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An outsourcing contract that aimed to reduce fraud and error in tax credit payments failed to deliver its performance targets partly due to IT delays and failures, a National Audit Office report found.
HM Revenue & Customs (HMRC) signed a contract with Concentrix in August 2014, which it expected to save £1bn over three years, but this was mutually terminated in November 2016 after savings targets were missed. The NAO report cites IT problems as major contributing factors to this failure.
The contract agreed was for Concentrix to investigate tax credit claims. This involved collecting and assessing evidence on claimants’ circumstances to determine if awards were accurate. It would then amend or stop awards if it believed them to be incorrect. HMRC continued to manage awards, recover any overpayments and deal with claimants’ appeals.
HMRC estimated in November 2013 that the contract with Concentrix would save £1bn over the life of the contract.
It also estimated that Concentrix would provide additional capacity to investigate up to a further 1.5 million awards a year, with savings coming from stopping incorrect claims, reducing overpayments, and the recovery of money paid out incorrectly. HMRC expected to pay Concentrix between £55m and £75m over the three years.
But in March 2016, HMRC reduced its savings forecast by more than half to £405m. According to the NAO report, this was partly because of a two-month delay to the contract start date because of delays in developing the IT infrastructure to transmit and manage cases and Concentrix working fewer cases than HMRC originally expected.
According to the NAO report, Concentrix’s performance was also affected by IT failures in August 2016, when a routine update to systems prevented its staff from accessing or updating claimant details for 26 hours. This led to higher call volumes from 12 August onwards.
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“On 1 August 2016, HMRC discovered an error in the system that prevented Concentrix case workers from updating childcare cases on HMRC’s tax credits system,” the report said.
“The error arose from a routine update by HMRC on 15 July 2016, but the issue was not discovered until Concentrix tried to action larger numbers of childcare amendments on 1 August 2016. On identifying the issue, HMRC asked Concentrix to stop making any further changes to childcare cases, and Concentrix held back around 9,000 cases until HMRC fixed the error on 11 August 2016.”
There were two further IT failures in Concentrix and HMRC systems cited in the report as contributing to missed targets.
Following the contract termination, HMRC does not plan to replace Concentrix and has transferred 243 staff from the supplier under TUPE regulations. Concentrix told the NAO it made a loss of £20.5m on the contract.