Should Revenue pay to woo bids?

The Revenue's head of IT shows how to run multibillion-pound contracts Should Revenue pay to woo bids?

The Revenue's head of IT shows how to run multibillion-pound contracts Should Revenue pay to woo bids?

Whatever John Yard is paid, it is not enough. As the Inland Revenue's head of IT, he is responsible for a budget of at least £250m a year. His department delivers services to 65,000 end-users, and he manages two large outsourcing contracts together worth more than £2.5bn over 10 years.

The main outsourcing supplier, Texas-based EDS, has over 2,500 staff working on the contract. It has exploited its global buying muscle to get the best prices from 207 companies which, through EDS, supply equipment, software or services to the Revenue.

So labyrinthine is the network of systems that the Revenue's auditors at the National Audit Office have warned that only a small number of people, perhaps fewer than 50, have a deep understanding of how the Revenue's business and the systems work together. Most of these staff work for EDS.

With EDS so embedded in the running of the nation's tax affairs, there are doubts that it is possible to have a fair competition for the contract currently held by the supplier, which expires next year. Yet if anyone can run a credible competition it is Yard.

He is the quintessential pragmatist; and he understands the limitations of suppliers. There have been problems on the EDS contract but Yard and EDS have delivered some of the largest new systems in the world without an inordinate disruption to the nation's finances or the service to the public. They include tax self-assessment and new tax credits - only two of more than 100 major business systems at the Revenue.

After nine years, the relationship with EDS has settled into one of mutual understanding through adversity, which has made it impossible for some of EDS' competitors to imagine that the company could be unseated.

As if to make the obstacle for new bidders even greater, the Revenue has rolled into the contract the national insurance systems run by Accenture. So the new contract, called "Aspire", will be worth between £3bn and £4bn over 10 years, and EDS and Accenture are bidding jointly. Their competitors will be Cap Gemini Ernst & Young, in alliance with Fujitsu, and the Fusion Alliance, made up of BT, CSC and SchlumbergerSema.

So determined is Yard to turn the tendering process into a true competition, that he has taken the unique step of paying companies to bid against EDS and Accenture.

The Revenue does not put it so crudely. It prefers to describe its payments as "funding a design and implementation study". Each of the three consortia will receive about $4.5m (£2.9m). Although this is only a part of their costs, the Revenue is coating the carrot in gold by offering the losing bidders a possible share of up to 20% of the contract's value as a co-partner (or a subcontractor) of the winner.

If the Revenue is to be congratulated it is for learning the greatest lesson in life and particularly in business: that in an age which seems to have shortcuts for everything, the most difficult way is, in the long run, the easiest.

Through the pain and successes experienced on the outsourcing contract, Yard has learnt much about managing huge contracts, such that he is confident - and we can be confident - that he will able to manage an even larger one. But there is a flaw in all this: the civil service has a habit of putting its most capable civil servants out to graze with an honour from the Queen. It happened with former IT directors Steve Matheson and Geoffrey Bush, who were each made a companion of the Order of the Bath and later retired.

The future for Yard looks grimly honourable, which raises doubts about whether the Revenue has the skills to manage outsourcing contracts worth up to £4bn without him. And without being fleeced.

Aspire schedule

14 March 2003
Deadline for bidder responses to invitation to tender

March to July 2003
Evaluation phase

July 2003
Preferred bidder(s) selected

December 2003
Aspire partner announced

July 2004
New contract commences, worth £3bn-£4bn over 10 years.


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