The National Audit Office (NAO) has warned HM Revenue and Customs (HMRC) about the challenges it will face changing its Aspire IT contract in line with government reforms to the procurement of large outsourcing deals.
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In a report looking into HMRC’s management of Aspire and its progress towards finding a replacement, the NAO pointed to serious risks to HMRC’s business if it fails to replace the Capgemini-led deal.
The NAO said the department needs to act quickly to replace the contract by June 2017.
Aspire is the biggest IT outsourcing contract in government and accounts for 84% of HMRC’s total IT spend. HMRC pays an average of £813m a year for Aspire services, which have been instrumental in collecting £506bn in tax receipts over the last year.
The contract began in 2004 as a 10-year contract, but has since been extended until 2017. Over the last decade it has cost the government £7.9bn in total.
However, the contract no longer fits in with the government’s new rules for reducing the dominance of a small number of IT suppliers offering inflexible contracts.
The Cabinet Office published its "red lines" for IT contracts in January to increase the number and variety of IT suppliers to government.
One red line was that no IT contract may exceed £100m in value unless there is “an exceptional reason”. Smaller contracts permit competition from the widest possible range of suppliers, said the Cabinet Office.
HMRC has held competitions for just 14 contracts outside Aspire, with an annual value of £22m – 3% of the cost of Aspire in 2013/14
National Audit Office
The cost of the Aspire contract has spiralled over the years, with the NAO saying that HMRC has commissioned much more work through Aspire than was expected. It estimates that when the contract ends in June 2017 HMRC will have spent £10.4bn compared with the £4.1bn projected when Capgemini’s bid was first evaluated.
Capgemini and its subcontractor Fujitsu have gained considerably more profit from Aspire than was foreseen in 2004.
Finding a replacement
HMRC accepted the Cabinet Office’s view on large outsourced IT deals and since 2011 has been trying to break up the contract. However, the NAO report said the department has had only limited success in negotiating new agreements with suppliers.
The department had planned to move to direct contracts with Capgemini’s main subcontractors, Fujitsu and Accenture, but the NAO said that by July 2014 it had seen no evidence of any new contract being agreed.
The department also promised to introduce greater innovation and competition – in 2012, it took back responsibility for innovation and service delivery. However, the NAO said competitions had been held for just 14 contracts outside Aspire, with an annual value of £22m – 3% of the cost of Aspire in 2013/14.
The NAO said that HMRC faces a “considerable challenge to reform the contract while developing a new approach to technology which is suitable for digital services”.
According to the report, HMRC has been slow to come up with a plan to replace Aspire, and is now doing so while trying to negotiate further changes to the current contract.
In early 2014, HMRC launched an Aspire replacement programme to try and develop its future IT capability, but the NAO noted the department has produced limited information about the programme, and provided no business case or full project plan.
HMRC has until June 2017 to replace the contract, or face serious risks to the business, including a bigger technology bill than necessary because of the absence of competition, a failure to modernise tax collection processes, and a fall in the quality of service to taxpayers.
In response to the report, an HMRC spokesman said: “HMRC has one of the largest outsourced IT contracts in the world, enabling us to deliver a very wide range of services to more than 50 million customers.
“The NAO also recognises the progress that HMRC has made over the last two years in developing in-house technical skills so that we are less dependent on external suppliers. For instance, we recently opened a new Digital Delivery Centre in Newcastle as part of our digital transformation programme.
“We will continue to improve the performance of the contract over the next three years.”