Press Release - HM Revenue & Customs: ASPIRE – the
re-competition of the outsourced IT services
19 July 2006
IT services are crucial for HM Revenue & Customs’ business.
In its procurement of the £3 billion IT outsourcing contract,
ASPIRE, the Department secured competition for a contract which
meets its IT needs, and completed the transfer to the new supplier
Capgemini without loss of service to customers.
The Department secured the competition by contributing to firms’
costs of bidding, paying the winner’s costs in taking over from the
existing supplier, discounting the transition costs for the
purposes of comparing bids and paying the incumbent supplier to
effect the transfer. There was justification in this case for using
incentives to encourage competition. The premium paid by the
Department to secure a competition was £8.6 million in
contributions to bidding costs, and £43.3 million paying for
contractors’ transition costs.
Contributing to bidders’ costs and the costs of transition to
encourage and maintain sufficient competition during the
procurement was an essential step to achieving value for money in
this deal. Compared to the total value of the ASPIRE contract the
costs of procurement and transition totalling £75 million were
small - some 2 percent of the projected value of the contract. The
Department estimated that transition costs would be in the range of
£30 million to £50 million. The actual transition costs were £37.6
million paid to Capgemini and £5.7 million paid to the incumbent
suppliers. There remains a question whether the Department needed
to pay this much. Although the Department was in new territory, it
might have obtained better value for money by maximising the
benefits from its contribution to the cost of bidders’ design and
implementation studies and from tighter control over the transition
costs.
The eventual value for money of ASPIRE will depend on how far
the Department can control the volume of demand for IT services and
the prices it negotiates for changes in services. Compared to the
contract it replaced, the new supplier is paid on the basis of
performance achieved (outputs) rather than resources used (inputs).
The Department spent £539 million in the first year of the
contract. There have been significant cost increases due to the
Department’s increased demand for IT services and projects which
was higher than anticipated at the time the procurement was
run.
The new supplier has provided IT services from day one of the
contract, meeting or exceeding target service levels. The
transition of the NIRS2 system took longer than planned. Since the
transition there have been some delays on mission-critical
projects, which have on the whole been caused by the Department
changing its requirements. The Department will need to ensure it
has robust arrangements for managing the contract so that it
delivers the best performance from the contractor.
ASPIRE provides lessons for other government departments on
preparing for the end of a contract and encouraging competition,
and for managing the transition from one supplier to another and
also in providing sufficient flexibility within a contract to deal
with likely changes in IT requirements. The report sets out good
practice and recommends further guidance for departments on the use
of incentives to encourage competition, including the circumstances
in which payment of transition costs or other mechanisms might be
used.
The Report also suggests the need for a mechanism by which
government IT contracts can be looked at as a whole. Such
horizon-scanning would ensure that IT contracts across government
are managed effectively: examining overarching issues of
competition, supplier capacity, exit arrangements and transition
planning.
Head of the NAO Sir John Bourn said today:
“The Department successfully completed the first major
re-competition of a large public sector IT contract and transfer
from one supplier to another without a loss in service to the
taxpayer. In doing so they spent £75m on procurement and
transition. The Department’s reason in this case to pay part of the
bid costs and to contribute to the costs of transition was to
encourage competition.
“My report highlights useful lessons from HM Revenue
& Customs’ experience of ASPIRE for other government
departments in re-competing major contracts and managing
transitions.”
Notes for Editors:
- In January 2004 the Inland Revenue, now HM Revenue and Customs,
entered into a contract with Capgemini to provide IT services to
support the Department’s business. The strategic outsourcing
contract, known as ASPIRE (Acquiring Strategic Partners for the
Inland Revenue), replaced the Department’s previous contracts with
EDS for IT services and with Accenture for the National Insurance
Recording System (NIRS2). The ASPIRE contract, which came into
operation in July 2004, was estimated to be worth between £3
billion and £4 billion over a ten year term, with an option to
extend for up to eight more years.
- The Commissioners for Revenue and Customs Act 2005 received
Royal Assent on 7 April 2005. The Act provided the legal basis for
the new integrated Department, HM Revenue and Customs, which was
launched on 18 April 2005. HM Revenue and Customs exercises the
functions previously vested in the Inland Revenue and HM Customs
and Excise.
- During 2005 the Department’s IT systems issued 16.5 million
income tax self assessment statements, 1.4 million corporation tax
notices to file, 6 million personal pension statements to employers
and processed 9.7 million annual tax codings reviews.
- The Department in early 2006 combined ASPIRE with the PFI
contract it has with Fujitsu for its IT services for the former HM
Customs and Excise.
- Press notices and reports are available from the date of
publication on the NAO website at www.nao.org.uk.
Hard copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 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 48/06
All enquiries to Mark Strathdene, NAO Press Office:
Tel: 020 7798 7183
Mobile: 07748 181 693