Uncharted outsourcing territory for the Revenue

EDS's £3bn IT contract will move to Cap Gemini Ernst & Young in January.

The Inland Revenue's decision last week to break its 10-year outsourcing relationship with EDS and Accenture for a Cap Gemini Ernst & Young-led consortium is fraught with risk, analysts have warned.

The £3bn, 10-year deal creates one of the largest transfers, with up to 3,500 staff, systems and intellectual property moving between suppliers to the public sector. The audacious transfer is the result of a competition devised by the Revenue and the Office of Government Commerce's chief executive, Peter Gershon, to help the taxman overcome the risks of "supplier lock-in". Richard Holway, director at Ovum Holway, said ditching EDS created huge challenges.

The Revenue and its new consortium of contractors were moving "into uncharted waters", he added. He said one of the first problems confronting them would be to secure the transfer of key staff currently working for EDS. Andrew Parker, senior analyst at Forrester, echoed some of Holway's concerns.

He singled out the potentially high costs of the transfer as a critical issue. He said, "Conventional wisdom is that replacing an incumbent supplier is prohibitively expensive." Martyn Hart, chairman of the National Outsourcing Association, said he expected EDS to play its part to ensure a smooth transfer, but he added, "It is always high risk when you change suppliers.

The Revenue will have an exit strategy but exit strategies can't take into account the feelings and relationships of the staff. "Senior management at EDS will be professional about the transfer but that does not guarantee what happens at grass roots level where people may feel they have missed out."

Computer Weekly has learnt from executives at the Revenue that the future of 200 senior technologists whose knowledge "holds everything together" could be critical to the successful transfer. Many are long service EDS employees and may not want to transfer to a new supplier, the executives warned.

Their knowledge could be crucial next year when the Revenue rolls out new tax credit software that is many times more complex than that which went spectacularly wrong in April 2003. Another complicating factor is the departure of some of the senior Revenue officials responsible for the switch from EDS to the new consortium.

Inland Revenue chairman Nicholas Montague, and John Yard, the director of business services, are due to retire, or to leave next year. The Revenue insisted, however, that the risks were manageable. "We have conducted a robust and genuinely competitive process to choose the best IT provider for the department in the 21st century.

"We are a large department with an excellent and strong senior manager team more than able to make a success of the transfer from one IT provider to another. Senior management will turnover in the normal way and it would be absurd to suggest that the transfer could be in any way overshadowed by such moves."

Inland Revenue should not put all blame for tax credit failure on sacked supplier >>

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