Public spending watchdog the National Audit Office has found that the Revenue left itself open to legal challenge when, in April last year, it signed a contract extension to buy between £70m and £144m worth of work from Accenture.
The original contract was for the replacement National Insurance Recording System, which holds records on every UK resident. Major enhancements were needed to support subsequent legislation, including the introduction of stakeholder pensions and pension sharing for divorcees.
But for the extra work the Revenue decided to switch from a private finance initiative contract to one where the supplier was paid costs plus an agreed profit for development.
Lawyers advised that this material change could mean that the new deal should be put back out to tender. Fearing a competition could delay implementation of the new pension rules, the Revenue decided to award a contract extension to Accenture without competition.
Matthew Taylor, Liberal Democrat treasury spokesman, said: "It's scarcely believable that we're spending money on a system that reduces competition, took several years to work properly and breaks the law."