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CSC paid 0.5% tax on £1.5bn outsource

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Public Accounts Committee chair Margaret Hodge rebukes Starbucks for low tax payments - 12 NOV 2012.pngComputer Sciences Corporation has paid just half a percent in tax on £1.5bn income it earned from the 10-year outsource deal it did with with Royal Mail in 2003.

The revelation comes from Computer Weekly's analysis of eight years of accounts published to date by CSC Business Systems Limited, the private vehicle Royal Mail put its IT division into when it privatised that part of its backoffice in 2003.

In the week MPs on the Public Accounts Committee rebuked multinationals Amazon, Google, and Starbucks for paying little or no tax while making £billions in UK sales, Private Eye also reported tax-avoiding arrangements used by other major government IT suppliers: Accenture, Capgemini, Fujitsu, HP, and IBM.

Delving into the accounts of CSC's Royal Mail deal sheds some light on how IT suppliers can win big government contracts by cutting prices to kamikaze-levels. And then make up the difference by ruthlessly cutting costs. They avoid disaster in the interim by claiming tax rebates.

The losses are built into the outsource model, say accountancy experts. Non-payment of tax is built in too - since companies only pay tax on their profits. But a loss-making outsource will still generate income for its parent - in the form of inter-group payments that go unrecorded under UK accounting rules.

Shady

Should multinationals be taxed on inter-group payments that get recorded officially not as repatriated profits but costs taken out before profits are calculated for taxation? That's what the Public Accounts Committee was getting at this week.

For IT outsourcers, the question is whether sustained losses can be justified when buyer and seller effectively set the costs and revenues of the deal when they set it up. Or whether the industry is predicated on an unsavoury system of officially-sanctioned tax evasion and back-door cuts.

CSC Business Systems Limited - Tax credits and Income - 2004 to 2011.pngCSC made a cumulative loss of £12.4m on its £1.5bn Royal Mail contract. It started turning a meagre profit in 2009 after it had finished cutting 63 per cent of the staff (1,082 people) it acquired under the deal.

It got £61.6m of tax credits when it was making a loss. And has since going profitable paid only 0.5 per cent tax on its £1.5bn income - that's £7.8m.

The shape of this arrangement would have been set out by CSC and Royal Mail when they got together to do the deal in 2003, said the director of a big-ten accounting house, who asked to remain anonymous.

Set up

"Generally for a long term contract Step 1 is what are we going to do. Step 2 is what will it cost. You budget for that over 10 years and price it accordingly.

"Part of the pricing strategy might be, 'We can do it more efficiently if we cut back on staff. And that would have been planned from the outset," he said.

CSC Business Systems Limited - Income, Costs and Losses - 2003 to 2011.pngThe planning can be seen clearly in the accounts of CSC Business Systems Limited, its Royal Mail outsource venture, which reported fairly consistent income and expenditure for the duration of the contract.

The contract had a mid-way renegotiation built into it. That passed on to Royal Mail, in the form of lower prices, the lower costs CSC was enjoying as a consequence of the 1,000 job cuts it made in the first years.

Otherwise it was business as usual, year-in, year-out: losses, tax credits, job cuts and opaque inter-group payments; followed by meagre profits and minuscule tax payments on a £1.5bn business.

If it was standard practice to run an outsourcing contract like clockwork, why was this clock running so badly that it never had any money to pay tax?

Lost profit

"The fair question is why a company has gone for 10 years, turned over £1.5bn and hardly made any money out of it," said John Brace a forensic accountant with Harwood Hutton and former president of the Association of Chartered Certified Accountants.

"Why have they not made any money on £1.5bn of turnover? They made £35m in recent years. But the net result is they have not made a row of beans out of £1.5bn. Is that the intended plan, or is it incompetence, or is it just bad luck?" he said.

Lee Ayling, IT outsourcing expert and management consulting partner at KPMG, said: "They've taken a bunch of costs in the first years and then made a profit in the last part.

"That's very typical for an IT outsourcing contract. They take a bit of business where they can essentially restructure the cost profile into a shape they can make a profit on."

CSC Business Systems Limited - Wages, losses and tax credits - 2004 to 2011.pngCSC got a tax credit of £43m for its Royal Mail business in 10 months it traded in its first fiscal year.

It cut 500 staff in the period. £17m of the tax break went to its parent as a write-off against its losses. It got that back in cash. The rest was raised against capital it laid out for the Royal Mail unit.

At the end of the period it recorded debts to its parent of £53.9m. It cannot be known how much CSC Business Systems Limited actually paid to its parent company that year. Nor any year. UK accounting rules do not require them to be reported.

The IT outsource industry usually does this within accounting rules. Although CSC is subject to an ongoing fraud investigation by the US Securities and Exchange Commission that includes its UK business, there is no reason at all to suspect CSC of foul play in its Royal Mail outsource. It has itself taken steps to route out financial errors and sack people responsible. Everything looked above board in the accounts of CSC Business Systems Limited to the three senior accountants who looked at Computer Weekly's summary of its numbers.

Business as usual

It was not only above board. It was par for the course, said the experts.

"There's nothing here that looks remotely surprising or remotely worthy of criticism. It's absolutely bog standard," said the accounting director who did not want to be named.

Par for the course, that is, to run at a loss, hide inter-company payments made before tax is calculated and only claim meagre profit for the tail of the contract.

Turning a cynical eye over the numbers, Brace said the outsource model might be a way for public bodies to pass the buck for downsizing. The outsourcer goes to the union with its losses in the first year and says, 'If we don't make cuts we could all be out of a job'.

However, he said, "One has to be careful about what conclusions one draws. It might all be perfectly straight forward - they went into the contract knowing they were going to suffer a bit of pain in the early years and that it would pan out and start operating reasonably well."

A government source said today it was looking at making an upfront declaration of tax and revenues a requirement of public bids. But such an idea would be fruitless (the government already knows what tax companies pay - and anyone can see it in their accounts) unless it either publishes a league table, or sets a tax bar below which companies will be prohibited from supplying government.

CSC was unavailable for comment.

Cornwall caught in bed with BT as councillors raise red card

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Patient Mr Alec Butteriss using Bosch Telehealth device in South Yorkshire.jpgCouncillors might have put Cornwall's privatisation on probation. But the council had already begun acting as a joint venture partner with BT.

They voted unanimously Tuesday to suspend a proposal to put up to £800m of public services into a company in which BT would own a majority stake.

BT planned to transform it into a hub from which it would manage the privatisation of other council services around the country, and to operate a telehealth business.

Councillors withheld their approval and said they wanted to scrutinise the deal properly before approving it.

But a "confidential" BT brochure mailed to councillors by Cornwall's own executive last Friday said Cornwall was already working with BT on bids for business from other public authorities.

"We are already in three competitive bid situations for Telehealth/care with Australia Telehealth, Northumbria Telehealth and Hampshire Telecare; where we have named Cornwall as our partner," it said.

"And have an expression of interest from others including Surrey."

BT had been one of two companies competing to acquire Cornish public services. The other, Computer Sciences Corporation, pulled out last Wednesday - just two days before BT's admission that it had already been operating as Cornwall's partner.

Thumbnail image for Steve Double, Cornwall Council.jpgCouncillor Steve Double, who had led the process for the Cabinet till his resignation last week, told Cornwall Council chamber Tuesday that competition law had forbidden councillors from having proper scrutiny of the procurement.

This had apparently suited Kevin Lavery, Cornwall Council CEO. He had written, in his books on local government privatisation, that councillors should be engineered out of the council executive's decision making process. That's what Councillor Jan Powell told the chamber on Tuesday.

Lavery's attempts at local government privatisation had last run into trouble when he was CEO of Newcastle City Council in 2001.

Kevin Lavery - Cornwall Council CEO - kevin-9.pngHe tried to form what was then a pioneering strategic partnership, with BT.

Councillors opposed him. He resigned and they tore up BT's bid. Lavery spent the the best part of the next decade doing outsourcing on the supply side, including a stint as head of local government at BT.

Now a council worker again at Cornwall, he has had no specific meetings with BT. History is repeating itself all the same.

Fresh air

Yet things will be different from now on, Councillor Double told his colleagues before Tuesday's vote.

Councillors would be permitted to scrutinise the BT deal, where before the details had been withheld. While CSC and BT where in competition, procurement law forbade councillors from seeing the details of their bids, Double told Councillors. Now the council was simply giving the business to BT, they could see the details. Competition law didn't apply when there was no competition.

This is what it would take for public representatives to be permitted to see a bid to privatise their services before they were called upon to approve it. They would get all the facts to settle the public/private debate. Lavery would meanwhile be vindicated if BT's plans passed muster.

The first signs were however that the new transparency was not actually very enlightening. Not in the way it was supposed to be.

