Revenue to look into £3bn deal after system delays

Department investigates remedies from Capgemini after tax collection hit.

Department investigates remedies from Capgemini after tax collection hit.

Officials at HM Revenue and Customs (HMRC) are to examine a £3bn outsourcing deal with IT supplier Capgemini to seek possible remedies after a four-month delay in going fully live with its Eric system for PAYE data.

Capgemini took over about 3,000 IT staff from EDS in July 2004 to become the main IT supplier to the Revenue, which has now merged with Customs and Excise. In July, treasury spokesman Lord McKenzie said Capgemini's performance was satisfactory.

But David Varney, chairman of HMRC, said last week his department was not happy with the delays arising from the stalled introduction of Eric, a system to route validated tax and national insurance data into the records of 20 million PAYE employees.

It was due to go live by 6 April to cope with the mandatory electronic filing of returns by large employers and voluntary e-filing by smaller companies. But it was not until four months later, on 10 August 2005, that Eric began processing internet returns. The system handles tax returns which accounted last year for £108bn in tax sent to the Revenue.

According to internal e-mails leaked to Computer Weekly, the delays have hit cashflow and had a major impact on the administration of tax collection. They led to a halting of the Revenue's end-of-year reconciliation work and the chasing of underpayments of tax because staff could not look on their systems to see if PAYE had been paid in full.

The delays have put back the processing of millions of tax returns, added to a backlog of work for the Revenue, and caused complaints from employers, in part because they have had problems receiving refunds of overpayments and payments of cash incentives for filing online.

At a press conference before the publication of a highly critical report on the Revenue by public spending watchdog the National Audit Office, Varney was asked whether there were plans to hold Capgemini to account after the problems with Eric and the collection of PAYE generally.

"Obviously we have contracts which have got delivery obligations in them and we will look at that," said Varney. Referring to Eric, he said, "We were not happy with it. Part of our relationship with all of our suppliers is to look to them to complete their obligations. The first task is to make sure that the task we have got to do is done properly."

Asked if he had ruled out financial penalties, Varney said, "I think we will review the contract in the roundÉ We have got a contract and we will go through it and we will see what is a sensible arrangement." He added, "The fact that we have had to go slower is obviously a matter of regret but we are working through that." 

But looking at the contract had not been a top priority. "We have actually spent all our time trying to make sure that [Eric] is delivered as fast as we reasonably can to our customers."

When officials at HMRC were asked to expand on Varney's comments, they appeared to contradict him and expressed strong support for Capgemini.

An HMRC spokesman said, "We are happy with the work Capgemini does for us."

A spokeswoman for Capgemini said, "Possible financial penalties are for our client to comment on. However, HMRC is happy for us to confirm that while the contract certainly allows for financial penalties for poor performance, it has no reason to consider invoking this part of the contract. Indeed, it considers that Capgemini is delivering a good service to HMRC."

Audit office report vindicates comments of Revenue CIO

The comments by David Varney, chairman of HM Revenue and Customs, came at an unprecedented press conference an hour before the publication of one of the most profoundly critical reports on the Revenue by public spending watchdog the National Audit Office.

The NAO's report highlights issues raised by Computer Weekly's Making the Tax System Work campaign. It vindicates the comments of HMRC's chief information officer Steve Lamey, who told a government IT conference in May that the department was blighted by poor-quality data, ageing systems and inconsistent business processes. 

When Lamey's comments were reported in Computer Weekly, HMRC issued a denial and criticised this publication. But the NAO report is more critical of HMRC's data, IT and processes than Lamey had been.

It found there were inadequate management information systems, "poor-quality data throughout the system", inadequate controls, inconsistent approaches, backlogs of work, hundreds of millions of pounds in write-offs and "failures to effectively address employers' non-compliance with their obligations".


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