What are the risks for HMRC in ditching its outsourcing mega-deal?

How will HM Revenue and Customs (HMRC) mitigate the risks of breaking up one of the largest outsourcing deals ever signed?

At the end of October HM Revenue & Customs (HMRC) stated it expects to save more than £200m a year by abandoning its Aspire IT outsourcing contract when it expires in June 2017.

Aspire is one of the biggest IT outsourcing deals ever signed by the UK government, costing on average £813m per year over the past 10 years, according to the National Audit Office (NAO). By the time the deal ends in June 2017, prime contractor Capgemini will have received £10.4bn of taxpayers’ money.

The breakdown of this contract is a turning point for the Cabinet Office which has mandated "no more big IT" in government, with new contracts having to remain below a lifetime value of £100m. This will mean signing multiple deals with several suppliers to replace Aspire.

But for a functioning IT contract of this size which collects over £500bn of tax each year, there is a risk in breaking it up into smaller pieces which will be multi-sourced in the future. The House of Commons Public Accounts Committee (PAC) has raised concerns about the transition from Aspire to the new arrangement.

“You are doing a massive thing here,” said PAC chair Margaret Hodge. “I cannot believe there is not a risk that we will lose money out of the £500bn we currently collect through the Aspire contract during that transition. I think you have got to have a figure in there for risk.”

HMRC chief technology officer Steven Walters told Computer Weekly at the Whitehall Media Public Sector Enterprise IT event in London that the department must manage the risk as it moves towards its multi-sourcing model.

“We will take more risk in house, start to manage a multi-supplier environment,” he said. “But the alternative is to go back to a single supplier and there’s nothing to say that’s appropriate at this time.”

The tower model we inherited is not the technology strategy – it isn’t what we aspire to

 Mike Bracken 

Early glitches

Some glitches have already occurred when moving from single outsourcing contracts to a multi-sourcing “tower” model that allows government to break down IT contracts into as many component parts as possible

The Department for Business, Innovation and Skills (BIS) and the Department of Energy and Climate Change (DECC) were the first government departments to move away from single contracts nearly a year ago. But the move wasn’t without problems. Earlier this year, business secretary Vince Cable and energy secretary Ed Davey both complained to prime minister David Cameron about problems with network connectivity since moving to new computer systems.

The multi-sourcing model is more complex and requires more in-house resources than using one supplier, but DECC estimated that it will see net annual savings of 15-20% on IT costs, compared to its legacy Fujitsu outsourcing contract.

Of course the DECC and BIS example was a first in government, but it was also a smaller contract than Aspire.

And the government’s digital chief Mike Bracken isn’t a fan; he told Computer Weekly last month that the tower model approach was not a long-term strategy.

“The tower model we inherited is not the technology strategy – it isn’t what we aspire to. We don’t want departments making decisions now to adopt the tower model – however, we have to recognise a lot of that is in train so we accept what happened, it is better than what preceded it. At least it breaks it down into addressable parts,” he said.

“It’s a good interim stage, but it’s not where we want to be, which is a genuinely disaggregated open infrastructure where we can have a genuinely interoperable government architecture.”

More SME involvement

In July 2014, the Home Office laid out its intentions to move away from its old outsourcing mega-deals and procure future IT services through G-Cloud and work with more SMEs.

Chief technology officer Denise McDonagh emphasised that many of the new requirements will be acquired through G-Cloud and she encouraged SMEs to get involved.

“The Home Office is intending to go down the route of procuring through G-Cloud and other government procurement frameworks. Only when necessary will we procure through a full Office Journal of the European Union (OJEU) route,” she said.

‘Have you got enough skills and capability to deal with the risk your taking on?’ – that’s a fair question for parliament to ask

 Sally Howes 

How do you mitigate risk?

But it’s still early days when it comes to the way government is changing its attitude towards procurement to build more flexible business models.

Speaking at the Whitehall Media Public Sector Enterprise IT event in London this week, Sally Howes, executive leader, digital and innovation, at the National Audit Office, said: “It isn’t just about buying technology differently but about reconfiguring and transforming government into a more digital enterprise.”

But when it comes to HMRC and a hefty £500bn, is it really time to be testing the waters?

Howes noted that parliament was interested and supportive of what HMRC was going to do, but it had questions.

“‘Have you got enough skills and capability to deal with the risk your taking on?’ – that’s a fair question for parliament to ask,” she said.

But chief technology officer at HM Government, Liam Maxwell said he believed it does.

“It’s about making sure we have the skills at the centre,” he told Computer Weekly in an interview last week. “We’ve hired much more than 100 really talented people from the private sector coming to work for government to make sure we have the skills.”

Maxwell said government had spent the last 25 years exporting all its talent to large consultancies, but over the last year it has managed to attract the likes of former Credit Suisse chief digital and information officer (CDIO) Magus Falk as his deputy, and former CIO at Electrolux Ian Sayer taking the role of MOJ CTO.

And indeed one of those new digital hires is the HMRC CDIO, Mark Dearnley, who took up the position a year ago - a move he made from Vodafone where he was the CIO.

“That’s a real opportunity we have to work with people like this, who have done this, have got the leadership and who have got the capability to really drive that size and scale of change,” added Maxwell.

When you take this contract – which is generally working – and break it, you have to be careful when you put it back together to maintain service to the user

 Luke Mansell, ISG 

Using in-house expertise in procurement

Another recent hire – Paul Shetler, CDO at the Ministry of Justice, who was previously at Oracle – said government needs to be an informed customer.

“We need to know what it is we’re doing and how to get those core skills more deeply embedded inside the organisation – I think that’s what the whole digital thing is about,” he said.

“It’s absolutely essential that any organisation understands its own IT. And, if you’re going to be leading a change programme, you need to know about software, systems, how these things actually work. One of the reasons digital teams are growing up across government is that it’s an attempt to bring the expertise back in. A responsible, accountable, qualified civil service, capable of making decisions,” Shetler told Computer Weekly in an interview this week.

But it's not just about hiring new people. One Computer Weekly source said HMRC needs to recognise the change as a “cultural and people challenge, both for themselves and their suppliers – and accordingly pay as much attention to these aspects as the technical and contractual aspects.”

“To minimise risk, HMRC leadership should ensure they start by considering what the revised in-house team needs to look like in terms of skills, mindset, accountability – and how they are going to sponsor, build and motivate this team. This new team should be established early, and then allowed to drive the change,” they said.

Preparing for the entire lifecycle of a contract

Meanwhile, Luke Mansell, a partner in outsourcing consultancy ISG, said government is creating an internal consultancy of experts with its new hires, which is “entirely in line with the way the private sector has been going for years.”

But he said the government will need help with building the organisation to receive and deliver the multi-sourced services that comes with breaking down a contract the size of Aspire.

“When you take this contract – which is generally working – and break it, you have to be careful when you put it back together to maintain service to the user,” said Mansell.

He added that if government continues with the tower model – with separate suppliers looking after different services such as networks and servers – the organisation needs to recognise the difficulty in managing different suppliers, which takes a lot of time to plan.

He said that between now and 2017 is enough time to plan the process, but advised government not just to think about the beginning of contracts, but also the end and the exit clauses that often don’t get enough attention – and could cause trouble in the years to come.

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