Things started moving as soon as CSC dropped out last week. The council executive joined BT in wooing councillors ahead of Tuesday's big vote. It pulled half of them into a meeting on Wednesday where four BT sales managers inundated them with promises and forecasts of greatness and prosperity. The only minuted, critical voice came from Unison the union.

Neil Rogers - president of Global Government for BT Global Services - neilrogers3.jpgThen Friday, the council executive sequestered the services of Cornwall's scrutiny office, which was meant to have taken an independent position on the outsource, to email a BT promotional pack to councillors.The scrutiny office also helped BT and Cornwall executives organise a promotional roadshow they did last Thursday. The email included a sales letter from Neil Rogers, president of Global Government for BT Global Services, and the "confidential" BT brochure.

Hot air

The brochure, styled as a "business plan", set out an incredible vision for "BT Cornwall".

BT wanted to build a "Global Centre of Excellence" for telehealth and telecare in Cornwall. It would do this by assimilating assets acquired from Cornwall's NHS Trusts. It would turn Cornwall into one node in a network of "business hubs and Centres of Excellence" it was building from its outsource deals across the public sector. Telehealth would become Cornwall's specialism in the national and global economy.

BT Vision for Cornwall - From BT brochure - OCT 2012.pngBT also wanted to acquire Cornwall's procurement expertise. Yet its sales patter may have misled Cornwall councillors.

"BT is currently seeking a UK base for a Procurement Centre of Excellence, from which to support other UK public sector opportunities," said the brochure.

"Cornwall Council has an established procurement service that is rated as upper quartile by government audits," it said.

"BT proposes to use its expertise to further develop the service as a tradable procurement service."

Thus it implied it might also put its national procurement hub in Cornwall as well, if it could only nab Cornwall's procurement office.

This is what councillors who supported the bid where saying.

But BT is already building a "Procurement Centre of Excellence" out of an outsource it did with Lancashire County Council last year. Now called One Connect Limited, BT Lancashire's backoffice aims, like Cornwall, to grow by assimilating the backoffices of other public authorities.

BT's "business plan" did not say how Cornwall would fit into its grand plan of global and regional "Centres of Excellence".

Might it have a mid-term plan to discard staff superfluous to the needs of a Centre's specialism? If BT had already set up procurement elsewhere, might it want to acquire Cornwall's procurement office only to strip its knowledge assets and kill it off?

It might be too soon to call it a carve-up. As well as procurement, BT acquired various Lancashire services outside its alloted specialism. It picked up payroll, HR, and IT as well. Their superfluity might not become apparent for some years yet.

BT Lancashire One Connect Limited Centre of Excellence Annual Report graphic.pngLancashire's distinct district authorities are disparate from a corporate point of view. Not all of them went in on BT's deal from the off. It might take BT the full term of its 10 year contract to acquire all their assets. Only then might it decide it doesn't need human resources in Lancashire because it has an HR Centre of Excellence in, say, Derbyshire.

Allure

For now, BT just needs to get the sale. It has 400 field sales agents leaning on chief executives in every public authority and NHS Trust in the UK.

That's what it told Cornwall councillors. And that a team of 27 people supported its sales force by firing concentrated campaigns at targeted authorities.

In Cornwall this involved producing a brochure that looked like a business plan but left out the downside risks a sensible business manager would demand to see. The document is stuffed full of pastel-coloured promises. It has all the allure of the full-moon at a rave party, rendered as a tea-shop oil painting by a pony-tailed retiree who once took acid. Some councillors went goggle-eyed over it.

BT promo people taking note.pngNot so Nigel Pearce, Liberal Democrat councillor for Bude South, who said in Tuesday's debate: "The problem with this bid is there's too much marketing."

"There's very little information on the finance," he said.

"And also about the operation, how its going to work, the nuts and bolts. We do need to avoid some of the flannel-speak."

The choice, however, was clear. It was the difference between the soothing noises made by BT's army-sized sales and marketing department and the infamous Barnet Graph of Doom that claims to show how council budgets will be squeezed so severely by 2030 that they will need to flog off their services. The logic is peccable.

BT's marketing conjured a vision of Cornwall as a high-tech hub, networked not just across the Country but the Commonwealth. What it actually means is Cornwall will be the site of a medical call-centre. The attraction for BT is Cornwall's unusually large population of dependants.

Demographics

Cornwall has fewer youngsters than the UK average, and more retirees, who's incomes are less then average, and half of whom are dependant on care. This is a unique asset in the world of telehealth and telecare, where services are automated, commoditized and delivered over BT phone and network cables.

The idea is that BT Cornwall becomes to the infirm what the City of London is to the rich: an international hub for the incapable and insensible. In years to come, it will employ a small army of joy-stick operators to direct drone mechanoids in the wiping of back-sides half way across the world.

BT's brochure proposed that Cornwall's uniquely dependent population would be a valuable testbed for its telehealth technologies. It proposed setting up an "R&D centre" in Cornwall to "develop new ways of delivering telehealth services".

BT Telehealth showroom - pulse_pic.jpgThis would employ five people primarily concerned with identifying innovative local firms who could be subsumed into BT Health, to give it a competitive edge with rival telehealth centres one presumes will be springing up in Bangladesh and Bolivia.

They would report to BT's real R&D centre in Martlesham, Suffolk, which employs not five but three and a half thousand people. BT recently opened a Telehealth showroom there.

For BT, the race is on for Telehealth in the UK. NHS and Social Services are abuzz with the idea. Housing Associations have a head start.

BT lost a bid to run telecare in Northern Ireland last year to a consortium led by Tunstall Health Care, the market leader, that operates a Centre of Incontinence or whatever you call it in Doncaster, South Yorkshire. It makes about £200m-a-year from 2.5m dependants in over 30 countries. It is a leader in the supply of alarm pendants for old people who take a fall.

Pressure

BT is counting on Cornwall to help it win tenders in a national government programme called 3millionlives, which aims to get 3m patients and dependants tended remotely across the NHS by 2018.

The Department of Health reckons £70bn of the UK health budget goes on care of people with long term conditions, the target market for telehealth and telecare. That's 15m people. 3millionlives will therefore turn the tap on a £23bn market, or whatever part of it can be administered remotely.

Things start moving next month. Formal tenders start in "early 2013". This may explain why BT gave Cornwall councillors an ultimatum this week: it would keep its offer on the table only until March.

Fiona Ferguson - Cornwall Council Councillor for Truro Trehaverne - Cabinet Portfolio Holder for Corporate Resources - bigpic.jpgFiona Ferguson, a member of the Cornwall Council Cabinet that backed the plan, passed the ultimatum on to councillors on Tuesday. She neglected to mention BT's own spring deadline.

But she did insist the council acted urgently. And she painted a desperate picture of the Cornish health system: "There are very serious challenges in adult social care and health," she said.

"There was a lot in the proposed contract about that. I recently spent 24 hours in Treliske [Hospital] with my father who had a fall. And there was trolley after trolley of people in exactly the same situation."

Tragically, at that very moment Carolyn Rule, Ferguson's Cabinet colleague responsible for Health and Wellbeing, was lying, collapsed outside the council chamber door.

Council leader Jim Currie interrupted proceedings to report that Rule had apparently fainted, but it was feared her situation might be much worse.

They just didn't know. Twenty minutes had passed since she left the chamber and collapsed outside its door. She was a very unhealthy colour and could still not sit up. It would be another five minutes before an ambulance arrived.

Fear

Thankfully, Rule got a clean bill of health at the hospital. She had a check-up and was released later that day. But it was a worrying reminder of the sort of pressures felt by the health service in a rural county like Cornwall, where people were often far from help.

Julian German - Cornwall Council Councillor - Independent - Roseland - bigpic.jpgThe dilemma was stark. Councillor Julian German had spelt it out earlier.

If Cornwall didn't do a deal with BT, "there won't be a world-wide Centre of Excellence for telehealth and telecare in Bodmin," he said.

Neither would there be a "procurement Centre of Excellence in Cornwall", said German.

Neither would BT deliver the promised cuts in those services it acquired from the council.

Neither would it create 1,043 jobs that would be "committed in contract".

BT's proposal had actually only guaranteed 350 new jobs. It had estimated that business might also grow quickly enough to create another 512 jobs.

The other 181 jobs in BT's 1,043 forecast were people it already employed at a "Truro retail facility". BT had promised not to make them redundant for the life of the telehealth contract. It was like a number from a dodgy dossier.

But you got the idea. The choice for Cornwall was whether or not to invest its resources in BT's telehealth gambit.

The original reason why Cornwall had started down the path that led it into talks with BT in the first place was now forgotten. Was it to pass the buck for a backoffice cull? Whatever it was, it was now second place.

Cornwall's priorities and all other alternatives would now be held up for comparison against against BT's business plan, that pastel vision that had infected the collective mind of Cornwall's Council Chamber on Tuesday like a mall shopper's retail lobotomy.

