HM Revenue and Customs has struck an "extraordinary"
deal with EDS in which a large amount of compensation paid by the
IT services company for the introduction of the troubled tax
credits system is based on the future government business it
wins.
The settlement was announced last November, when HMRC said the
supplier had agreed to pay £71.25m in compensation.
HMRC had claimed compensation from EDS, the supplier of the tax
credits system, after some claimants received incorrect payments
because of IT-related problems. Officials had described the
compensation payable by EDS as a record sum for the settlement for
an IT-related dispute.
Now it has emerged that the £71.25m figure is far from
guaranteed. Nearly £30m of the sum is based on EDS's winning new
contracts from the government. It will pay the compensation in
installments, based on the value of the contracts it wins.
Although EDS can win deals only on the basis of open
competition, the agreement with HMRC gives the government an
implicit financial incentive to award contracts to the supplier.
However, a spokesman for HMRC said it would ensure that no
favouritism was shown to EDS.
If the company does not win future business from the government,
or the contracts are smaller than expected, HMRC Revenue and
Customs may be left having to go to court to claim the money.
The department had spent more than a year negotiating a
settlement with EDS to avoid going to court - in part because it is
unclear which side would have the stronger case in any proceedings.
But the possibility of a court case still looms if EDS does not pay
all it is expected to on the basis of future contracts.
Liberal Democrat shadow chancellor Vincent Cable described the
deal as "extraordinary" and said, "It is extremely dangerous to
make settlement on the basis that a company may win future
contracts. That may be bad value for money for taxpayers, and it
creates uncertainty."
A spokesman for EDS said, "The level and structure of payments
within the agreed aggregate settlement between EDS and HMRC of
£71.25m are wholly reflective of the relative merits of both
parties' cases."
EDS also commented on the confidentiality of the settlement. "A
level of confidentially is standard practice in settlements such as
this. EDS's specific requirements regarding the disclosure of
information about the settlement were consistent with obligations
to our shareholders.ÊEDS made no further requirements regarding
confidentiality beyond this. EDS was respectful of HMRC's requests
regarding HMRC's disclosure obligations."
Computer Weekly has learned that some of the compensation is
derived from a tax refund EDS may be due as a result of paying
compensation.
An HMRC spokesman said, "There is no link between the settlement
and EDS's tax liability beyond any normal tax deduction that a
company making a compensation payment can expect."
Asked whether the deal to base compensation on a supplier's
future business with the government was unprecedented, HMRC said,
"The settlement with EDS is unique in scale (as far as we are
aware) for a legal dispute over an IT project in the public or
private sector in the UK. Therefore there is no comparison to
make."
On the question of whether HMRC may have to take EDS to court -
although it had tried to avoid proceedings by negotiating a
settlement - the spokesman said, "If EDS does not meet the
settlement in full, HMRC would expect to pursue any outstanding
balance (and any other related claims) through the courts. If EDS
does not pay, then it is true that HMRC and EDS may be back to a
court proceeding."
The link between the compensation package and EDS's future
business slipped out during a hearing of the Public Accounts
Committee when David Varney, chairman of HMRC, was being questioned
by MP Richard Bacon.
Bacon has since asked ministers to disclose the total value of
contracts awarded to EDS since the Public Accounts Committee
hearing on 14 December 2005, and the payments made by the
supplier.