Government's dispute with EDS over tax credits system rages on

If the government goes to the High Court in its dispute with services company EDS over the failed introduction of the tax credits system, its case for compensation is far from clear-cut.

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If the government goes to the High Court in its dispute with services company EDS over the failed introduction of the tax credits system, its case for compensation is far from clear-cut.

In the past the government has blamed EDS for the instability of the systems it built to support the introduction of new tax credits in April 2003.

Nicholas Montague, former chairman of Inland Revenue, told the House of Commons' Public Accounts Committee in 2003, "One thing went wrong: the failure of the systems."

But the cause of the problems went far deeper than system failure. An investigation by Computer Weekly in 2003 uncovered the events which led to the disaster.

In November 1999 the government committed to a deadline of April 2003 for the introduction of new tax credits.

The system was to be built by EDS, the main IT supplier to what was then called Inland Revenue.

By January 2001 there still was no IT requirement fit for use to start development.

Four months later EDS started building release one of the system, while there were uncertainties about the design of the tax credits and about the business processes to be used.

By then the project was already six months late.

A compressed timetable meant work on release two of the system started in April 2002 - 12 months late. And the scope of the release increased by about 50% as more complexity was added.

In January 2003, about three months before go-live, the Inland Revenue discovered that more than 100,000 claims carried the wrong national insurance numbers.

This was partly because clerks, presented with someone's name on their screens, had arbitrarily selected the first identity from a list of potential matches.

The Revenue stopped sending out award notices to claimants while mismatches were rectified.

One result was that millions of claimants, having heard nothing about the progress of their claims, called the Revenue's phone lines, which were jammed.

EDS warned that using the main test system to resolve mismatches had increased the chances of problems occurring when the system went live, but it did not formally advise the Revenue to put back the April deadline for go-live; but neither did the Revenue advise the chancellor of the exchequer to defer the deadline.

When release two went live on 8 April 2003 about 1.1 million claims contained incomplete information or some other problem that required officials to contact claimants. Helplines were swamped as people called about their claims. This put extra pressure on systems which were already unstable and stopped working several times.

The processing of the claims was severely disrupted.

In May 2005 the government announced that 1.9 million people had been overpaid nearly £2bn in tax credits.

About £600m was due to administrative and computer problems, said the Paymaster General, Dawn Primarolo. Some of this money was considered to be unrecoverable, and the recovery of the remainder added considerably to the administrative burden.

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