Councillors had stopped to recover their bearings. But BT had become the default setting.

The Department of Health, incidentally, refuses to talk of its telehealth initiative in terms of market-size and supply-side opportunities.

It likens telehealth to the introduction of the stethoscope: an inconspicuous tool that will slip into the complex arrangement of systems and people that make the National Health Service work.

The department insists it will leave local trusts to incorporate the technology in the way they see fit. It has not insisted Trusts can only do telehealth if they sell off their assets and go into business flogging the services themselves.

It betrays no sign of embarking on a frenetic pursuit of a corporation's marketing dream; nor that it has adopted the false dilemma that has echoed hypnotically around the corridors of Cornwall Council: that do-nothing is not an option, unless you want to miss out on the prize. Don't miss out on the prize.

Other befoolery put to the council chamber this week included the suggestion that the outsource is not ideological or political. And that battery-level councillors cannot understand the complex contractual matters that have been occupying the Cabinet's superior minds.

Or perhaps even that Cornwall is in crisis. Lavery himself wrote in the Guardian last week that that at 8 per cent growth, Cornwall's economic success is second only to the City of London.

Perhaps councillors will gather their wits by considering whether Cornwall needs BT as much as BT needs Cornwall, or whether BT needs Cornwall as much as Cornwall needs BT.

What competition means for Cornwall

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Cornwall smugglers postcard.jpgAs Cornwall Council leader Alec Robertson faces a vote of no-confidence today over plans to outsource £800m of public services, the proposals are looking weaker than a my-dog-ate-it excuse for missing school homework.

Ruling councillors and executives have resorted to dubious justifications for the deal as it has come under increasing scrutiny from people demanding answers to the simple question: why do it?

There might be very good reasons why Cornwall's Council and health Trusts should shove their revenue, benefits, human resources, contact centre, libraries and some frontline care services into a profit-making venture with an IT outsourcer. There might be good reason why Cornwall should take only a minority stake in the venture, even though it will use its own cheap credit lines to finance the deal.

But Cornwall hasn't given them. Its reticence does of course hide a much bigger story than the one it's giving councillors.

Since Cornwall is transferring its public resources to a private vehicle (commanded by whichever of BT or CSC wins the bid) it's going to be operating in a market where it will have to fight, dog-eat-dog for survival. But the council has not even produced a market forecast. Councillors scrutinising the deal have not been told how Cornwall thinks it might manage in competition with other local authorities that are also launching backoffice corporations.

Such forethought is more important than ever since Southwest One, a similar outsource venture in nearby Somerset, ran into serious trouble this year.

Southwest One logo.jpgBooty

What happens when Cornwall Council Corp goes head to head with Southwest One? Might Cornwall Corp be so successful that it puts Somerset out of business?

It sounds absurd but this is the game these local authorities have got themselves into: the aggressive business of backoffice outsourcing, where prices get slashed and jobs get sent overseas. Outsourcing is one thing. Going into outsourcing is quite another.

It is the sort of world in which Cornwall Corp might crush Somerset Inc in open competition, and then celebrate when it wins the contract to do social services to the unemployed call-centre workers that subsequently flood the soup kitchens and underpasses of Yeovil.

It is a heartless world in which there is no public accountability. It is the sort of world in which some fat-cat BT executive might use the money he makes running Yeovil social services to buy a dainty little cottage overlooking the sea in St.Ives, his preferred location ever since Somerset got so full of scummy, out of work no-hopers from Southwest One.

Yet Somerset might actually turn its troubled Southwest One venture round. It might annihilate Cornwall Corp before it even gets off the ground, beating it to every contract with outsourcing councils up and down the country.

Somerset might then open an office in Truro, in a sort of corporate takeover of council services. Or it might keep all the jobs in Somerset, and manage Cornwall remotely like a digital Queen Victoria administering an overseas Empire of primitive peoples. Somerset could sell Cornwall Corp's premises off as holiday lets.

But this new market for privatised council services won't just be Somerset and Cornwall in a bloody fight to the death. Other public bodies around the country are going on the game as well.

Privateers

The most glaring question, after who will reign supreme, is therefore one that the public authorities behind these ventures have been most unwilling to answer: how much business must their backoffice spin-offs generate before they become viable, so they don't end up like Southwest One.

How much business must they generate before they turn a profit? How many other councils must they do backoffice outsource deals with so they can attain these targets? How many assimilated council backoffices does it take to make a privatisation work? And how many corporate council spin-offs can the market take before it becomes saturated?

Cornwall has not even shown councillors the proposed business plans. Its Single Issue Panel, tasked especially with scrutinising the deal, is negotiating terms to see the details. They expect to be let into a locked room where they can see the documents for an allotted time but will not be permitted to make notes or take anything away.

That may explain why the deal's advocates have been able to talk it up with nonsense statements.

That's what Councillor Steve Double, portfolio holder for the Cornwall outsource, sounded like he was doing when on 26 September he wrote fellow councillors an urgent email rebuttal to points raised by critics.

Steve Double, Cornwall Council.jpgDouble had been put in an awkward spot by Southwest One. Somerset had intended its venture to do the backoffices for public authorities across the whole of South West England. It failed. Somerset's backoffice venture subsequently went stale. Southwest One is now said with emphasis on the second word.

Ahoy

Cornwall would be different, Double told his fellow councillors.

Cornwall's backoffice company was going to pitch for business from councils in London and the South East. Its horizons weren't limited to the West country. It was going into the TeleHealth business as well - the business of using a computer system to remotely administer health and social care. It had one eye on the future and one eye on national triumph.

"All of this makes the context completely different from SouthWestOne where IBM was hoped to sell services to other South West Councils," said Double.

Southwest One had in fact broadened its own horizons this year too, after it nearly went bankrupt.

It is now pitching for backoffice business from councils all over the country, like Cornwall proposes to do. It is desperate to make up nearly £60m of losses. IBM, its parent, is desperate to recover some £60m of accumulated debt and other credit lines. The competition will be tough.

It may therefore be too soon to talk of a carve up. But the TeleHealth bit of Cornwall's proposal (the shiniest bauble ever since it was tacked onto the proposal, after the council Cabinet approved the outsource in July 2011) has given Cornwall Corp a unique selling point among other privatising councils.

TeleHealth

The plan for a Cornwall TeleHealth Corp has also lent a chimera of credence to the idea that the venture will bring jobs to Cornwall.

Alec Robertson, Cornwall Council.jpegRobertson guaranteed it would produce 500 jobs. The jobs have not yet been guaranteed by either of the suppliers. But they will apparently be guaranteed when they do guarantee them, presumably in a manner that can be depended upon.

Cornwall TeleHealth Corp will also be a boon of special significance for its outsource supplier, no matter which of BT or CSC win the business.

This pair were responsible for the disastrous NHS records system called the National Programme for IT. They may have been slow to deliver it (five years late, it is not yet finished) but they have moved quickly now there's new public assets up for grabs.

Cornwall will give them a way to resell their NHS systems into local government. NHS health records will be allied with social security records in the Cornwall system. It will become the fulcrum of health integration with social security, as well as benefits and other public services.

Yet why Cornwall can't do TeleHealth itself, and then pay these suppliers simply to supply, is another matter to which the Single Issue Panel has not yet been privy.

Cornwall's entire NHS has got behind the scheme, including the Kernow Clinical Commissioning Group, which will take over from the existing Primary Care Trust when the coalition government's plan to "devolve" the NHS in 2013 to those privateers more commonly known with inexplicable affection as GPs.

Cornwall has also failed to communicate why it needs to give its outsource supplier a controlling 51 per cent interest in its services.

The county could use its own cheap credit lines to finance its own TeleHealth, or to restructure its own services. But Cornwall didn't attempt to develop such an idea into a proposal that could be given serious consideration alongside the outsource. Nor did it develop the other options that first made the outsource idea look less threatening when they were put alongside it on the table, briefly, in 2011.

Lavery

Why indeed had Cornwall not opted to do this all in-house, asked independent councillor Mark Kaczmarek in Cornwall's Cabinet meeting in July.

Kevin Lavery, Cornwall Council CEO.jpegCornwall chief executive Kevin Lavery, once head of local government for BT, and a career, supply-side advocate of privatisation, said the council should put its services into a commercial venture because only a commercial venture could behave like a commercial venture. He used the proposal to justify itself on its own terms.

"An 'in-house' option would not be in a position to offer the commercial skills which a private sector partner could offer," the meeting minutes attributed to Lavery.

"As an example, a dedicated sales team already existed within both of the two potential private sector partners and it would not be a practicable option for the Authority to try and create such a sales team as it would take a significant amount of time and investment," he explained.

It was just the sort of circular nonsense you would expect but would dearly hope, when you knelt down beside your bed and prayed at night, did not really pass for thinking in the high offices of the public sector.

