MoD e-contract could yield extra millions for Cap Gemini

Cap Gemini expects to make £400m on top of a £100m MoD e-procurement contract it is set to win

Cap Gemini expects to make £400m on top of a £100m MoD e-procurement contract it is set to win

An internal memo by David Galloway, public sector director at Cap Gemini, has expressed delight at his company having "beaten off EDS for the e-commerce prize at the Ministry of Defence", write Tony Collins and Mike Simons.

Galloway was referring to a £100m e-commerce contract, the Defence Electronic Commerce Service, which is due to be awarded to Cap Gemini provided there are no last-minute hitches in negotiations.

But the memo's disclosure that Cap Gemini expects to sell or invoice about £400m on top of the initial deal, which is likely to be worth about £100m, could prove an embarrassment for the Defence Communication Services Agency, which let the contract.

The agency is part of the Defence Logistics Organisation (DLO) which was formed last year to provide unified logistical support across the three armed services, thereby cutting costs.

A recent report by consultant John Dowdy of management consultancy McKinsey examined progress made by the DLO, which is responsible for 20% of all MoD spending and has a staff of 41,000.

The organisation has made an "encouraging" start in some areas, said the report, but it added that the DLO has yet to set out how it plans to meet the 20% savings in its output costs by 2005.

Armed forces minister John Spellar said the MoD's new e-commerce service could revolutionise the way the ministry buys goods and services.

"We need excellent e-business systems internally to establish a single view of our inventory, track assets to and from the front line, and place orders electronically, accurately and swiftly," Spellar said.

"New electronic messaging systems, online catalogues of products, and automatic transactions will transform what is currently a largely paper-based system... This is likely to be the biggest and most significant e-business system in government and possibly in the UK, once it is up and running."

He added, "We need to develop collaborative e-business relationships with our trading partners and suppliers, so that we can access their in-house parts catalogues and engineering configuration data.

An interim service under the e-commerce contract is due to start this summer. Cap Gemini's bid consortium includes Ernst & Young and Oracle, while EDS bid with Commerce One, a specialist US-based e-commerce system supplier.

The Cap Gemini memo said: "According to our inside information we beat EDS on technical architecture, on security, on business understanding, and on our approach to partnering."

Computer Weekly has confirmed, independently of the memo, that these were among the main criteria used by the MoD to assess the bids from EDS and Cap Gemini.

The memo reveals that while EDS showed MoD officials a software product developed by Commerce One systems in Nice, France, and Los Angeles, Cap Gemini produced "superb" reference sites in Edinburgh and Port Talbot.

"This will position us extremely well in the e-business space, as well as giving us a very high profile in government and with the MoD's suppliers," the memo says.

Cap Gemini is also supplying systems to Whitehall spending watchdog the National Audit Office to "help the nation spend wisely".

Government IT projects that have broken their contract value

Inland Revenue and EDS

In 1994 the Inland Revenue outsourced its information systems and IT to Texas-based outsourcer EDS in a contract worth £1,033m. "The contract with EDS is not a fixed-price contract because the needs of the Inland Revenue are constantly developing and changing," noted the National Audit Office.

By 1996 the contract value had risen to £1.6bn while the NAO this year said the cost had topped £2bn. It put to the increase down to:

  • Post-contract verification adjustment £203m

  • Workload increases £533m

  • Inflation £248m

    National Air Traffic Services and Lockhead Martin

    In 1987 the Civil Aviation Authority (CAA) announced that it was to build a New En Route Centre at Swanwick, Hampshire at a cost of £475m. In 1992 the CAA announced it had given a £120m contract for the operational systems to a consortium headed by Lockhead Martin. Cost overruns have driven the price up to £699m, with payments to Lockhead Martin set to top £337m.

    The original opening date for the Swanwick centre was 1996. It will not now be ready until spring 2001.

    Project Trawlerman and ICL

    The Ministry of Defence accepted a £32m computer system in 1995 knowing it was useless. The system, code-named Project Trawlerman, was eventually abandoned with the MoD writing off £41m costs. The project was let to Data Sciences, later acquired by IBM, which subcontracted hardware development to ICL.

    ICL was then commissioned to supply a replacement £6m system.

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