MPs question EDS contract

Inland Revenue and EDS chiefs defend their outsourcing contract against House of Commons Public Accounts Committee scrutiny and...

Inland Revenue and EDS chiefs defend their outsourcing contract against House of Commons Public Accounts Committee scrutiny and charges of lock-in. Mike Simons reports

Members of the House of Commons Public Accounts Committee (PAC) are deeply concerned that the Inland Revenue is locked into its contract with US-based outsourcing giant EDS.

A committee hearing last week did not allay MPs' fears as Nick Montague, chairman of the Inland Revenue, and EDS director Alan Stevens, insisted the 10-year outsourcing deal was a model contract and good value for money.

The issue of lock-in was raised by PAC chairman David Davis and committee members Nigel Griffiths and Geraint Davies, but was rejected by Montague. He said work on preparation for re-tendering the contract had begun and that it would be a "firm market-making exercise" and "not just a competition undertaken to meet European requirements".

"It is very important for us, wherever possible, to make use of industry standard systems and open systems," Montague said. He also said the Revenue had the right to access key EDS staff for six months, if they do not win the new contract.

Davies was not reassured. "The issue is," he said, "what is access? Will the EDS staff be working full time during the hand-over, and does that make economic sense in a competitive bid situation?

"The natural tendency will be for the Inland Revenue to take the easy option and stay with the current player," he said.

Davies also said that the political consequences of changing supplier and then suffering problems with the Revenue's systems will "create enormous political pressure not to take risks".

PAC members were keen to see the Revenue make more use of benchmarking, but Montague said this posed problems. He conceded that the Revenue would eventually benchmark 50% of the value of the contract with EDS, but said it was difficult to find comparators.

"A lot of the exercises we undertake with EDS, even with the use of standards systems, are groundbreaking," said Montague, adding that commercial confidentiality compounded the problem.

Montague told the committee he was unaware of other contracts outside central Government where EDS had failed to perform satisfactorily and said it was not his responsibility to pursue the issue.

For Davies, the Revenue's explanations of its difficulty in benchmarking were "excuses".

Montague defended the rise on value of the EDS contract from £1bn when it was let in 1994 to £2.4bn today, saying the vast majority of the increase was for new work "that was not foreseen and could not be foreseen".

This included upgrading the IT infrastructure to Windows NT, Y2K remediation and new legislation such as the working families tax credit.

"I am satisfied we have a firm grip on costs," said Montague, who revealed that EDS had been fined £2.5m for breaches of service levels during the life of the contract, which occurred about 20 times a year.

Read more on IT risk management