be looking to
expand the fat profits it is currently creaming off its Revenue
work beyond 2004.
What bargaining power can the Revenue realistically muster, given
that EDS and Accenture know their position is unassailable? And
what real leverage will it have if it feels unsatisfied with the
service it receives in the future?
In yet another strategic outsourcing deal the balance of power has
shifted away from the user and towards the supplier.
IT suppliers EDS and Accenture appear set to retain a direct route
into the UK's public purse