But it is not all so bad. A push into Kent and the South East will be just the ticket for Lavery, who had pushed Conservative transformation work at Kent and London councils early in his career, and who later managed contracts in those regions for BT. That's also where BT has its NHS contracts. And it is where Lavery now proposes to pitch his outsource joint venture with BT, or CSC if the latter wins the bid.

When Kaczmarek asked Lavery why not do it in-house, the poacher-turned-gamekeeper might have said conversely, well the outsource company has got this bloody sales team. It's surplus to requirements. Isn't it?

MPs get in a funk over open source

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Conservative Open Source Report Summary - Front Page - Mark Thompson - 27 JAN 2009.pngThe Conservative's open source technology strategy may have reached its culmination at a low water mark with the coalition government's renegotiated contract with Computer Sciences Corporation.

Cabinet Office minister Francis Maude and chancellor George Osborne presented open source software as the antidote to the Labour government's "catastrophic" NHS National Programme for IT - and a recipe for cheaper and less botched government computing all round - when they launched their technology strategy in 2009.

Now four years on, what they have done instead is reconfirm £2bn the £2.9bn contract CSC originally signed under Labour, and dropped that bit of it that would have given them the means to open source the goods.

But the original Conservative tech policy was floated on a stream of opportunistic press leaks and anchored with a fishy tie-in with the then Conservative Parliamentary Public Accounts Committee chair Edward Leigh.

The coalition government's lack of progress since raises questions about whether it is prepared to put its weight behind the policy.

Spin

A party insider told Computer Weekly the NHS element of Conservative open source policy was spun to latch on to then current news about NPfIT - the National Programme, Labour's NHSIT disaster.

George Osborne - Edit.pngOsborne floated his open source policy on 27 January 2009, the same day the Public Accounts Committee published a report warning NPfIT wouldn't be delivered till 2015, four years late and at a cost of £12.7bn, because of BT and CSC in particular.

The weekend before the Public Accounts Committee released its report, Osborne's team did a last minute edit of his unpublished 2007 open source policy backgrounder.
Francis Maude - Edit.pngThe day the committee report came out, Osborne leaked his backgrounder to the tech press.

It had in fact been gathering dust in Osborne's draw for nearly two years. It was now unofficial Conservative policy: open source software would cut IT costs and "free government bodies from long-term, monopoly supply situations" such as its NPfIT contracts with BT and CSC.

A week later, The Times newspaper and Computer Weekly scooped the nethermost reserves of poop from the bottom of the Conservative policy headquarters' mudslinging barrel and slung them right in the then Labour government's bullseye.

It was a big bullseye. IT bodges had been par for the course since Labour took office in 1997.

The Times' had done an exclusive investigation of government IT bodges. But it was old news. The paper had dug right down into the archives, dragged up a clutch of rotten old IT bodges and slapped them up as an exclusive investigation.

Outrage

Leigh was so gullibly outraged he told The Times: "As a result of The Times' investigation I am going to immediately ask the Comptroller and Auditor-General [the head of the NAO] to investigate the whole matter of government IT spending and in particular the contracts highlighted in the paper."

The old dog must have had a short memory, because he forgot to mention he had already handled most of these IT bodges as chair of the Public Accounts Committee. And that's how The Times and Computer Weekly new about them in the first place.

The Times' investigation, published on 2 February, involved simply taking a bunch of old stories about IT budget over-runs and adding up the numbers. It said the total cost of Labour IT budget over-runs was over £18bn.

Edward Leigh and Dog.jpgBut £10bn of that came from the NPfIT cost over-run the NAO recorded in a report it had submitted to Leigh's committee three years before, in 2006. The NAO reviewed the situation again in May 2008 and stuck it in another report to Leigh's committee. After conducting its usual hearings into the 2008 NAO report, the committee then produced its usual report about the NAO report. That's the report the committee had published on 27 January - one that Leigh had been talking about in all the papers.

Now a week later, he was calling for the NAO to produce a report about The Times' report about his committee's report about the NAO report about NPfIT, as though it was the first he had heard of it. It was an outrage. It really was.

More outrage

Most of the rest of The Times' £18bn budget over-runs had come from HMRC's Aspire contract with Capgemini. The NAO had reported on this one in 2007. So had Leigh's Committee. So had the press.

Leigh had said in a 2007 committee press statement "the forecast figure is some £8.5 billion...compared with the original estimate of nearly £3 billion". Now two years on, The Times had reported it again. Leigh was outraged.

And most of the rest of The Times' £18bn came from the publication just 18 days before of Leigh's own committee report into the Ministry of Defence's Defence Information Infrastructure. That was about £5bn over-budget - a terrible state of affairs, really. But The Times' had learned about it from Leigh's committee, and they had both got it from the NAO about six months before. Now The Times was regurgitating it again, and Leigh was outraged like it was the first he'd heard of it.

Most of the rest of the £18bn came from Leigh's Committee's 2003 report into the Courts Service Libra project. Libra's cost had more than doubled to £400m, said Leigh in 2003, drawing from NAO numbers given him earlier. The cost had more than doubled to £500m, said The Times in January 2009, drawing from Leigh's earlier work. Leigh was outraged.

The rest of The Times' investigation regurgitated old news about three cancellations: a DWP benefits processing system from 2006, and police and passport websites from 2007. Ah and there was the National Offender Management Information System - then still work-in-progress for the NAO. Leigh was outraged.

Investigation

Leigh was so forgetful that no sooner had he called for an NAO investigation of The Times' investigation of the committee report on the NAO report than the whole idea of an NAO investigation was forgotten, like it had never even been officially proposed at all.

It hadn't. The NAO recorded no official request from Leigh for such an investigation. The NAO in fact never conducts general studies. So it says. So Leigh's committee would have been surprised if the NAO had done a general report into government IT bodges, because it has for the last 30 years worked to a Standing Order by which it examines about 40 of those non-general NAO reports every year.

This was all nevertheless important enough for Osborne to pitch in with a commentary in The Times on 3 February.

Osborne said: "Yesterday's report in The Times that government...IT is running nearly £19 billion over budget was genuinely shocking".

It seemed nobody had read any of Leigh's old committee reports. Or they were so far back on his shelf that everyone else had forgotten about them as well.

But at least Osborne had an answer to this old problem that he had known nothing of till The Times regurgitated it.

The solution, he said, was to stop handing out big IT contracts to the same old big suppliers and break them up into manageable chunks using open source software and open standards. Maude, then head of the Conservative Party's Implementation Unit, was to lead the work.

Now nearly four years on, the coalition government has still to reach a significant milestone on either its open source or open standards policies.

The big departments of state have continued to sign large contracts with the same old large suppliers. The same old large suppliers have opposed the coalition's open source and open standards policies, just as they oppose the contract transparency the coalition government promised as well.

The Tory top team may have been so desperate to put nails in Labour's coffin in 2009 that it would have said anything to get the vote - even that it would use open source software. The two parties were clambering over one another to make the most convincing noises about IT bodges. Labour's own open source policy had been gathering dust for years.

CSC finance director exits as fraud probe hits UK

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A CSC finance director has quit, while a number of his peers face disciplinary action intended to stamp out accounting problems that have drawn the attention of US regulators.

It emerged last week that a year-long investigation, which has already lead to purges of finance departments in Denmark and Australia, has now focused on the UK and engulfed CSC's troubled NHS contract.

The Cabinet Office has meanwhile extended negotiations with CSC over the NHS contract until 31 August, a year after the coalition government said it had resolved its NHS IT problems.

Neil Malcolm, CSC director of finance for manufacturing, chemicals, energy and natural resources, quit the company on 4 April.

He told Computer Weekly he had not been involved in CSC's troubled NHS contract. He said he had not been implicated in any fraud investigation. He declined to say whether he had been implicated in a wider investigation into accounting irregularities at CSC.

"I left CSC on 4 April. It wasn't disciplinary. It was my choice," he said. "I had nothing to do with the NHS contract."

"I'm not prepared to discuss this," he said. "I'm not going to comment on that at all. I'm not going to be drawn into an issue that's internal to CSC. That's between me and CSC."

He said he had been a director of finance for the UK.

CSC refused to discuss the nature of his departure. A CSC spokeswoman said: "It is company policy not to comment on internal matters or matters relating to staff departures."

Nothing had indicated that Malcolm had been involved in fraud. Andy Thomson, vice president of international finance at CSC, refused to confirm whether Malcolm's departure was related to any fraud or other accounting irregularities. He refused to answer any questions on the matter.

The majority of CSC's accounting irregularities, which are being investigated by the US Securities and Exchange Commission, were unearthed in its Managed Services Sector (MSS) business unit, and primarily in the Nordic region, the company said in a financial statement last week.

