New rules create PFI doubts

The Government is clarifying areas of doubt on IT outsourcing under PFI after suffering a series of project blunders. Mike Simons...

The Government is clarifying areas of doubt on IT outsourcing under PFI after suffering a series of project blunders. Mike Simons reports

The Treasury has issued guidelines for IT procurement in private finance initiative (PFI) projects in an effort to generalise the lessons from a string of troublesome government contracts.

The new rules aim to clarify key areas of doubt, including intellectual property rights as well as what is meant by "partnership" in government IT projects. They are also proposing to separate software development from overall IT project contracts.

The Treasury's PFI task force said that in future it would sanction staged payments when software passed agreed milestones.

The profit element on software would be rolled up into a bond payable when a project was delivered on time and to cost - in line with the main contract. The bond would be forfeited if the contractor defaulted.

The move runs counter to one of the government's key arguments for PFI - that it transfers much of a project's risk from the public to the private sector.

John Perkins, chief executive of the users association, the National Computing Centre, said, "The Treasury has listened to the industry, but the question remains - will they be able to deliver?"

He pointed to problems with PFI across government, not just IT, and questioned whether separating software development from broader PFI contracts was a viable solution.

Suppliers implementing projects where software development can amount to 80% of costs welcomed the move.

However, a director of a major player in the PFI market was sceptical that the move would help. He told Computer Weekly that the separation of software "looked like it was put together at the end of the drafting process".

A director at another major government contractor said the changes would "help enormously". Under the old rules, the borrowing required to fund PFI projects meant it was very difficult to get a return on investment. "If we wanted to stay in the business, we just had to swallow it," he said. "Even under the new rules there will be enough risk involved," he added.

Mary Pitteway, PFI marketing strategy manager at Bull, said, "Software development costs are not always the dominant factor in contracts. In addition, suppliers are being advised to use off-the-shelf products as much as possible and departments are being urged to break large projects down to smaller phased ones."

She was worried that the guidelines might place too much emphasis on the mechanism of negotiating contracts, to the detriment of outcomes.

Rob McCallough, head of the IT group at lawyers Masons, who has closely followed the development of the guidelines, welcomed their introduction, but said, "They should go hand-in-hand with project support and training for civil servants."

In private, other lawyers involved with troublesome PFI projects doubted the impact of the guidelines. "We should tell government departments to get real," one said. "Civil servants are not commercially trained. On a lot of projects the specification is not really there. The guidelines may help but they won't overcome the problems."

Issues about the accountability of civil servants involved in PFI contracts were not addressed in the guidelines, but are expected to feature in the Cabinet Office inquiry into Govern-ment IT failures, which will be published next month.

Intellectual property rights

The Treasury task force did try and clarify the Government's attitude to intellectual property rights (IPR) under PFI. The issue has been sharply exposed with the NIRS2 National Insurance Records system run by Andersen Consulting.

According to Peter Holmes, Andersen's managing partner for government services, "The structure of PFI deals means the contractor owns the intellectual property rights to the system and licenses the Government to use the asset. Inevitably that means the balance of power is shifted towards the contractor.

"If the Government does not pay the full asset bill, it can't have full control of the asset," added Holmes. "It comes down to a philosophical question on PFI."

The taskforce has taken a different view on intellectual property rights. "The presumption remains that the Authority [the purchasing department] does not need to own all IPR used in the Services, but there may be circumstances where ownership is appropriate, for example, defence contracts [and] projects that involve large amounts of bespoke software.

"In projects that involve a large amount of bespoke software development which represents the major value of the project there are good arguments that the Authority has paid for the specially written software and therefore rights of ownership (and of commercial exploitation) should belong to the Authority."

The task force said purchasing departments should take care to ensure that it has all the rights it may need to use intellectual property during the course of the contract and allow a new contractor to deliver the services or equivalent services in the future.

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