EDS deal ‘appears improper’, say MPs

A compensation deal for IT problems with the tax credit system agreed between outsourcer EDS and HMRC “has the appearance of impropriety, if not the fact,” according to the House of Commons Treasury Committee.

A compensation deal for IT problems with the tax credit system agreed between outsourcer EDS and HMRC “has the appearance of impropriety, if not the fact,” according to the House of Commons Treasury Committee.

The fact that up to £26.5m of the £71m compensation deal was contingent on EDS winning new contracts with the government was first revealed in Computer Weekly in April.

The report highlights the MPs’ frustration at the confidentiality agreements signed by HMRC and its suppliers. Such clauses hinder the wider public sector in learning lessons.

The existence of a confidentiality requirement “makes it impossible for the house to assess what happened in this particular case, and to seek to draw broader lessons from it about the problematic area of government IT contracts,” the MPs complained.

They also said such terms were restricting HMRC’s ability to answer the committee’s questions. “We are extremely concerned that HMRC appears to be claiming to have effectively ‘contracted out’ of its obligation to be publicly accountable for its administration and expenditure, by virtue of having entered a private contract.”

HMRC officials cited confidentiality clauses when questioned about the compensation settlement with EDS for the system’s catastrophic failure when it was introduced, and the resulting £2.2bn overpayment during 2003-2004.

During 2004 and most of 2005 the government and EDS were embroiled in arguments about compensation, before settling out of court in November 2005 for an agreed payment of £71.25m.

Neither HMRC, ministers nor EDS published the fact that £26.5m of the settlement is contingent on EDS winning new business with the government.

The committee said “We have grave concerns about the wisdom of an agreement which then makes the payment of compensation to the affected government department by the provider of the unsatisfactory service contingent on that provider winning other contracts with government.

“Our concern is not that we believe the contingent payments will influence future decisions by government departments to award contracts, but that it will be impossible to be sure that they have not.”

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