Irregularities were later discovered to have also involved CSC businesses in Australia and the Americas, as well as the NHS in the UK.

"In the course of the Audit Committee's expanded investigation, accounting errors and irregularities have been identified. As a result, certain personnel have been reprimanded, suspended, terminated and/or resigned. All of these investigative activities are ongoing," said the statement.

MSS accounted for 41 per cent of CSC's $16bn revenue in 2011 when the first irregularities were discovered. MSS houses CSC customers in sectors including aerospace & defense, chemical & natural resources, financial services, healthcare, manufacturing, retail and telecommunications.

$24m of "Intentional irregularities" were found in the accounts of CSC's £3bn NHS IT contract after a year-long investigation by independent auditors, said CSC.

"Certain CSC finance employees based in the United Kingdom were aware prior to fiscal 2012 of the aforementioned errors, but those employees failed to appropriately correct the errors. Therefore, the Company has classified these errors as intentional. As a result, certain personnel have been suspended and additional disciplinary actions are being considered."

The errors had overstated CSC's income from the NHS contract by $24m after failing to account for costs.

Investigators had found other accounting problems with the NHS contract, on which CSC wrote off $1.5bn last year after its continued failure to meet a 2007 deadline to deliver computer systems to health bodies over two-thirds of England. The investigation was ongoing. CSC did not expect further revelations would involve amounts large enough to dent its financials.

The US SEC probe, which is also ongoing, led to a string of revelations about intentional accounting errors in CSC's Nordics, Australia and Americas businesses. CSC Denmark CEO Carsten Lind resigned as details of the accounting problems broke last Autumn. Hundreds of redundancies have followed in the wake of a major Danish public sector IT failure and the loss of CSC's largest private sector customer in the region, the telecoms firm TDC, to Indian outsourcer Tata.

CSC is making approximately 1,100 redundancies in the UK, thought to be about 15 per cent of its local workforce, as it stands down teams that had been working on the NHS contract and absorbs the shock of financial results that recorded a $4.3bn worldwide loss last week.

The majority of the loss was attributed to the NHS write-off and a $2.7bn loss of goodwill over numerous acquisitions CSC had made in the last 10 years. $269m was attributed to a settlement CSC made with the US Army over its Logistics Modernisation Programme, one of 11 ERP projects that caused trouble for the US Department of Defence.

Open standards? You'll know one when you see one, says Microsoft

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voodoo_doll.jpgYou can't define an open standard, said Microsoft's policy director in an interview with Computer Weekly. But you know one when you see one.

That has become the essence of Microsoft's opposition to the UK government's open standards policy, according to Steve Mutkoski, worldwide policy director of international government affairs at Microsoft. You can't put your finger on it. And what'n'ever it is, it ain't what the open standards movement says it is.

It wasn't always so. How we got talking about this, in the atrium of Microsoft's swish London headquarters, was that the software giant had used a curious tactic to defeat UK open standards policy. Computer Weekly was trying to shed some light on it.

When Microsoft, the open movement's most powerful enemy, saw the UK hoist the open standards banner it did not try to have it pulled down. It tried to have the colours changed.

This is what the public consultation that closes Monday is all about. Microsoft and its cohorts in the proprietary software business tried to persuade the UK to their wording when it codifies open standards in official policy. The government asked for public support: is an open standard what we say it is or what Microsoft says it is?

Microsoft had used a dastardly ingenious tactic: steal your enemy's language of identity and you render him powerless. The open movement had evolved its own meanings for the words it used to define itself. 'Open standard' was the most important and most powerful, particularly since governments had started trying to put it on official headed paper. Its meaning had been forged in opposition to the proprietary software model. It and UK policy had been defined in explicit opposition to Microsoft's business practices. The movement had defined its own terms. Now Microsoft and its cohorts in the International Standards Organisation and Business Software Alliance wanted them rewritten on their own terms. They sought to impose their own meanings on their enemies' language, and when it was written on official paper their enemies would be metamorphosed into their own likeness. It was voodoo magic.

Microsoft Cardinal Place London.jpgBack in London

That was however no reason to dismiss the proprietary lobby outright. It had been so persuasive in private meetings and letters that the government pulled its first official definition of an open standard. If Microsoft had given a good reason it deserved to be exposed to the light of day.

So far we only had the what, not the why. Leaked correspondence revealed Microsoft and its partners had insisted patent holders should be permitted to stake royalty claims over open standards just as they did over every other sort of standard. They claimed the right to label proprietary, patented standards as open standards. It seemed nonsensical. There had to be a reason why.

Computer Weekly got its chance to find out when Microsoft's director of policy flew in from Seattle on one of those unusually sunny mornings in March. Mutkoski had come to personally lead the lobbying. Neither of us knew then how the lobbying was to backfire. But the important questions would still need answering.

So I asked the most pertinent of them. How could it be justified for a patent holder to stake a claim over a standard of software interoperability?

"I can explain that you," said Mutkoski. "But I will also start out with a proposition. Why should it not be the case?"

It was perhaps too much to expect a straightforward answer. This was what in debating circles was known as shifting the burden of proof. The whole point of the interview was to question Microsoft's assertions about open standards. Mutkoski was trying to shift the burden on me to prove the opposite of his case. That wasn't my job, or my cause.

The opposite case, for open standards, had already been made by the coalition government, and other governments before it. They made it openly. It seemed valid. They promised liberation in a world where public computer systems were hog-tied by Microsoft's desktop software monopoly and squished under the weight of Oracle's market power. Microsoft might be the only official monopolist in the room. But 70 per cent of all software bought by government was Oracle. This much was fact.

Steve Stephen Mutkoski - Microsoft.jpgGOTO 10

I put the question again. How did Microsoft justify its attempt to impose royalty claims on open standards?

The answer, said Mutkoski, was that the software industry supported a variety of business models. One of those business models involved people selling proprietary software licences. Those people should be included in the open standards definition.

This was still no reason why. And it was again nonsensical. The point of classifying something is to distinguish it. Create a subset of standards called open standards. Allow all varieties of software standard to be thrown into it and you no longer have a distinct subset. You have a hotch-potch.

But Microsoft might have a valid case waiting to be put cogently. Could he give an example that demonstrated why such royalty claims should be permissible?

"Here's why," said Mutkoski. "You are a products company. You are looking to create great, innovative products that sell. You can either do the R&D yourself, which is going to cost money, or you could license the technology I contribute. I need to get a return on my R&D. I think that's the paradigmatic why."

And it was a why. But it was the why of the proprietary software licensing model. There was still no sensible reason why this model should be imposed on the open movement.

I put it to Mutkoski again. For what reason should anyone be permitted to claim royalties over a standard of software interoperability?

He summoned for his answer the example of those telecoms and electronics-derived media standards that were later to be barred from the UK consultation: mp3, H.264, GSM and 3G. His case was that these standards had been successful despite being bound in hardware-derived patents. He denied there was any reason to distinguishing between hardware and software. His said that in both cases it was simply valid for someone to claim royalties over a standard.

Infinite loop

Yes, but why? What, say, are the H.264 royalty claims for? If we knew that then perhaps we could at least get the heft of a justification, if not the sense.

"I'd have to look there. There's no way I can answer that even in an hour. These are areas that are so complex."

"Do you know what the patent claims are for in H.264?"

"I know what some of them are".

"Can you give me an example?"

"Not off the top of my head".

"This is crucial. This is what I want to understand."

"Maybe you need to talk to a patent lawyer. I'm not involved in any of the organisations well enough to answer the kinds of questions you have about specific patents."

"Well then how can you say for sure that it's desirable to allow royalty claims over standards if you don't know what the basis of your argument is?"

"I think you are asking me to prove a negative. I would flip the question round and say to people who don't want to recognise royalties why they think it's desirable to not have royalties."

He was trying to shift the burden again. And anyway, Mutkoski was a lawyer. He'd been a software licensing counsel and attorney at Microsoft for years. I wasn't asking you to prove a negative, I said. I was asking you to prove your assertion. You are asking me to a negative, I said.

We had reached a dead-end in Microsoft's argument: the proprietary model should be imposed on the open model because the proprietary model. It was argumentum ad morantium. The Cabinet Office had fallen for this.

Mutkoski denied it was so. Innovators must simply be permitted to claim rewards for their efforts, he said. That meant claiming royalties over standards as well as the software implementations that used them. Convince me, I said. You convince me, he said. You can't prove your case, I said. You're tying to shift the burden he said. We were going round in circles, flirting around the software patent debate. That is what it was about for Mutkoski - the legitimacy of software patents.

Microsoft-proposed Cabinet Office open standards PPN.pngBut it wasn't. It was about open standards.

