Inland Revenue is over a barrel

Since late February the Inland Revenue has been seeking a strategic partner to deliver technology services when its ongoing...

Since late February the Inland Revenue has been seeking a strategic partner to deliver technology services when its ongoing contracts expire in 2004. The company that is awarded the contract will support the Government's tax, national insurance and tax credit systems, in a deal expected to be worth £4bn.

To inject some competition into the tendering process for the outsourced technology services contract, the Revenue launched Aspire, an initiative that offered potential bidders carrot and stick incentives to tender.

Writing in Computer Weekly in March, John Yard, the Revenue's director of business services, referred to "a number of players in the industry that can deliver what we need", and said that he would be looking for "best value - not just value for money but value in delivery capability".

However, at the time, Computer Weekly predicted that the contract was unlikely to go to any bidder other than the present incumbents EDS and Accenture, which were thrown together when the Revenue assumed control of the national insurance branch of the Department of Social Security.

Four months later, our fears are proving well founded. From a paltry four tenders, a shortlist of three has been announced, and the bids submitted by BT and Cap Gemini Ernst & Young look likely to lose out to the one compiled jointly by EDS and Accenture.

So convinced are they that EDS and Accenture have the contract in the bag, that outsourcing giants IBM, Computer Sciences Corporation and Fujitsu Siemens are not even bothering to tender.

From where they stand, spending up to two years and millions of pounds compiling a bid looks like a waste of time - particularly given that, with public sector organisations rushing to embrace e-government and the private sector looking at outsourcing IT as a means to save money, there are rich pickings for outsourcing specialists elsewhere.

The Revenue's big mistake was to outsource its core processes to a single supplier, EDS, back in 1994. Since then, EDS has insinuated itself ever deeper into the Revenue's IT, so that it would now be extremely hard for it to extricate the Texas giant from its systems without severely compromising business continuity.

Now the repercussions of the mistake are being seen. Despite the Revenue's valiant attempt to introduce some competition, the tendering process has underlined just how weak its hand is. Unless it can somehow help to engineer a consortium behind either BT or Cap Gemini with the strength to compete, it will have to renegotiate with EDS and Accenture. The challenge then will be to wring some extra value from a partnership, which will be looking to expand the fat profits it is currently creaming off its Revenue work beyond 2004.

What bargaining power can the Revenue realistically muster, given that EDS and Accenture know their position is unassailable? And what real leverage will it have if it feels unsatisfied with the service it receives in the future?

In yet another strategic outsourcing deal the balance of power has shifted away from the user and towards the supplier.

IT suppliers EDS and Accenture appear set to retain a direct route into the UK's public purse

Read more on IT outsourcing

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