Edward Leigh, chairman of the House of Commons Public
Accounts Committee, is a difficult man to please. But even he
praised executives at HM Revenue and Customs (HMRC) for
successfully transferring a huge IT contract from one supplier to
another.
Leigh said last year that the facts showed that, "It is possible
to run a successful competition even when the incumbent seems
firmly ensconced."
He was referring to the
Aspire (Acquiring Strategic Partners for the
Inland Revenue) contract, in which services supplier Capgemini took
over the running of the Inland Revenue's IT department from EDS in
July 2004.
It had been thought impossible to dislodge EDS, which had run a
bewildering complexity of more than 110 major tax systems for 10
years.
The EDS transfer to Capgemini had its difficulties. Some key
staff at EDS, for example, did not move to the new supplier and had
to be contracted to work temporarily for Capgemini after the start
of the contract. And there were failures in the IT services which
caused distress to the Revenue's corporate users, some of whom
contacted Computer Weekly.
Still, more than 2,000 IT staff transferred from EDS to
Capgemini without the work of the department falling apart.
What nobody knew then, however, was that the total cost of the
Aspire contract would soar from Capgemini's initial bid of £2.9bn
to an estimated £8bn over 10 years.
By the time the projected costs had increased last year to £7bn,
Leigh and the National Audit Office became concerned. A statement
issued on 19 July, 2006 by Leigh said, "I am concerned about the
delays to critical projects and the steep rise in the overall cost
of the contract.
"These have come about because the department has changed its
requirements and because there has been a higher than forecast
demand for IT services. The department must get a firmer grip on
these projects and on managing the contract."
But since this statement the projected cost of the contract has
risen by a further £1bn to £8bn, and no detailed explanation of the
increased spend has been provided by HMRC or the National Audit
Office.
The Revenue has said that Capgemini is performing well and the
department is in control of its costs. But MP Richard Bacon, a
member of the Public Accounts Committee, said that the increased
cost of Aspire indicated that the department may not be in full
control.
This concern is underlined by evidence from the National Audit
Office that the department may not have the measures in place to
exert the amount of control that is needed. Indeed, IT costs at the
Revenue seem to have risen unstoppably.
The Inland Revenue's main IT contract between 1994 and 2004,
before the merger with Customs and Excise, was with EDS. It began
in 1994 at a cost of £1bn and was £2.5bn by early 2004.
By the time Capgemini had taken over a revised contract in the
summer of 2004, the cost of running the department's systems over
the next 10 years from 2004 to 2014 was estimated to be £3.5bn.
Then, in 2005, the Inland Revenue and Customs and Excise were
merged. As a result, Fujitsu's £1bn contract with Customs and
Excise was merged into the Revenue's £3.5bn Aspire deal with
Capgemini. That made the Aspire contract worth about £4.5bn.
This figure has now risen by an estimated £3.5bn to £8bn, and
the National Audit Office is not sure where the extra money is
going to come from. Its report on the Aspire contract said there
were questions about "how the department will fund the additional
spending on IT under the new contract". And that was at a time when
the audit office expected the total contract to be worth £7bn.
It has also emerged that Capgemini's profit margins on the
hugely expanded contract are around 10% - about the same percentage
as the profit margins on the lower figure of £4.5bn - which hardly
sounds like tough negotiating on the part of HMRC.
So for all the extra money Capgemini is receiving, is it
bringing something to HMRC that EDS did not?
To date, the National Audit Office has found nothing seriously
awry with Capgemini's performance, though there had been "some
delays and cost increases on business-critical projects, which have
on the whole been caused by the department changing its
requirements".
It has also taken about 18 months for the performance of
Capgemini to bed down.
"The department had originally intended to produce an annual
value for money report in November 2005," said HMRC. "But it now
intends to produce a financial scorecard and a customer service
assessment reporting mechanism in late 2006 to assess the
supplier's overall performance."
Computer Weekly asked HMRC for a copy of that overall
performance assessment. Last week the department refused, saying
that the report was in commercial confidence. It did, however, say
it was happy with Capgemini's performance.
As things stand, then, the outside world is left to take it on
trust that there is solid, independent evidence to support the
department's claim.And this is arguably the biggest weakness with
Aspire - and with some other large government IT-based contracts,
such as those related to the ID cards scheme. Every penny of the
money spent on IT contracts may be worthwhile. But nobody outside
the department has the evidence on which to judge.
HMRC is able to spend an extra £3.5bn on an IT services contract
without having to account in detail to anyone outside the
department over how the money is going to be spent. If the
department has provided these figures to the National Audit Office,
they have yet to be published.
There was, in fact, an expectation that costs would fall when
the Inland Revenue and Customs and Excise merged in 2005 - that was
the point of the merger. Indeed, the National Audit Office reported
in 2006 that HMRC wanted to reduce IT costs to less than 20% of its
total budget.
However, the reality is that £8bn may not be the final
figure.
The EDS outsourcing contract rose by two-and-half-times the
original £1bn. If Aspire were also to increase in cost by two and a
half times, it would cost about £10bn - or four times Capgemini's
original bid price for Aspire.
The trouble is that, to HMRC, all accountability means is
providing the Public Accounts Committee with a list of headings
under which the extra money is being spent.
And even the headings are vague: operational services charges,
service credits, business application development and enhancements
integration, desktop applications, rate-based services. No sub-
headings are provided.
The department is willing to say that there is a "continuing
high demand for IT services", but at no point does it explain how
the money is being spent.
Some might say it is encouraging that HMRC is investing heavily
in IT to address the shortcomings highlighted by the Revenue's CIO
Steve Lamey in his speech in 2005. Lamey said then that some of the
technology at the Inland Revenue would not look out of place in a
museum of IT.
If well spent, the extra money could cut the overall costs at
the Revenue and could improve the reliability and breadth of the
services to the public.
But there is no evidence of this happening, and this evidence is
what is needed. In the US, politicians would require a line-by-line
breakdown of an increased spend of $7bn. In the UK, the public are
not entitled to know how the department spends public money.
So we do not know whether the extra £3.5bn has been thrown into
fighting crisis after crisis - and perhaps not even then
successfully - or if it has been spent on the effective delivery of
IT services.
As things stand, the National Audit Office audits the books of
HMRC, but a very British convention still requires the factual
content of the audit report to be agreed with the department before
publication.
Much of the wording of the auditor's reports is, therefore,
polite and far from explicit. For example, it is only in a footnote
in a 61-page report on Aspire that the National Audit Office
reveals that the annual profit margin on running the National
Insurance Recording System 2 - now a subset of the Aspire contract
- has ranged previously from 25.9% to 39.7%.
This compares with average profit margins on Private Finance
Initiative schemes of about 10% to 13.5%.
HMRC may say it is becoming more open and accountable, but the
evidence is not there yet. And that is a major concern when £8bn of
public money is at stake.
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