NAO questions legality of Revenue's £144m deal

Whitehall auditors have expressed concern that the Inland Revenue acted illegally when it allowed IT supplier Accenture (formerly...

Whitehall auditors have expressed concern that the Inland Revenue acted illegally when it allowed IT supplier Accenture (formerly Andersen Consulting) to increase the value of its original private finance initiative contract by up to 300% without any competition.

But the public spending watchdog National Audit Office (NAO), which prides itself on its independence, has published a toned-down version of its findings on the possibly illegal actions after pressure from the Revenue.

Computer Weekly has learned that a draft of the NAO report had questioned the legality of the way the Revenue turned a combined private finance initiative and outsourcing deal with Accenture, which was originally worth between £45m and £76m, into a deal costing up to £220m.

The extra work, to support new pensions legislation, was worth up to £144m, and was awarded without advertisement or competition.

But the Revenue objected to any reference to possible illegality. And the final NAO report on an extension to a contract for a new National Insurance Recording System, no longer directly questions the legality of the Revenue's actions.

Instead the more deferential wording suggests only that there has been a technical breach of European law in one aspect of the award of extra work to Accenture.

The final NAO report cites the Revenue as having received legal advice that one aspect of the extra work related to payments "did not adhere strictly to the terms of the original procurement advertisement".

The published report also found that the contract extension offered better value for money than the alternatives available.

But competition specialists say the award of the extra work is illegal.In 1999 a case in the High Court in London led to a judgment that suppliers could sue under UK law over breaches in European competition legislation.

"The extension appears to meet the criteria that would define a new contract, so it should have been advertised in the Official Journal. Not to do so breaks the law," said Tim Williams, procurement consultant with Tenders Direct, which advertises contracts online.

In theory, suppliers unable to bid for the new work could have issued a writ for loss of profit if they felt they would have won the deal.

But, said the NAO, the Revenue's "legal advisers judged the likelihood of such a challenge being made or being successful to be extremely low".

The apparent ease with which the Revenue persuaded the NAO to remove references to the possible illegality of the contract extension highlights the way some departments regard European tendering legislation.

"Some seem to regard it as acceptable to break the law because they perceive the chances of being sued to be slim," said Williams. "This may not be the case."

A Revenue spokesman said, "We present our view of the facts to the National Audit Office. What goes into the final report is a matter for [it] - [it is] an independent body. Our view of the facts is that the approach we took to the contract extension was legal."

The NAO and departments agree the factual content of reports before they are published.

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