Press Release - NIRS 2: Contract extension
14 November 2001
The Inland Revenue, when required to make major enhancements to
its national insurance computer system (NIRS 2) to accommodate
significant legislative changes, decided to award a contract
extension to Accenture, its existing supplier. And, according to a
report from the National Audit Office, published today, the
contract extension:
- offered better value for money than the alternatives available
for delivering the required enhancements on time; and
- improved the way in which the development work is managed and
paid for.
The report to Parliament by NAO head Sir John Bourn highlights
lessons for departments engaged in similar IT projects. It
recommends, in particular, that departments must understand what
the impact would be on their computer systems of major legislative
changes - and develop strategies to manage the risks.
NIRS 2 (the National Insurance Recording System) was developed
under the Private Finance Initiative by the former Department of
Social Security to support the administration of the national
insurance scheme. The contract was awarded to Accenture (then
Andersen Consulting) in 1995. The Inland Revenue (who took over
responsibility for the system in 1999) negotiated an extension to
the contract to cover work needed to support significant changes to
pensions and national insurance legislation proposed in 1998.
The original contract was worth up to £76 million, including the
development work expected at that time. The contract extension will
cost between £70 million and £144 million, depending on how much
development work the Inland Revenue need to order.
The main conclusions of the report are as follows:
The original NIRS 2 contract proved insufficiently
flexible in catering for the significant legislative changes
proposed in 1998. The scale of change arising from new
legislation was considerably beyond the level expected when the
contract was agreed and exceeded the levels allowed for in the
contract. Although the former Department of Social Security
assessed the implications of individual changes to pensions and
national insurance legislation, at the point when responsibility
for the system was transferred to the Inland Revenue, neither
Department was in a position to determine their aggregate impact on
NIRS 2.
A contract extension offered better value for money to
the Inland Revenue to deliver the required enhancements within the
timescale required than the alternatives available. The
Inland Revenue looked at technical and contractual alternatives to
using NIRS 2 to support the new legislative requirements. Their
work showed that Accenture's unit costs compared closely with the
comparators. But the estimated £44 million cost of breaking the
contract effectively ruled out the option of using alternative
suppliers for the development work.
The contract extension has improved the way in which
development work is managed and paid for. The Inland
Revenue's contract management arrangements for the extension adhere
closely to current guidance on risk management in PFI contracts and
information technology projects. Had this guidance been available
at the time, it would have led to contractual and operating
arrangements considerably different from those originally adopted
for NIRS 2. The new arrangements have achieved improvements in the
relationship between the parties and in the delivery of system
enhancements, addressing weaknesses identified previously by the
Public Accounts Committee.
There are some important lessons for
departments. Departments should consider whether contracts
should include specific mechanisms to deal with major enhancements
of this nature. This might involve the reintroduction of
competition or inviting the bidders to propose a separate pricing
structure for major enhancements as part of the initial tendering
process. And, in advising Ministers on the implications for
existing information technology systems of fixing deadlines for
major legislative change, departments need to understand the impact
on their systems, individually and in aggregate, and develop
strategies to manage the resulting risks.
Sir John Bourn said today:
"There are some important lessons for major government IT
projects in the way the need for an extension to the NIRS 2
contract arose. In the circumstances, awarding a contract extension
to Accenture was the best option, and has enabled the Inland
Revenue to improve the way the contract is managed."
Notes for Editors
The remit of today’s report is the extension to the NIRS 2
contract. It does not cover the implementation or operation of the
system, progress with which is monitored as part of the NAO’s
annual audits of the National Insurance Fund Account.
Press Notice 35/99
All enquiries to NAO Press Office:
Tel: + 44 (0) 20 7798 7400
The Comptroller and Auditor General, Sir John Bourn, is the head
of the National Audit Office employing some 750 staff. He and the
NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 53/01
All enquiries to NAO Press Office:
Tel: + 44 (0) 20 7798 7400