When civil servants announced they had reached a £71.25m
settlement with
IT services supplier EDS over problems with
tax credits IT systems, they left out some important
details.
Thousands of families were unexpectedly overpaid after the
government introduced tax credits in April 2003, supported by a new
system built by Custom and Revenue's then main supplier, EDS. HMRC
sought to claw back the overpayments while struggling to reduce
delays in making payments to hundreds of thousands of families.
But what HMRC did not mention in the announcement nearly three
years ago was that it was quietly allowing EDS to pay £26.5m of the
settlement from any future business it won from the UK government.
Under the deal EDS would pay quarterly instalments of 4.5% of its
income from future government work over three years.
The time is up in December this year. But EDS has not won the
contracts it had hoped for from the UK government, leaving it well
behind on its payments, Computer Weekly has learned.
HMRC has confirmed that much of the £26.5m remains outstanding.
The department says it has compiled "millions of documents" in
preparation for a possible hearing in the High Court to recover the
money. "HMRC remains unhappy at the rate of payments," said a
spokesman.
But this could change. It is possible that EDS may make a
significant payment before the end of year, which could make legal
action less likely. If this conciliatory move happens, some in the
IT industry are likely to attribute it to HP's take-over of EDS. HP
would not relish EDS coming with the baggage of an outstanding
legal dispute with one of the government's largest
departments.
HMRC has the right to charge a high interest rate on any of the
£26.5m outstanding after three years, providing an incentive for
EDS to reach a settlement soon.
Whether the £26.5m is paid by EDS will matter little to the
public purse, or to HM Revenue and Customs which spends at least
£500m a year on its outsourced IT contract with Capgemini. What the
case does show is that HMRC's announcement of a successful
settlement with EDS could not be trusted. And it raises the wider
question: can any major government IT-related announcements be
trusted?
The NHS's IT programme, for example, was announced as a £2.3bn
scheme, and later as a £6.3bn programme until in 2006 the National
Audit Office revealed it was a £12.4bn project.
Similarly, the government's announcements about the business
reasons for the
ID Cards scheme kept changing. This could create the
impression, rightly or wrongly, of a lack of professionalism and
cohesion within government.
The facts of the settlement between EDS and HM Revenue has
reached the surface only because of the tenacity of the Public
Accounts Committee, its chairman Edward Leigh, Labour committee
member Alan Williams and particularly a Tory member Richard
Bacon.
Through the questioning of civil servants during a public and
private session of the committee, MPs extracted most of the terms
of the settlement. They were amazed by it, and the fact that the
Treasury not only approved it but considered it "pragmatic".
Alan Williams said, "It looks as if it is all a bit illusory, a
presentational package."
The then chairman of HM Revenue and Customs claimed that the
settlement was commercially astute and a good settlement
considering that EDS's business was not particularly strong at the
time. The department's lawyers thought that even if they recovered
only £44m of the £71m settlement, that was good going, he said.
But the Public Accounts Committee was highly critical.
It said, "Government should not be placed in the invidious
position of having to commission further work from a contractor in
order to recover compensation for underperformance."
The committee also criticised the secrecy surrounding the
settlement. "The terms of the settlement are covered by a
confidentiality clause and have not been disclosed by HMRC or EDS.
Confidentiality arrangements should not be accepted where they will
impair accountability for public money."
Even the part of the settlement beyond the £26.5m is not made up
entirely of cash. The government has not given a full explanation
of how EDS paid the other £44m. It is likely to comprise a mixture
of tax refunds worth up to £22m, EDS's foregoing £11.2m in profit
sharing on its outsourcing contract with HMRC, and cash.
Should HMRC be worried that its original announcement of the
settlement was misleading? Successive chairmen of HMRC have
insisted that it was an exemplary settlement - and they have since
changed their jobs. As have their ministers. Which leaves nobody
accountable.
What went wrong with tax credits
Serious problems with the
introduction of computer systems in 2003 to support tax credits
delayed HMRC's processing of claims and led to incorrect payments
being made to claimants.
HM Revenue and Customs estimated that software errors led to
overpayments of £184m in 2003-04 and 2004-05. The department spent
a further £65m on extra administration and fixing the system.
The government began negotiations with EDS, the Revenue's former
IT supplier, for compensation in 2003. HMRC announced on 22
November 2005 that it had won a settlement of £71.25m from EDS as
compensation for IT problems over the introduction of tax
credits.
Public accounts MPs who investigated the settlement discovered
that £26.5m of the £71.25 was dependent on EDS's winning future
government business. They learned that there was no guarantee that
EDS would win enough new business to trigger payment of the full
£26.5m.
For more detail on this story, read
Tony Collins' IT Projects blog - HMRC again threatens legal action
against EDS >>