Break

We were having this silly Dervish debate because Microsoft and its cohorts had protested over the UK's attempt to define an open standard as something distinct from proprietary standards. This opposition seemed fatuous as well. If an open standard was distinguished by its not being proprietary then it would by definition not entertain proprietary claims. If its distinction was not that it was not proprietary then it was pointless distinguishing it all: just call it a standard and stop wasting our time.

Yet Microsoft, Oracle, the Business Software Alliance, the International Standards Organisation and the British Standards Institution all told the UK that proprietary standards ought to be included amongst those it called open. There was by their reckoning nothing to distinguish proprietary and open. Microsoft had even mocked up a Cabinet Office Procurement Policy Note, in official wording, that included an open standards definition with a proprietary clause stuffed in it. Standards constituted of proprietary licence terms known as FRAND were, it insisted, open.

When Computer Weekly asked these organisations to release the open standards definitions they had been pushing on the UK, they all refused. They weren't all that open themselves. The information got out anyway in a leak and a Freedom of Information request. When CW pushed them to justify their position, they either withdrew it or, as did Oracle, refused to speak. As has already been written, ISO said it did not even know what an open standard was, though it had been telling government how it should write its definition.

What has not been revealed before now is that BSI went further in distancing itself from the whole affair.

David Bell, BSI head of policy, told Computer Weekly: "We don't talk about open standards because it's not a concept that we - it's not part of our terminology. 'Open standards' is just not part of the vocabulary we use."

Bell's was the only sensible contribution the proprietary camp had made to the whole debate. Perhaps Mutkoski would make a similar climbdown when asked to clarify Microsoft's definition of an open standard.

He didn't quite climb down. He transmogrified. There was now no way to define an open standard for certain. It meant different things to different people. "From my experience," said Mutkoski, "its a spectrum".

Spectrums are what psychologists use to identify ambiguous mental conditions like autism. The human mind is so complex it can be hard to determine whether someone conforms to something so simplistic as a label. So psychologists determine how someone's behaviour maps to a spectrum of autistic traits. This is how Mutkoski wanted the UK to classify open standards. He reckoned they had five traits. Four of them concerned the way an issuing standards body dealt with them: how overhead costs where covered, that sort of thing. One concerned the actual substance of the standard: and only then to specify that it could be proprietary.

Market failure

Mutkoski's point was you couldn't put your finger on it. Even if Microsoft itself had a proprietary claim over an open standard, it might still be deemed open on the strength of its being formed in an open forum where the voting was arranged equitably and there was a liberal supply of cheese biscuits.

But who in this ambiguous world would determine which standards should be classified open and which proprietary, I asked. If every standard should be treated as an individual case, this spectrum approach implied an unreliable procession of professional assessments, tests and second opinions that might produce unsatisfactory diagnoses.

Let the market decide, said Mutkoski. And when the market failed? The market would correct itself. The standards ecosystem was sophisticated. It was self-correcting.

What went unspoken between us was the unsavoury example of the market failure exemplified in Microsoft's own .doc format, or Oracle's idiosyncratic implementation of Standard SQL. Those market failures could only be seen at a greater perspective than that conceivable by the standards ecosystem itself. The market failures had not corrected themselves. Government had decided to intervene. And even then only to spend its own money more wisely.

The spectrum seemed just another dastardly way to pull the rug out from the open standards movement anyway. A software standard is not a complex system like the human brain. It's not hard to put your finger on it. If you decide that an open standard is an amorphous concept and let anyone define it how they want, you make it impossible to say what it is for sure. It's then whatever you want it to be. Policy formed in this way would have the structural integrity of a freshly laid cow pat, or the semantic certainty of gobbledygook - at least for as long as it took the proprietary camp to have established in practice that all open standards were now proprietary.
Barbie Campaign.jpg
Fairly reasonable

To be fair to Mutkoski, there might still have been something he was failing to get across. He was better at expressing his ideas on paper, he said. He gave me a copy of a paper he had written about open standards: 'Defining Open Standards: A Comparison of Policy and Practice'.

The paper starts out by misrepresenting a famous paper by a Yale law professor on the "I know it when I see it" hardcore pornography ruling of the US Supreme Court, as though to give his case against open standards the appearance of authority.

Nevertheless, Mutkoski's proposition is that open standards have a fundamental problem: they rely for evidence of their own integrity on nothing but self-referential confidence. The problem with his critique is that it denies the open movement the right to self-determination. (Also ironically for a software patent expert, the paper he misrepresented is about freedom of speech). His analysis reduces the open standards policy efforts of the UK, Europe and India into a dissembling knot of gripes and picked hairs.

It's hard to put your finger on what an open standard is because different organisations have defined it in different ways, the paper says. What it does not say is this is most true of those who drafted open standards definitions after capitulating to the proprietary lobby. It's like saying laws against embezzlement are unworkable because some countries have loopholes in which gangsters operate freely. Just ask any gangster, he'll tell you its unworkable.

This left just one question for the proprietary camp. If an open standard was one that included proprietary licence terms, what was a non-open standard? Surely there would be nothing to distinguish them?

"I think that most people would probably agree that a non-open standard is a specification created by a single company, held within the company and not shared with anyone else, not available for licensing, not available for implementation," said Mutkoski.

But that wouldn't be a standard at all, I said. "It could be though," said Mutkoski. Ah so its whatever you say it is. I know it when I smell it.

TfL spends £100m on temporary helpdesk

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Transport for London has spent £100m on a temporary contract that is still running after five and half years and will be clocking up more costs until 2014.

TfL gave a temporary IT contract to Computer Sciences Corporation in December 2006 after terminating an existing deal with Capgemini, claiming the stop-gap would be for just a year. But the temporary arrangement has been refreshed at least three times already.

TfL revealed the full cost of the temporary contract under coalition government orders to publish all contracts above £25m. TfL has like other departments not published its contract. But it did disclose a budget of £100m+ for CSC's "Marathon", the name of the temporary desktop computer contract.

A TfL spokeswoman said £100m was the total TfL had paid CSC under the temporary contract since 2006. The bill was inflated in January with another £21m for what the spokeswoman said was another temporary contract with CSC. This one would last until 2014.

She said TfL had extended its CSC contract again in 2011 while it conducted another IT review. Called "Project Horizon", it was completed in January. But TfL still needed more time to work out how it should organize its contracts. In 2007, TfL said it needed just a few months to work out how to organize its IT contracts. Then it stalled for more time until 2009 when it launched Project Horizon.

The spokeswoman said: "In August 2011, TfL had a contract providing a single point of contact for all IT incidents, the central helpdesk was provided by CSC. Following the completion of project Horizon in January 2012, the decision was made to extend the CSC contract to 2014 in order to provide time for us to complete the sourcing review and undertake and award any resultant procurement."

"Since the structural changes to TfL under Project Horizon, the information management team now operates for the whole organisation. In light of the new structure and emerging commercial and technological supply models we are in the process of reviewing the multi-sourcing arrangements to ensure they fully meet our business needs and provide the best service," she said.

CSC revealed January's temporary contract renewal in April, one week before its new CEO Mike Lawrie made his first presentation to Wall Street after joining the company in March. CSC had not had any good news in the UK since its 2009 cloud contract renewal with Royal Mail.

Liz Benison, CSC UK president, said in a press release: "We are delighted to be extending our relationship with TFL."

The temporary contract was set up by Phil Pavitt. Now chief information officer at HM Revenue & Customs, Pavitt is locked into a £multi-billion contract with Capgemini until 2017.

After Pavitt left TfL for HMRC, the transport body claimed to save money on its IT by bringing services back in-house from CSC. This is known only to have amounted to £6.7m over 2007 and 2009, according to TfL's board minutes.

Other budgeted TfL IT expenditure includes £100m+ with IBM for the congestion charge "enforcement" system, another £100m+ to Siemens for other congestion charge systems, £50-100m to NSL Limited for information systems and taxi licensing services, up to £25m to BT for an Automatic Vehicle Location system, up to £25m for SAP software licences and "maintenance", £25m for SAP managed services and application hosting and £25m to Computacenter for other hardware and software.

UK saves 5 quid on Oracle

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Oracle president Safra Catz and CEO Larry Ellison in USA Today.jpgThe Cabinet Office has shaved about a fiver off the cost of an Oracle licence after high powered negotiations in which minister Francis Maude pressed the flesh with Oracle president Safra Catz.

The minister claimed a coup for tax payers on Wednesday after concluding negotiations over a memorandum of understanding that sets prices central government departments will pay for Oracle software.

But while Maude's office claimed the deal gave British citizens more transparency over government business, it refused to clarify the dubious source of the £75m saving the minister claimed he had made with the deal.

The deal is supposed to save £75m over three years. But only a portion of the headline number came from an actual discount you could spit and shake on.

The rest came from shared services and licence sharing. That meant that some of £75m was derived from government offices buying fewer Oracle licences. This imaginary number was inflated by extrapolating its value over three further years when these non-Oracle licences would not be bought and therefore the money not spent and never even earmarked for spending could be accounted as a saving.

