Will new e-envoy follow US crackdown on outsourcers?

Government: A tough US outsourcing Bill could point the way for the new e-envoy.

Government: A tough US outsourcing Bill could point the way for the new e-envoy.

Robert Dunt

As the former government e-envoy Alex Allan heads back to Australia, a number of questions have been left hanging over the outsourcing of public-sector IT.

Allan was the man charged with building public confidence in government IT following a series of embarrassing problems at the Passports Agency and continuing problems at the Inland Revenue.

His replacement now has the opportunity to compare the Government's reluctance to penalise outsourcing companies for their shortcomings with a more hard-nosed approach being considered in the US. There, legislators are planning a crackdown on outsourcers that would make them prove their competitiveness and efficiency.

Under the new legislation US companies would be forced to verify the cost savings that they claimed could be achieved - otherwise their contracts would be cancelled and thrown open to competition.

The legislation may appear in the US in the winter, but already suppliers body the IT Association of America has claimed that the Bill would mean the cancellation of so many contracts that the Government would be forced to shut down.

But the tide is definitely turning. At the beginning of September a US jury imposed a $475m (£300m) penalty on IT supplier American Management Systems (AMS) for its failure to supply an integrated tax system for the state of Mississippi.

Could the UK learn from this example to avoid high-profile troublesome contracts like those between EDS and the Inland Revenue or Siemens and the Passport Agency?

Lawyer Christopher Rees, who heads up the IT group at law firm Bird & Bird, was not positive about the idea of forcing companies to verify cost savings. "I think it would end up as a fudge anyhow and you would find people more hampered in the way they were able to talk to their clients. It would probably end up being a restriction on the dialogue between the customer and supplier which should be as open as possible."

Rees added that a sensible purchaser would always seek to validate claims of cost saving anyway. But he said it was not always just cost savings that clients were looking for from outsourcers. Sometimes it is new technology investment to better manage existing problems.

In contrast, solicitor Chris Holder, from specialist IT law firm Shaw Pittman, responded positively to adopting the US approach over here. "Any ability to verify cost savings would be helpful whether in the private or public sector," he said.

This presents a challenge - many organisations do not know what IT they have and how much it costs them - which means outsourcers could mitigate the risk by including very strict terms and conditions into contracts. Any additions would cost extra.

Holder said it would be very difficult to marry this situation up with legislation.

Although punitive damages, such as those in the AMS case, do not exist in English law at the moment, Holder said he could envisage a situation where they were introduced, as courts may see them as a way of maintaining public services.

"We have got the situation where the vendor's sales people are selling a promise and are not necessarily liaising with their delivery department to see if they can actually do it on time and in budget. If there were punitive damages then the vendors would be careful about what they were selling and bad delivery," he said.

But outsourcing experts are doubtful about how much help tougher US legislation will really be.

Richard Sykes, non-executive chairman of outsourcing adviser Morgan Chambers, said he thought it would risk recreating the old environment for outsourcing where the priority was cost reductions. He said outsourcers should instead increase their competence.

Sykes added that new legislation could simply lead to more costly legal battles with no clear gain for either side.

John Higgins, director-general of the suppliers group Computer Services & Software Association, agreed with the view that new legislation would not provide the answer.

"The challenge is more to do with practicalities as when there is a project there are many issues on both sides and, while I think you need a way of assessing a project against certain objectives, I don't think additional legal levers would achieve that," he said.

Some IT managers on the receiving end of outsourcing believe that new legislation is less important than a more equitable approach to IT contracts.

Glyn Evans, IT manager at Knowsley Borough Council, said that, in the past, contracts could almost be interpreted as saying "we will provide this if we think it is worthwhile and in our interest". Although the situation has improved, Evans said it was still difficult to achieve open competition to renew a contract. The advantage was always with the current contractor.

Perhaps unsurprisingly, outsourcers themselves also said legislation would do more harm than good.

John Harrison, marketing manager at ICL, said, "Where we are trying to get to with outsourcing is very much a partnership approach and, whereas obviously you've got to have a contract between the supplier and the buyer, we believe that the real big issue about outsourcing contracts is relationship management."

Who'd be e-envoy now?

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