Agreements need renegotiating to achieve full planned efficiency gains
Major computer companies hold the key to Labour and Conservative election promises to achieve multibillion-pound savings in central government departments, but some have good reason not to co-operate fully, Computer Weekly has learnt.
Large-scale contracting out of Whitehall systems and jobs in the 1990s has left IT suppliers with lucrative contracts. Some of these will have to be renegotiated if the next government is to achieve most of the savings that underpin the tax and spending plans being outlined in the election campaign.
Market specialists have said Whitehall will find it difficult to persuade suppliers to unwind profitable contracts and accept new agreements with more onerous terms and conditions.
Some of the new contracts are being modelled on the NHS deals which have led to delayed payments to suppliers, with some losing money. Earlier this month Accenture announced losses of up to £80m on its health service work.
Even if deals are renegotiated, IT investments may not cut costs. The introduction of systems to support new tax credits, the Child Support Agency, checking of criminal records and the issuing of more secure passports led to large numbers of extra staff being recruited to deal with backlogs of work.
Robert Morgan, director of outsourcing specialist Morgan Chambers, said departments will try to cajole suppliers into relinquishing legacy contracts and signing new deals, with the threat of being sidelined for future government work.
But if this tactic fails, departments will have to pay large sums to suppliers in compensation for ending contracts, and pay them for extra work, as their co-operation will be to critical to plans by politicians to integrate IT activity, redesign business processes and cut jobs.
This means that IT and other costs are set to rise so that investments in the short term make possible medium- and long-term savings, said Morgan.
The prime minister Tony Blair has already said that technology is central to achieving the efficiency savings of £20bn identified in the Gershon Review. The Conservative Party's answer to the Gershon Review is the James Report, which seeks £34bn in savings, a large part of which are dependent on technology.
But ministers and departmental chief information officers have expressed regret that too much work was contracted out to the private sector, leaving departments over-reliant on some suppliers.
The depth of this dependence is one of the findings of an investigation by Computer Weekly into the merger of the Inland Revenue and Customs and Excise.
The merger, which became official last week, involves 250 major IT systems, 100,000 desktops, 3,000 computer staff and a fifth of the civil service.
Computer Weekly has uncovered details of efforts by officials to persuade Japanese-owned Fujitsu to agree to agree to a single IT contract for systems and services within the merged HM Revenue and Customs. A single overarching IT contract would allow the department to achieve tens of millions of pounds in savings from an integrated approach to running systems and make it easier to combine business processes and jobs.
But it took six months of negotiations between Fujitsu and officials before the two sides were able last week to sign a memorandum of understanding to negotiate further on the possibility of a single contract.
"We have agreement in principle which resolves all the potential showstoppers," said one official. "We now have to agree the contractual and commercial issues."
Any agreement on a single contract is not expected until September - and it will be only a small step towards the changes in business processes that will ultimately save costs.
An agreement is likely to involve Fujitsu being offered a five-year extension on its work at Customs, with the possibly of an eight-year further extension. In return the company will have to agree to roll its 10-year, £1bn Infrastructure Service Agreement with Customs, which expires in 2009, into a more onerous £3bn "Aspire" contract signed by Capgemini and Fujitsu to provide services to the Inland Revenue.
Officials say the existence of the two separate contracts is hindering their efforts to combine the work of the departments.
Aspire allows officials, for example, to buy whatever desktop systems they need, but the infrastructure agreement at Customs, signed under the Private Finance Initiative, means that desktop systems are bought by Fujitsu.
Meanwhile, a high-level government document marked "restricted" which was obtained by Computer Weekly under the Freedom of Information Act, draws attention to the many obstacles faced by officials if they terminate Fujitsu's contract at Customs and roll it into Aspire.
The paper revealed there are already substantial pressures to cut costs - even before any extra money is spent on bringing the department's two main IT contracts together. Extra sums would be needed for certain activities, including paying Capgemini to carry out feasibility work under Aspire.
The department also faces workload pressures. Minutes of a joint HM Revenue and Customs departmental board meeting in January noted, "There are continuing severe pressures in relation to tax credits and this produces difficult choices." The department has refused to answer Computer Weekly questions about these pressures.
On the talks with Fujitsu over a single contract, a senior official at HM Revenue and Customs told Computer Weekly, "HMRC faces a number of IT challenges. The memorandum of understanding provides us with an opportunity to negotiate a commercial solution which will help us to meet those challenges."
"However, deciding whether or not to bring the two contracts together will be determined on value for money grounds," he said.
Disparate systems hit public service
More than a year after the merger of the Inland Revenue and Customs and Excise was announced, service to the public is being hit by the two departments' separate systems.
This month's internal newspaper, sent to the merged department's 100,000 staff, warned that people who walk into government offices to have their records updated with changes of addresses and circumstances may be disappointed.
"For practical reasons we can only accept face-to-face notifications at places were we have access to the appropriate computer systems and staff trained to use them," said the newspaper.
"You should explain that you do not have access to the right computer systems to process a notification. Ask the customer to visit the website or call the relevant helpline. Or you can accept a written notification from the customer and agree to put it in the internal post of the correct office."