Licence sharing was similarly swizzed up as a saving for tax payers by making it sound as though Oracle had conferred on the government the special privilege of taking software bought but no longer needed by one department and sticking it in another department.

Cabinet Office refused to say what the actual discount was. A spokeswoman said it was "commercial in confidence". Yet it had been happy to trot out the £75m "saving" in a press release and claim it a boon for tax payers.

Pennies

It is doubtful the government made any saving worth talking about, if at all. A disgruntled government officer complained in November about Oracle's hold over public sector IT. 70 per cent of all software licences bought by central government departments were for Oracle software. That was 10 million licences.

The deal Maude parped about this week was for more licenses than those in central government. It covered emergency services as well. But his department couldn't say how many licences the deal concerned. Lets say for argument's sake it was just those 10m in central government. And lets assume for now the entire £75m "saving" was derived from a spit'n'shake discount. That would mean the government had saved £7.50 per Oracle licence over three years. That's £2.50 per licence per year.

But since the material discount was just one portion of the claimed saving, it would be generous to assume the government had saved even as much as a fiver on the cost of a licence. That's £1.60 per licence per year.

There may not, however, have been even that much of a saving to shout about.

The Office of Government Commerce (now called the Government Procurement Service) has had a similar MOU with Oracle since 2003. It started its last major round of MOU negotiations in 2009. The current discount arrangement sounds similar to the last. It is likely derived from the standard cost-price of Oracle software, similar to the MOU it has with Microsoft, not the actual current government spend on Oracle. That would make three imaginary numbers contributing to the £75m total.

So what has HM Maude really done for us?

The Oracle MOU might be such a poor deal that no-one takes it up, thus helping Maude achieve his promise to cut government's unhealthy dependency on a few suppliers, and so save real money and promote innovation.

The aforementioned disgruntled officer - the then outgoing deputy government chief information officer Bill McLuggage - had complained about the stifling effect government's Oracle dependence had on the market, on innovation and prices.

The Cabinet Office was today unable to say what it had done to reduce its Oracle dependency. CW has been waiting for Cabinet Office to clarify its numbers since Wednesday.

McLuggage had derived his Oracle numbers from a long promised survey of government ICT spending, which is yet in its infancy. This Assets and Services Knowledge Base (ASS KIT) is supposed to tell government what it's spending and what discount it's actually getting, something it's been promising to do for more than a decade.

Cabinet Office is not making the ASS KIT data available to the public - only to its suppliers. So much for transparency.

Downturn undermines flagship government outsourcing deal

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IBM's flagship local government outsourcing deal is still failing to deliver savings it promised in 2007. The problems have dragged on so long that one council has been forced to reschedule debt it took out to cover its cost of doing the deal in the first place.

Southwest One, a private/public partnership IBM set up with three public authorities, has delivered little more than a third of the savings it originally promised to Taunton Deane Borough Council, said a report to it's executive committee on 18 January. That's still exponentially lot more than the £400m deal delivered overall.

"Procurement savings have been delivered at a lower rate than originally anticipated in 2007," said the report.

"Back then it was estimated by IBM that £3.376m savings would have been generated by close of 2011/12," wrote Paul Harding, performance & client manager for Taunton Deane.

IBM had estimated its outsourcing deal would have paid back its costs within four years. Taunton Deane spent £3.65m on it in 2007. But it has been unable to repay £2.87m of loans it took out to finance the deal. The deal had delivered the council only £1.25m of its savings, forcing the council to reschedule its debt.

Cllr John Williams, Conservative leader of Taunton Deane Borough Council told Computer Weekly it was "purely a coincidence" that a £2.1m shortfall in the council's 2012-13 budget matched the £2.12m shortfall in savings IBM promised its outsourcing deal would deliver by 2012.

"It is unlikely we will meet the original targets," the majority of which were promised procurement savings, said Williams.

Land of plenty

"We are looking at a whole different world from when this contract was conceived. Back then we were in a land of plenty. Councils were awash with money. Government was spending like there was no tomorrow. But unfortunately since 2008, the money isn't there. Spending has been cut.

"Because we are not spending as much, there are not the purchases we envisaged when the contract was conceived. Across the board, Southwest One are saying there's far less procurement to be carried out than they were anticipating.

"They are redoubling their efforts to get everything within the net. There has to be a sea change. Instead of everyone going to buy bits and pieces, there has to be discipline. We have hopefully instilled that, that everything goes through Southwest One," said Williams.

But the council leader insisted Taunton Deane was benefiting from the deal. Southwest One was meeting a contracted obligation to reduce its charges to the council by 2.5 per cent a year for the life of the 10-year contract.

Williams, who was leader of the opposition when the deal was done in 2007, said SW1 was contracted on the basis that it was the private sector and therefore more efficient. Hence its service charges were reduced by 2.5 per cent every year.

"We have no problem with this contract at the moment. It's delivering what it's meant to deliver, apart from the procurement savings," he said.

Public Image Ltd.

Southwest One's service charge was set from day one. But by 2011 it had delivered just £3.3m of £192m promised cost-savings - a promise that clinched the deal for Taunton Deane and the other two participating public bodies, Somerset County Council and Avon & Somerset Police Authority, in 2007.

Southwest One meanwhile reported a £31m loss in the year to 31 December 2010 and has notched a loss for every year it operated.

The loss, reported last week, included a one-off charge of £17m for ongoing implementation of an SAP system intended to unite the back-offices of participating public bodies and cut their costs. The SAP implementation has had ongoing problems.

Southwest One's finances went unremarked on the news service it provides "customers" in Somerset. But it has showered them in the last 18 months with such mollifications as "Maximising efficiency through shared services", "Punching above your weight to achieve growth", and "How collaboration and cooperation can help to deliver procurement savings".

As the IBM venture was planning to file its latest cost-overruns at Companies House in December, it told residents about an award it had received for its revenue & benefits service.

Benefits have given councillors no cause for celebration however. A Taunton report on benefits cuts said recently: "In the end we will have to decide, from a limited number of claims, which vulnerable group we support the least".

At least, with Southwest One's award winning support, Taunton Deane will be able to turn the needy down more efficiently.

£176m shortfall

Participating councils are meanwhile seeking to renegotiate their Southwest One contract half way through its 10 year term after Somerset concluded this would be the only way it could hope to see the £192m savings IBM promised.

A spokeswoman for Southwest One said it had "identified more than £6.5 million of potential procurement saving opportunities" for Taunton Deane.

She repeated Cllr. William's statement that councils were saving less because they were spending less.

"Southwest One has a target to deliver approx £200m savings for TDBC, Somerset County Council and Avon & Somerset Police over the course of the 10-year contract," she said in a written statement.

"So far projects have been commissioned, which plan to deliver £71m of savings over the life of the contract and to date £15.9 million of savings have already been delivered."

IBM was unavailable for comment.

Cosy cloud coterie snuggles into top nob govIT jobs

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Mmmmmits snug at the top. Especially if you're Julian David, IBM's top UK salesman, who last week was picked to be Director General of Intellect, the ICT oligopoly's trade association.

It's only three years since David bagged the sale of the century, getting the Cabinet Office to re-badge IBM's cloud computing slogan as HM G-Cloud. Now he's not only got the cosiest seat in the business, but Andy Nelson, his apprentice on the G-Cloud programme, has been appointed government CIO at the Cabinet Office, the most senior job in government IT.

Imagine how made up David was when, chuckling over his cognac at the Intellect hearth, he learns that Nelson, Ministry of Justice CIO and senior responsible owner for HM G-Cloud, would be his opposite number in government.

How cosy it will be round the fireside when the pair are joined by Cabinet Office permanent secretary Ian Watmore, who was Nelson's colleague at Anderson Consulting (later known as Accenture) for seven years after they joined the 1980 intake.

How quaint last March's government ICT strategy now seems, with Cabinet Office minister Francis Maude vowing to "put an end to the oligopoly of large suppliers that monopolise [government] ICT provision".

Julian David - IBM - Intellect.pngAll that puff and bluster for aught

David moves into office at a crucial time for IBM. All his work promoting the G-Cloud is about to come to fruition. But it will need an extra push to get public bodies around the country to swallow it, close all their data centres, sack all their techies and give all their computer systems over to IBM or whichever branch of Acme Data Corp. they happen to buddy. That's what the G-Cloud promises.

David's just the man for the job. For though his 28-year career at IBM was officially terminated in 2010, he has an unrivalled track record selling IT industry fads.

He was there in 1998 as IBM's European Marketing director, flogging the Year 2000 bug fix to a terrified public, telling them it would be "the kiss of death" to anyone who didn't fix it.

He was there again flogging disastrous Enterprise Resource Planning systems in the millennial boom years.

