New IT Systems for Magistrates' Courts: The Libra Project 01. This is one of the worst PFI deals that we have seen. The Department procured a contract to provide services to 42 Magistrates' Courts Committees over which it did not have real authority or control. It ran a poor competition, attracting only one bidder, and it failed to take decisive action when ICL did not deliver what was required. For its part, ICL did not understand the Department's requirements, took on excessive risk and underpriced its bid. It performed poorly throughout and could not meet the target dates for delivery of the core application. As a result of these failures the cost of the project has more than doubled in just four years to almost £400 million and magistrates' courts still do not have the IT systems they need to manage their workload properly.
Treasury Minute
The Department welcomes the PAC’s investigation of the LIBRA Project as the process has intensified the focus on key opportunities for improved tendering, cost control and project management and has helped to stimulate a more effective risk management regime for Libra and a wider range of specialist suppliers. However, the PAC Report should be assessed in the context of the urgent need at the time to set in train IT support across 42 Magistrates’ Courts Committees with varying IT needs before the emergence of a unified administrative system across the whole service.
The Department accepts the statement on the lack of control over the end user. However it did set up mechanisms fully to involve representatives from the Magistrates’ Courts Committees (MCCs) from the outset of the Libra project. This is illustrated by the make up of the Governing Boards and also by the secondment into the project team of MCC staff to ensure that up to date knowledge of the business of the magistrates’ courts was to hand.
On the competition itself, there were only three credible providers who generated three responses to the prospectus, which reduced to a short list of two. Competitive tension was maintained between the final two bidders up to and including the invitations to tender. It is acknowledged that the withdrawal of one of the tendering bidders meant that the Department was unable to maintain the same competitive tension in the post tender period. However, considerable value for money had been delivered by this process and pressure was continued through independent value for money benchmarking via Gartner. Serious consideration was given within the Department as to whether or not to continue the competition with only one bidder. Although concerns were raised over a possibly weakened negotiating position, a decision to proceed was taken as the delays to the project resulting from halting the procurement were at the time believed to offer the worst option in terms of cost control and delays in service improvement. It was therefore concluded on balance that the best course of action was to pursue the most acceptable deal from the single supplier whilst continuing cost pressure through benchmarking.
The Department was extremely dissatisfied with ICL’s failure to deliver the business software to time and budget. The company has acknowledged that its original bid was underpriced.
The Department accepts that the price of Libra escalated significantly over the four-year period, as against ICL’s initial bid which the report notes was underpriced. However, in re-negotiating the contract with ICL (now Fujitsu Services) it commissioned an independent price benchmark for the services to be provided. This indicated that the revised price was within the industry price range for what was being provided.
As a result of this process and deciding not to abort the contract, Fujitsu Services has now fully delivered the national infrastructure into the courts, and it is working well, with positive customer satisfaction ratings. The Department is now proceeding with its revised procurement strategy to ensure that the required business application is delivered. The contract with Fujitsu Services has been refocused against their core strengths whilst contracts have been awarded to STL Technologies for the provision of the business software, and to Accenture for the provision of system integration services, i.e. hosting the business software on the national infrastructure and providing it as a managed service to the MCCs. The business software is now being developed and delivered in a phased manner to reduce the risks that were previously inherent in a ‘big-bang’ implementation.
02. Departments will not achieve the full benefits of introducing IT if they do not redesign business processes in parallel. The Department chose to develop IT to support existing processes rather than redesigning business processes in parallel with new IT. This approach contributed to the project's difficulties because the Department was unable to achieve a single view of requirements for the new system across Magistrates' Courts Committees.
Treasury Minute
The Department needed to respond to the urgent and varying IT needs of Magistrates’ Courts Committees before the advent of a unified administrative system and, whilst accepting the inherent risks, embarked on an IT system that would cope with urgent varying needs and evolve towards a flexible, unified service. The alternative would have been to at best have considerable delays to public service improvement, and at worst the catastrophic failure of near-obsolescent legacy systems being operated by MCCs and the reversion to manual operation. Please also see the response to specific conclusion (i).
