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Government reviews IT contract strategy as ‘opaque’ outsourcing deals are set to expire

Project dubbed ‘Ocean liner’ looks at how to move away from existing outsourcing contracts, citing poor value for money and supplier criticisms

The Cabinet Office is conducting a review of government IT contract strategy after acknowledging that many existing outsourcing deals have proved bad for taxpayers.

The review – dubbed ‘Ocean liner’ – aims to establish new principles to help manage the move away from the many long-term outsourcing contracts that are due to expire during the current parliament.

Most significantly, the terms of reference for the study state how bad many of these deals have been for the government.

“These contracts have not stood the test of time,” said a background document written by the Cabinet Office team running the review, and seen by Computer Weekly. “The opaque nature of service delivery hides the fact that many are not good value for money.”

The document is also critical of the outsourcers involved in such arrangements.

“There is little incentive on the supplier to improve operational and hence price efficiency; and where the supplier has done so, they have kept most of the cost savings as increased margin,” said the Cabinet Office document.

“The client organisation has lost sight of how the services are provided (the so called ‘black-box’ approach) and thus is at a disadvantage in challenging value for money or instigating change. The contracts have proved inflexible and change is slow and expensive.”

While government IT watchers will welcome this acknowledgement of the poor performance of many outsourcing deals, critics are likely to wonder why the government has waited until those contracts are so close to completion before preparing a strategy for migrating away from them.

“The situation that leads to this study is the challenge posed by the expiry of a generation of IT contracts let in the period 1995-2008,” said the document.

Former Cabinet Office minister Francis Maude said as long ago as 2010 that “the days of the mega IT contracts are over”, and government chief technology officer Liam Maxwell told Computer Weekly in 2013 that existing outsourcing deals would not be renewed.

Future approach

However, the Cabinet Office review document said: “We are looking for the study to inform our future approach to these contracts. We need at a minimum some technical and commercial design principles and suggestions on how to manage and govern the transition from where we are now to a more cost-effective, responsive and better controlled future.”

The terms of reference highlighted the progress made already in adopting new ways of delivering IT projects, but said there have still been flaws in adopting these methods.

“We have seen some successful moves to break these contracts up and put in place service delivery arrangements that better suit the client departments,” said the ‘Ocean liner’ document.

“We have also seen challenges – insufficient skilled staff to manage these more complex landscapes either technically or commercially; transitions that have taken years rather than the promised months; service failures that are slow to be resolved and where there is little recourse to the failing supplier(s); agile projects that seem continuously to iterate and deliver late and little.

“It is also apparent that there is no consistent advice on how to deal with these challenges; each department hires its own consultants and goes its own way.”

How much to insource

The Cabinet Office review is also considering how much the government needs to insource rather than outsource work.

“What part does insourcing play in our strategy?” said the document. “What skills/services/functions should we consider for insourcing? What would we never choose to insource? How big a requirement do we have to have to consider insourcing?”

Insourcing is already being pursued in the largest government IT outsourcing deal at HM Revenue & Customs (HMRC), where the £800m-a-year Aspire contract expires in June 2017. Some 250 Capgemini staff are being brought back in-house by HMRC.

HMRC has also made progress by separating the outsourcing arrangement into direct contracts with the key suppliers – Capgemini, Fujitsu and Accenture – instead of the former prime contractor relationship with Capgemini.

But the department still turned to external consultants to help with the transition away from Aspire, in a £20m contract with Bain & Company signed in October 2015.

Read more about government IT outsourcing

Vehicle licensing agency DVLA last year completed a project to bring its long-term outsourcing deal back in-house, saving £300m in the process.

Meanwhile, the government is still wrangling with the challenge of getting the best balance between developing its own digital and technology skills and using external consultants and temporary staff.

A National Audit Office (NAO) report in December last year found “widespread acknowledgement” of the digital skills gap in Whitehall. However, another NAO report this month showed that IT specialists account for 25% of government spend on temps and consultants.

“Two-thirds of the largest government projects are related to transformation ICT and service delivery programmes,” the latest NAO report said.

“Significant skills shortages remain in the areas needed to transform government, including project management and ICT, which are common specialisms of consultants and temporary staff.”

A Cabinet Office spokesman said: "We're always looking to get the best deal for the taxpayer and work with the widest range of suppliers possible. A review into our IT contract strategy is currently underway and further details will be available in due course."

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This is brilliant - the world of SI's playing the shots is ending!
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Poor performance of outsourcing contracts is usually the result of poor contract management on the side of the principal.

What justifies the assumption that the same contract management would do any better on insourcing?
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