MPs call for scrutiny of outsourcing deals following ILA debacle

The education select committee has recommended that all government outsourcing contracts should face parliamentary scrutiny to...

The education select committee has recommended that all government outsourcing contracts should face parliamentary scrutiny to avoid a repetition of the mistakes that led to the collapse of the Individual Learning Accounts scheme. Bill Goodwin reports

The Government is being urged to sweep away the secrecy surrounding its agreements with IT outsourcing suppliers, following the spectacular collapse of its £100m-a-year Individual Learning Accounts (ILA) adult training scheme.

The failure of the programme, one of Labour's key manifesto promises, is highly embarrassing both for the Government and its private sector IT partner, Capita, which had been awarded £55m over five years to run and manage the scheme.

Ministers pulled the plug on the scheme at the end of last year when it became clear that unscrupulous operators were exploiting security weaknesses in Capita's computer systems to claim subsidies for training they had not delivered.

Lessons from the failure of the ILA programme will have significant implications for future government IT contracts. A critical report from the education and skills select committee has begun to unravel exactly what went wrong.

Chairman of the committee, Barry Sheerman, said he was amazed at how loose the terms of the contract between Capita and the Department for Education and Skills (DFES) appeared to be. There were no clear lines of responsibility, with the result that parts of the work appeared to be no one's responsibility.

The DFES rolled out the ILA project quickly to meet the manifesto commitment of giving one million workers vocational training within a year. But cracks soon began to appear early in the change management process.

In the pilot studies Training and Enterprise Councils (Tecs) had worked with learning providers they knew and trusted. When the scheme rolled out nationally the plans changed. The programme was opened up to any learning provider registered on the government's Learndirect database, without Tec scrutiny.

Capita believed that the Learndirect database would ensure that only quality training providers could register to provide ILAs. But shortly before the scheme was due to be launched it became clear that there were serious technical difficulties in integrating the Learndirect and ILA databases. Ministers decided to press ahead with the scheme.

With no quality control safeguards on the training providers it should have been clear that Capita's IT system left the ILA scheme wide open to abuse. But despite its expertise in security, derived from running housing benefit programmes for local authorities, Capita failed to warn the department.

"We should have shouted louder," Capita officials later conceded.

No one picked up on the early warning signs in spring 2001. Then, independent researchers suggested that as many as one in four ILA account numbers might have been used without the owner's knowledge. But the suggestion was dismissed as a data recording problem at Capita.

Similarly, investigations by a Sunday newspaper into allegations that ILA providers were offering the public bogus qualifications and unlicensed Microsoft software failed to alert ministers to wider problems.

By the summer, complaints began to come in thick and fast. A significant proportion were from members of the public who were concerned that money had been taken from their accounts without their knowledge. There were also allegations of fraud.

It later emerged that fraudsters were setting themselves up as training providers and easily gaining access to the ILA database. Once online, it was not difficult to guess unused account numbers, type them into the system and claim a £200 subsidy per number for training they had not provided, or for individuals who did not exist.

Other training providers jumped on the bandwagon, claiming £200 government subsidies for providing customers with £10 CD-Rom training programmes or badly photocopied Microsoft manuals.

The scale of the problems were probably under-reported. Complaints handling was one of few responsibilities that were clearly defined in the contract as falling to Capita, but here its performance fell far below expectations. The firm's ability to respond to queries from the public and training providers was also poor. Training providers were given conflicting answers to the same questions, depending on who happened to pick up the phone at Capita's call centres.

In October last year, with complaints accelerating, ministers announced plans to close the scheme down. In November, closure was dramatically brought forward, after one training provider revealed that it had been offered ILA account numbers, names and addresses on a computer disc that had, apparently, been taken from the ILA database. It was the tip of the iceberg in an illicit black market trade in ILA numbers.

The problems with the ILA scheme might have been remedied, if the contract between Capita and the DFES had been more carefully worked out, select committee MPs believe.

"The Government should have very clearly, in the sort of contract they signed with a private sector provider, tried to get the contract right," said Sheerman. "There is a blurring of the lines of responsibility."

Had the agreement been better designed it might have been possible to fix the problems in the scheme without taking the radical step of ending it altogether, the select committee suggested. The early closure of the ILA programme has left some legitimate training providers struggling financially - many have been forced to close and to lay off their staff.

The DFES should have been bolder and given Capita a wider brief to deliver the ILA project, the committee said. As it was, by taking complete responsibility for the policy design, the department lost the opportunity to transfer more of the risks of the scheme to its private sector partner.

The committee is now calling on the Government to guard against future outsourcing contracts falling into the same trap by opening up agreements with private sector partners to parliamentary scrutiny.

"The lack of scrutiny of the delivery model did nothing to improve the ILA scheme's chance of success. We recommend that in future the non-confidential clauses of any such major service providers should be laid before parliament at least three weeks before coming into effect," the committee said.

The recommendation has been given a cautious welcome by outsourcing experts. Anthony Miller, of analyst firm Ovum Holway, agreed that something needs to be done. But he said that any parliamentary scrutiny would need to be clearly focused if it is to avoid delaying IT projects unnecessarily.

"It is clear, because of the problems that have been happening in government contracts, that something is adrift. If there is a quality assurance programme that can learn from past mistakes that's great. But it should not be a review for review's sake. You don't want 635 MPs with their own views on clause 4b of the contract," Miller said.

Government ignored its own advisers
The Government ignored its own advisers' warnings that its flagship Individual Learning Account programme was likely to be abused unless quality control procedures for training were put in place.
Three months before the national roll-out of the scheme officials from the Further Education Funding Council drew attention to the potential risk to public funds but the warnings were ignored by civil servants anxious to meet the Government's manifesto promise that it would give subsidised vocational training to a million workers.
Warnings from the Audit Commission that computer crime was on the increase and pledges from the prime minister that government departments would work together to combat fraud also went unheeded, select committee MPs said.

"We regard the failure of the Department for Education and Skills to learn from the mistakes made in the past by its predecessors and other government departments to be one of the most disturbing aspects of the ILA experience," their report concludes.

Change management was weak
Public sector contracts with IT suppliers often fail because of poor change management procedures. Although most contracts are probably reasonably well drawn up, problems can occur if the specifications of the project change during its execution.
"Every single government contract that goes wrong, it is invariably because someone changes the rules in the contract. What it comes down to is the extent to which you design into your contract on day one, the ability to change," says Anthony Miller, outsourcing specialist at Ovum Holway.
"That will have a huge impact in determining whether a contract is successful and whether a relationship remains sweet."

"There is no such thing as a watertight contract, but if a contract is 90% or 95% right it should work, provided there is a good working relationship between the supplier and the government department. With the right degree of trust between the parties, you can cover up the cracks," says Miller.

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