03. Competitive procurements of PFI projects are essential. The Department was unable to maintain competitive tension as all potential bidders bar ICL dropped out during the procurement process and the Department was left with just one bidder. A single bid for a major complex project is seldom likely to achieve value for money. That only one bid was received should have alerted the Department to the fact that its project may not have been sufficiently well designed to attract competition.
Treasury Minute
As mentioned under the first conclusion above, the Department did seriously consider termination, initially when only one supplier was bidding for the work, and again immediately prior to contract award. Termination would have led to serious delays and could not guarantee improved value for money as significant value for money had been delivered prior to one supplier remaining and afterwards through benchmarking.
04. Where contractors are not delivering what is required of them, departments should be prepared to terminate contracts. Despite ICL's poor performance, the Department decided to negotiate rather than terminate the contract when ICL was in breach of the contract. Departments need to make their contractors aware that termination is a very real factor in their relationship, which should not automatically be seen as the most difficult and risky option. Risk transfer does not really take place if departments are unwilling to terminate a PFI contract or take legal action when a contractor fails to deliver.
Treasury Minute
The Department accepts this conclusion. However it should be noted that the Department had terminated two previous attempts to provide standard IT systems in the magistrates’ courts. It should also be stated that the re-negotiation with Fujitsu Services was governed by a Memorandum of Understanding between the two parties which had within it a very real option to terminate, and that Fujitsu Services was aware of this option from the outset. Total termination would have been triggered had the Fujitsu Services revised offer for infrastructure alone been outside the Gartner Value for Money benchmark. The outcome of the re-negotiation was in any event a partial termination, as the development of the business software was removed, and the contract itself was significantly shortened. In reaching its decision to continue with Fujitsu Services for part of the Libra service, the Department weighed up the consequences of termination against the impact that such action would have on the continuing business of the magistrates’ courts and concluded that renegotiating and continuing was the right option in all the circumstances.
05. The Department recognised that the design of a best business process model should normally come before seeking an IT solution. The Department chose to develop IT first mainly because it did not have the authority to impose such a model on the independent Magistrates' Courts Committees. But the lack of a coherent model, allowing IT solutions to be integrated with business processes, increased the risk of project failure.
Treasury Minute
It should be stated that there were 96 MCCs at the outset of the project. Business practices had developed at each of these locations over the years in an independent manner, varying principally because of the differing sizes and styles of organisation. The Department accepts that existing business processes were not re-designed. However, in the development of the business software, best practice across the service was factored in through the use of a group of experts from the Magistrates’ Courts Service. The group was able to influence the design of the software. Given the autonomous nature of MCCs it was at times difficult to achieve a consensus view through this approach, so an additional tier of moderation was put in place, with the use of ‘Senior Users’ from across the Service. On the current business software development, steps have been taken to ensure that a single view of requirements is achieved. A Senior User Group with representatives from all 42 MCCs has been set up and is responsible for approving the requirement. Additionally, during development of the business software, workshops and prototyping techniques are being employed that fully involving experts from the Service and are accurately capturing the business requirement. Business experts from the Senior User Group are directly involved in the approval of design specifications. The current Senior User Group is better placed to succeed, as it has a wider inclusivity - covering all 42 MCCs. The Group is also structured along lines of accountability and responsibility with designated leads for each specialist area. Working groups within the overall User Group report up the line to the lead officers.
06. The success or failure of an IT development often depends on its scale and complexity. We have recommended that departments should carefully consider whether projects are too large and ambitious to be undertaken in one go. These lessons were particularly apposite in the case of the Libra project. Departments should think carefully about breaking up big IT projects into manageable pieces that can be delivered incrementally.
Treasury Minute
The Department accepts the conclusion that projects should be broken up into discrete manageable pieces of work. The current model for the delivery of Libra reduces risk and improves value for money through having a phased development of the new application and by separating the project into three component parts provided by three suppliers.
07. The Department did not carry out a market survey to assess how much interest there would be in the Libra project. Competition is an important safeguard for value for money in a procurement contract, and market surveys can help to establish whether proposals are attractive to potential bidders. A lack of interest at this early stage would be a warning sign that a project might not be deliverable.
