Public spending watchdog slams Revenue EDS compensation deal

MPs have attacked a Whitehall deal with EDS in which the supplier has agreed to pay £26.5m in compensation to its former customer HM Revenue and Customs on the basis it wins some large contracts from the government.

MPs have attacked a Whitehall deal with EDS in which the supplier has agreed to pay £26.5m in compensation to its former customer HM Revenue and Customs on the basis it wins some large contracts from the government.

Members of the House of Commons Public Accounts Committee (PAC) said there was "no guarantee" that EDS would win sufficient new business to trigger payment of the full amount.

The committee also criticised the confidentiality of the settlement terms - and defied HM Revenue and Customs' desire for secrecy by publishing some key details of the settlement.

A PAC report published today (25 April) confirmed an article in Computer Weekly last week which said that part of the £71.25m to be paid by EDS in compensation over the fraught introduction of tax credits was based on the supplier winning future contracts with the government.

When the settlement was announced by HM Revenue and Customs in November, no mention was made that £26.5m of the £71.25m figure was not guaranteed. The PAC said, "Staged payments of up to £26.5m are contingent on EDS winning new business with the government."

EDS told the Revenue that it expected to receive a large amount of new business from the government as a result of its participation in procurement competitions for new deals and under existing agreements. EDS's payment of the full amount of compensation is based in part on it winning the anticipated level of business.

The committee's report said, "Government should not be placed in the invidious position of having to commission further work from a contractor in order to recover compensation for underperformance."

MPs also said the settlement should not have been confidential. "Confidentiality arrangements should not be accepted where they will impair accountability for public money. Contractors need to accept that, if they do business in the public sector, the terms of such settlements should be in the public domain."

The report added, "The Treasury should require departments to abstain from confidentiality clauses in settlements with contractors, as is the case with severance compensation packages."

The Revenue's compensation claim

The Public Accounts Committee said serious problems with the introduction of systems used to support tax credits delayed the processing of claims and led to incorrect payments being made.

HM Revenue and Customs assessed the gross losses attributable to EDS for the computer problems to be £209m. But it sought compensation for a much lower figure in part because it expected £105m in overpayments to be paid back by claimants.

But the committee warned that some of the £105m may turn out to be unrecoverable. "The department's ability to recover this amount will be important in assessing the value for money of the settlement," it said.

If EDS does not pay the full amount in compensation, the Revenue said it would take legal action. But the department spent more than a year negotiating with the supplier in part because it wanted to avoid a public court hearing over the introduction of tax credits.

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