The fateful year SAP began selling IT disasters to the retail industry, there was David again as ERP marketing director at the Retail Industry Unit of IBM, telling supermarkets how by spending mere hundreds of millions of pounds they could turn reliable old systems into ones that would burn their money more efficiently.

Andy Nelson - Government CIO.pngRetailers lapped it up. Andy Nelson, our new government CIO, was there in 1997 - lapping it up as Asda director of computer services, though only as long as it took to outsource the supermarket's computing to IBM.

Asda's then new CEO Allan Leighton did the deal after returning from a Harvard MBA programme. Two Harvard professors came to see it went smoothly.



Bad reputation

ian watmore DIUS Expo 08 Manchester Uni.jpgIt might not have gone so smoothly, but it certainly gave the eggheads something to think about when that first raft of ERP deals came to fruition in the mid-noughties.

MFI's £50m IBM SAP implementation led to losses and two boardroom scalps.

Sainsbury's had outsourced its entire IT in a £1.8bn deal with Accenture, then overseen by Ian Watmore. Four years later, its first ever net loss was attributed to supply chain and IT problems.

Sainsbury's kicked Accenture out and wrote off £260m IT spend. Bringing its IT back in-house was said to have helped turn the business around. Its management still denounces outsourcing, "unequivocally".

Angela Morrison, the woman who kicked Accenture out of Sainsbury's, had earlier kicked IBM out of Asda, undoing the work our new man Nelson had done in 1997.

Asda's subsequent, do-it-yourself SAP implementation was so successful it was rolled out across the rest of Walmart, its parent. Walmart's success was said to stem from doing its own IT, because it was too integral to trust to an outsourcer.

Other companies followed suit. JP Morgan bank terminated its $5bn IBM outsourcing contract in 2005. It had been the largest such deal in banking. Even Gartner, cheerleader for the US IT industry, admitted it was "time to stop compulsive outsourcing".

Worse still for IBM, the dotcom bust had forced the private sector to freeze IT spend. So IBM and its ilk turned on the public sector, which was famously the only sector spending any money. Watmore was now in government, overseeing the spending.

That's where Julian David pitched up after retail. As vice president of IBM public sector business he started flogging the same big outsourcing deals that had gone tits up in the private sector.

There was some good news to boost his chances.

Rob Fraser - Sainsbury's IT Director - receiving 2011 CIO of the Year award.png Boots terminated a £710m IBM outsourcing contract only half-way through its term in 2007, apparently because it had been so successful its modernisation finished early.

But Boots vowed never to put all its eggs in one basket ever again.

Rob Fraser, its group IT director (now at anti-outsourcer Sainsbury's), said outsource suppliers had no interest in helping customers cut the cost of their IT.


With friends like these...


But outsourcers were now busy trashing their reputations in the public sector. They made such a good job of it that government IT became synonymous with disaster. And government is going through the same re-evaluation of outsourcing industry went through in the mid-noughties.

This is the apparent legacy of John Higgins, Intellect boss for 14 years. He became head of the CSSA in 1998 and rode the rise and fall, consolidation of power, establishment of a bankrupt contractual model, left a trail of IT disaster stories and an industry with a reputation for bodge and exploitation - a reputation that became so well established the coalition government was able to define itself in opposition to it - to define Labour as the government of big-state IT failures. Government has denounced his trade association's membership and methods as the corollary of Labour IT. It has tried to mend their mutual record of kaput computing by rallying tech entrepreneurs not normally associated with Intellect.

On the occasion of David's appointment last week Intellect issued a press release in which the DG-designate said he looked forward to doing his bit to improve skills in the industry and support SMEs.

CW asked Intellect for David's SME credentials, Intellect said he had wide experience and had worked with SMEs.

Burmuda.pngDavid used to flog computers to SMEs as vice president of IBM's SME business. But his SME credentials consist of just eight months as a board director of EGS Group, a £3m company that had worked with him on the Cabinet Office G-Cloud plans in 2010.

He left EGS in May 2011 to open a UK office for Hong Kong-based, Bermuda-registered, Azeus.

...who needs SMEs?

David's SME credentials do not compare well with the notable notches he marked up as big business honcho at IBM.

The most notable of his recent achievements was an infamous £400m outsourcing deal by which IBM sought to gain control of public computing across the entire South West England. It is hard to imagine this megalomaniacal plan having any regard for SMEs.

Flush with the Boots boost in 2007, IBM formalised an agreement in principle to subsume the IT functions of 36 councils and emergency services in Cornwall, Devon, Dorset, Somerset, Gloucestershire and Wiltshire.

It initially involved IBM taking 75 per cent ownership of a public-private partnership called SouthWest One and acquiring the IT functions of Somerset and Taunton Deane Councils and Avon & Somerset Police.

It would implement a SAP system to run them and deliver £192m savings over 10 years. David said the project would cut costs and boost the local economy. But it floundered.

The SAP implementation went awry. A report by Somerset County Council Review Panel in 2010 said participating councils would have to renegotiate their contract before they would realise the savings IBM promised at the outset.

Alan Jones - former CEO of Somerset County Council.pngThe then Somerset CEO Alan Jones had earlier denied specific allegations of SAP problems and contract failures made by Ian Liddell-Grainger, local MP.

£65m of savings had already been booked, Jones claimed in 2009. The 2010 report said the venture had delivered only £2m of savings, had no clear idea how it would produce the rest and could anyway conceive only an estimated £45m cut in procurement costs.

The affair was murky, with Unison and councillors complaining about unwarranted secrecy. IBM had blocked an ITV reporter from using a little-known public scrutiny law to view the contract. Liddell-Grainger made unsubstantiated allegations of corruption. Jones got embroiled in grubby in-fighting with councillors.


David personally played an important part in turning this trashy reputation into a revamped sales story for outsourcers. Called the cloud, it was a transcendental vision worthy of the late 90s ERP pitch.

The cloud was a rebranding of ideas already in David's public sector pitch in 2007: departmental silos were bad, paying IBM to consolidate your data centres and virtualize your systems was good. Asset re-use was the carrot on the stick.

The fully formed cloud pitch was essentially outsourcing with dodgy bits stuck on. It promised to cut costs, cut jobs and deploy a radically new sort of computer system.

Julian David Presents RBWM plans for UK LAs to cloud at Intellect - Cloud Presentation - 11 October 2010.pngIt'll be different this time

As president of Socitm in 2010, Jos Creese promoted those same ideas, proposing local authorities sack computing staff and buy services instead from the cloud.

Creese fell in with David in 2006 when as CIO of Hampshire County Council (home of IBM HQ) he did a five year deal to rent an enterprise architecture made of elements that would later underpin IBM's cloud.

Hampshire had at the time just celebrated the successful installation of an SAP system. Council IT staff had done the installation themselves. Hampshire systems were running £2m-a-year more efficiently.

Creese's ideas echoed those touted by Ian Trenholm, CEO at the Royal Borough of Windsor & Maidenhead, a council with intimate ties to the coalition government. David's cloud pitch did too.

The shared idea was that if councils standardised their business processes, their organisations would readily plug into the cloud.

Margaret Miller - Accenture - former Sainsbury's CIO.pngSainsbury's had adopted the same ideas for its abortive Accenture transformation in 2000 - the one that led the supermarket to realise how IT was too important to entrust to someone else.

Margaret Miller, its then CIO, said how was trying to adopt standard business processes so it could use commodity computer systems. Miller now advises government customers for Accenture.

Pompous postlude

The idea runs contrary to the bottom-up noises the coalition government made before coming into power.

It runs contrary also to agile and lean, the empowering methods to which government has turned in the hope of reversing the trend for moronic public computer ventures - methods more akin to Sainsbury's, Asda and Hampshire in the days when they took IT into their own hands.

The Cabinet Office is meanwhile making a song and dance about getting SMEs into the G-Cloud. But the cloud will ultimately be a greater force for consolidation than economic regeneration.

When every council in the South West is using the same business processes, IBM's SouthWest One will be able to make a better case for subsuming their IT. The G-Cloud may not, as we are told, be a greater opportunity for SMEs, but merely something that must be made to accommodate SMEs so they are not excluded entirely.

Placatory postscript

John Higgins presents an award to an IT company for being an IT company.png
David will have to work hard to prove his SME talk is anything more than hot air. He will have to work harder to rescue the legacy left by Higgins, who you might think a decent man who has done good work, but showed poor judgement by staying in office after the wind changed.

As it happens, your jaded correspondent has had the good fortune to meet the new DG, and was struck at what a jolly good chap he appeared to be. That might better qualify him for the job than any publicity guff about SMEs, for the current bout of government-led reforms have striven for genuine collaboration to replace the adversarial relationships that defined its relationship with ICT suppliers in the past. But what industry really needs is a reformer, not a placatory pair of hands.

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