Treasury Minute
The Department accepts that it did not carry out a market survey. However, soundings were carried out across the industry, involving major players in the market, with particular reference to those that had experience in the Criminal Justice System. All three of the incumbent suppliers of systems to the magistrates’ courts bid for the Libra contract in one form or another. In a niche market this may well have deterred other firms from bidding given the knowledge built up by the existing suppliers. But, it did indicate that the Department had a reasonable expectation that the presence of existing suppliers within the process meant that a valid competition would take place. Subsequently the original contract was sub-divided into three component parts which now have three suppliers playing to their individual niche strengths.
08. In the absence of competition it is essential that departments benchmark the prices offered by contractors. The Department did not examine ICL's financial model to assess the reasonableness of its bid, though the National Audit Office had already recommended in 1997 that departments should examine bidders' financial models.
Treasury Minute
The Department acknowledges that it is now accepted good practice to examine suppliers’ cost models as part of the procurement process. This was fully employed during the recent procurement for the Libra system integrator, where models were provided and scrutinised as part of the competition.
09. ICL was chosen as the preferred bidder despite the problems the company was having with another government IT project (the Benefits Payment Card project). Knowing of these difficulties the Department needed to satisfy itself as to the technical competence of the bidder to deliver a project of such size and complexity. However, the possibility that the problems with the Benefits Payment Card project might have reflected on ICL's technical competence to deliver the Libra project was not adequately investigated. There needs to be more sharing of lessons and pooling of experience between departments, and the Office of Government Commerce should draw relevant examples to their attention.
Treasury Minute
The Department did investigate the difficulties surrounding ICL’s involvement with the Benefits Payment Card project, speaking to Post Office Counters Limited, the Department of Trade and Industry, and the Benefits Agency. Information from other reference sites was taken up and the conclusion was that ICL’s particular problems with the Benefits Payment Card project should not affect the Department’s plans for Libra in particular in the delivery of infrastructure. A specific provision was included in the contract to address the financial impact of the Benefits Agency/Post Office Counters Limited project undermining ICL as a viable supplier. The Department fully accepts the conclusion that all government departments should take on board lessons learnt and that experience should be pooled. It has already acted as a reference site for other departments considering inviting Fujitsu Services to tender for future contracts. OGC is leading work across Government to share lessons and pool experience of contracts with key suppliers. OGC currently provides high-level contract performance information on these suppliers based on information provided by departments including DCA, together with commercial and financial briefing for Departments. OGC is building on this approach by developing a more comprehensive system for the sharing and use of information concerning its key suppliers and other suppliers engaged in major projects.
10. A systematic and thorough comparison of realistic alternative options is required before a decision is made to adopt the PFI approach. A Public Sector Comparator—an estimate of what a project would cost if conventional procurement methods were used—should be one of the factors in such an assessment provided conventional procurement is a realistic option. In the Libra case, the Public Sector Comparator provided no useful information, since the Department had no IT department that could deliver a public sector solution.
Treasury Minute
A Public Sector Comparator (PSC) was developed. However, a PSC is not intended to be a comparison with a potential ‘in house’ solution (i.e. a market test). Rather, it was based on the probable costs of delivering Libra through a more traditional procurement route rather than via PFI. It was not an internal bid against the ICL tender. Its purpose was to provide a separate price benchmark. The main differences between the PSC and the PFI were the funding and support arrangements. The PSC described what the Department and the MCCs would have to do to deliver the service themselves. The PSC included the procurement of a systems integrator to provide and support the equipment and software to the MCCs, but the management of the systems would have been left to the MCCs as was the case with the existing systems. Therefore, price benchmarking was used to confirm value for money.
11. ICL performed poorly on this contract. Some three months after contract signature it realised it could not use the software on which it had based its bid, and there was little continuity in ICL's management. As a result, ICL did not meet the target dates for delivery of the core application. In view of these performance weaknesses, the taxpayer should not have had to pay ICL more money than had been agreed in the original contract. When a private sector contractor accepts risks, it should bear the financial consequences if those risks materialise. ICL did not take responsibility for the risks transferred to it and could not deliver the project for the price it had agreed.
