EDS’s settlement with the government over tax credits

On 22 November 2005 HM Revenue and Customs announced that it had reached a £71.25m settlement with EDS over tax credits problems. The government later claimed that this was the largest settlement ever reached between a central department and an IT supplier.

These public statements gave the impression that EDS was handing over £71.25 in cash, cheque or direct credit to the government. The reality may be more complicated.

EDS has not made any specific provision in its accounts so far for the settlement. And HM Revenue declines to say exactly how much has been paid. Indeed it’s very unclear how much actual money has been paid.

So was the Revenue’s settlement announcement little more than a contrivance, a face-saving device, in which the department gave MPs and the media the impression that it has been tough with its former IT supplier over tax credits and has reached a deal that’s good for taxpayers?

In the original settlement announcement, the key word, inconspuously placed, was “aggregate”. This was the announcement:

Tuesday 22 November 2005 13:12

HM Revenue & Customs (National)


“HM Revenue & Customs (HMRC), Electronic Data Systems Limited (EDS Ltd) and Electronic Data Systems Corporation (EDS Corp) have negotiated a settlement of HMRC’s claim for compensation for problems experienced with the IT system developed by EDS, to support the 2003 launch and subsequent operation of Tax Credits, during EDS’s partnership with HMRC.

HMRC and EDS have successfully concluded an aggregate settlement of £71.25m including an up-front payment and payments of additional amounts over time. HMRC believes this to be commensurate with EDS’s responsibility for the IT problems which followed the launch of Tax Credits. The specific terms of the settlement agreement are confidential.”

Aggregate is an important word because it means in essence: composed of a mixture of different components. In this case some of the settlement is understood to relate to tax deductions and EDS not invoicing government for work it could have invoiced for, and suchlike arrangements. And £26.5m of it is far from guaranteed.

After the announcement of the settlement was made, Computer Weekly learned that £26.5m was predicated on EDS’s winning future UK government business.

And in the year since the settlement was reached EDS has paid over only about £250,000 or less. At that rate it would about 100 years for the settlement to be paid off in full.

Officials at HM Revenue and Customs say they will ensure the full amount will be paid by EDS. But reassuring words come easily to the Revenue’s spokespeople.

The question is whether EDS has a legal obligation to pay the full amount if it does not win the appropriate level of business, whatever appropriate means in the circumstances. And would the department want to take EDS to court, especially when Whitehall officials were partly responsible for the poorly managed introduction of tax credits? Whitehall cares more for keeping its secrets than revealing all in an open court. That’s one reason no major IT dispute involving a Whitehall department has been heard in full in any open court.

Computer Weekly asked a spokesman at HM Revenue how much of the £71.25 settlement involves EDS’s handing over money, that is cash, a cheque or a direct credit to HM Revenue and Customs? The reply was remarkably vague.

She said: “We are not going into detail about payments made but we will collect the full sum due on the terms of the agreement – whether in cash or revenues received by EDS from future government work.”

EDS declined to comment.

The settlement was made on behalf of the taxpayer. But can taxpayers obtain the real truth about it? Not likely.

MP slams EDS settlement – Computer Weekly 23 January 2007 – here

The Financial Times followed up Computer Weekly’s article – here