Two years after a critical report into its IT functions, the Financial Services Authority has signed an eight-year outsourcing deal with Fujitsu worth £80.8m. The IT services firm will provide infrastructure service support and a technology refresh.
Xansa, under a separate £5.1m deal, will provide application support and maintenance to the financial watchdog for three years.
The contracts are the latest developments in the FSA's push to improve its IT performance. The FSA launched the three-year programme in August 2005 after the results of a review into its IT operations. Consultancy firm Orbys conducted the review for the FSA and found its information services to be "very immature".
On seven criteria that Orbys believes determine whether an IT function is successful, the FSA's IT department was ranked "poor" or "very poor". The worst score was for the department's ability to identify business opportunities.
The FSA's IS director, Darryl Salmons, believes the two new contracts will help the FSA achieve an IT performance that more than matches industry standards. By the end of 2008, the plan is to become best-in-class, said Salmons.
Salmons is confident that its outsourcing contracts will transform FSA IT. "The fact that we are outsourcing the commodity aspects of IT forces more strategic thinking internally to build new systems, manage partners, and build relationships with the business," he said.
The project has been driven by growing regulatory changes, which have seen demand for new systems, such as technology for filing online regulatory reports, exceed what can be satisfied in-house.
The FSA has worked with analyst firm Gartner to develop an index that will measure the success of these contracts in improving IT performance, based on IT Infrastructure Library standards. Gartner will also assess end-user perception of IT performance, Salmons said.
The outsourcing contracts were larger and later than first anticipated by the FSA. A tender notice published in August 2005 estimated a contract of between £15m and £20m, well below the current £81m contract. The notice suggests that the project, which was originally expected to run between April and July 2006, is a year behind schedule.
Despite these problems, Phil Morris, CEO of outsourcing consultancy Morgan Chambers, said the FSA's approach to outsourcing was "right on market trend", and has followed what the market has learned about best-in-class outsourcing.
"It all looks sensible. They have chosen partners capable of doing a solid job. There was a lengthy process of tendering and a deliberate effort to evaluate a large number of suppliers," he said.
The FSA's IT department has recruited new IT staff with the experience and skills needed to manage each outsourcing contract effectively and improve its understanding of business needs.
Morris said success for the FSA's IT department would depend heavily on the new staff's skills and expertise. "They need to make sure there is a good relationship and communication between the suppliers. If not they can start to work in their own little silos."
He also said that the relationship with Xansa could suffer in the long term because it is just maintenance. If Xansa does not get any development work, then IT professionals on the contract could become demotivated, he said.
The two new contracts build on the FSA's four-year deal with Capgemini, Tata Consultancy and Xansa to outsource five application development programmes, which was the first step in the programme taken in August 2006.
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