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Revenue tied in to EDS

The Inland Revenue faces being locked into its main IT contractor Electronic Data Systems

The Inland Revenue faces being locked-in to its main IT contractor Electronic Data Systems and may have no choice but to renew the contract in 2004.

The estimated total cost of the 10-year contract has risen from the original £1bn to £2.4bn. This is £400m higher than the £2bn figure revealed by Computer Weekly last year. About £530m of the cost of the contract reflects workload increases, including new work completed, ongoing and projected projects.

By March 1999, shortly before the half-way stage in the contract, EDS had already received £1.04bn.

These are some of the findings in the first major independent study in recent years of the Revenue’s partnership with Texas-based EDS. The partnership was a landmark privatisation deal involving the biggest transfer of central government staff to the private sector.

The study, published this week, finds that although partnership with a single main IT supplier has advantages, it does not necessarily provide better value for money than a “more traditional adversarial approach to procurement in which there are frequent competitions to provide individual packages of well-defined services”.

This may be an unwelcome finding for the Revenue and EDS, particularly as their partnership has been cited to governments worldwide as an exemplar of successful state outsourcing contracts.

So interwoven is the relationship between EDS and the Revenue that the government spending watchdog the National Audit Office took the unusual step of commissioning a third party, Lorien, to carry out the study.

Lorien found that the risks of lock-in have increased beyond what was anticipated at the start of the contract.

This is partly because the frenetic pace of change at the Revenue has placed greater reliance on new technology and on the “relatively few” staff who have a strategic understanding of the complex large-scale systems, and how these mesh with taxation policy, operations and the business.

Lorien added that the knowledge of some may be “irreplaceable” and exposes the Revenue to “significant risks” should one or more or these individuals leave. No contingency plan exists if key people leave within a short period, it found.

The potential to be locked in to EDS was also increased by the strength of the contractor’s commercial relationships with its own suppliers.

These relationships led to certain products to be made available at favourable rates that might not be available to other potential services suppliers, said Lorien.

“The increase in joint working by the Department and EDS could make it difficult or costly for the Department to extract itself from the partnership at the conclusion of the contract in 2004,” said the National Audit Office, reporting Lorien's findings.

Treasury launches best practice blueprint

The Treasury has announced a new blueprint for best practice in IT public private partnership contracts.

Launching the guidance, HM Treasury minister Andrew Smith said he expected it to “produce substantial savings”. Assistant auditor general, Jeremy Coleman, said the government has learned from the first generation of PFI deals in IT.

The government’s experience with EDS and Andersen Consulting, highlighted in this week’s Computer Weekly, shows the difficulties ministers face in building effective partnerships for IT projects. Cabinet Office minister Ian McCartney is set to announce the Government's new corporate IT strategy on Monday.

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