Treasury Minute
The Department’s understanding is that ICL’s decision not to use the business software produced by Libra’s predecessor (MASS) did not affect the contract price. ICL was questioned on its decision and stated that it would bear the risk. In fact the negotiations that took place in 2000 did not in any way touch on the delivery of the business software. Issues regarding delivery of the Core Application had not come to light until early 2001. Negotiations which took place regarding payment of further monies were not as a result of ICL’s decision not to use MASS. The Department agreed to reprofile the amounts it had already agreed to pay under the original contract and the perceived increase to the taxpayer was because the contract was extended by four years as part of the payment reprofiling. The conclusion that ICL’s decision not to use MASS together with a lack of continuity in management led to target dates not being met is not the full picture. Other issues relating to requirement definition (as one example) impacted the target dates. As a result of this, ICL suffered financial loss, the loss of the application contract and with it associated business development. It also dismissed some of its managers.
The Department accepts that there was a lack of continuity in the ICL management team, and that this might well have been a contributory factor on performance. The Department believed that a target date of delivery in July 2001 from an early 1999 start date was achievable providing that the supplier managed the development effectively. It is fully accepted that suppliers should and do take risks in their approach to delivery, but would add that it is now recognised across government that PFI is not normally the most appropriate route to follow for development of large scale bespoke IT systems.
12. ICL recognised management inadequacies and dismissed some of its managers involved in the procurement and running of the contract. The Department suffered from a lack of professional and commercial expertise and management continuity. Some of the Department's staff were transferred and new management was brought in but no staff were penalised for inadequacies in their performance. If the quality of public sector management is to be improved and failures like Libra prevented, departments must get the right people in place at the start with the skills and experience to deliver major projects successfully and provide them with incentives to succeed.
Treasury Minute
The history of Libra has led to a dynamic personnel strategy where human resources are taken from both the public and private sector according to the particular needs of the project at that time. The evolution of the project during the time considered by the PAC Report has led to significant management changes and the personnel needs continue to evolve as Libra progresses. In general, the practice of the Department now for the management of projects of this size would be to advertise and recruit managers from both the internal and external markets, on a national basis. The recently appointed Project Director was recruited on this basis.
13. Although ICL was in breach of the contract by failing to meet the contractual delivery date of July 2001 for the first site, the Department chose not to terminate the contract. It considered that such action might have led to costly litigation and counter claims from ICL. The Department might consider whether its lack of confidence in the prospects of redress has anything to say about the effectiveness of the court system, for which it is responsible.
Treasury Minute
The decision not to terminate in full the contract with ICL was taken firstly with the interests of the users of the magistrates’ courts and wider justice system in mind. The decision was neither based on concerns as to the effectiveness of the court system nor on the effectiveness of the law which is applied within it. Rather the key issue was to find the most effective way forward to successfully deliver modern IT across the magistrates’ courts to time.
14. The infrastructure element of the project increased in price from £94 million in ICL's original bid to £232 million in the latest contract, which is for a shorter period of service, albeit with some expansion in the scope of the requirement. The Department used independent consultants to benchmark the price, which was not tested in competition and appears very expensive for what is being provided. The Department was nevertheless unable to say how ICL's price for the infrastructure element of the Libra project was constructed and we remain unconvinced that £232 million was a fair price to pay. More thorough analysis is needed before departments agree to pay more than twice the tender price.
Treasury Minute
The Department acknowledges that the re-negotiated price for the Fujitsu Services contract is at the higher end of the range supplied by the firm providing an independent benchmark. Throughout the final negotiations with Fujitsu Services the financial model was made available to the Department and all component costs were vigorously evaluated via the Gartner Report and challenged during talks.
15. The Accounting Officer told us that he had been less forthcoming than he might have been at the Committee's hearing on 24 June 2002 because some of the matters under consideration were commercially confidential. Evidence supplied at the Committee's hearings needs to be accurate and complete. Where a department feels that it cannot put evidence in the public domain on the grounds of commercial confidentiality, it should make the position clear so that the Committee can consider whether to take evidence in closed session.
Treasury Minute
The Department fully accepts the Committee’s procedural conclusion. However, the Accounting Officer provided further written evidence in March 2003 which explained why a full answer was not provided at the time.