Press Release - Inland Revenue/EDS Strategic Partnership: Award
of New Work
29 March 2000
The Inland Revenue’s strategic partnership with Electronic Data
Systems Limited (EDS) has been successful in helping the Department
deliver significant changes in taxation policy to demanding
timetables, Sir John Bourn, head of the National Audit Office,
reported to Parliament today. The Department and EDS run the
contract as a partnership, recognising the need for both parties to
secure benefits.
The Inland Revenue’s ten-year contract with EDS, which was
signed in 1994, was not a fixed-price contract, in recognition of
the fact that the Department’s information technology needs would
change over the life of the partnership, for example, in response
to developments in government policy, such as the introduction of
tax credits. The value of new work currently represents over a
quarter of the forecast £2 billion revenue spend over the life of
the contract. The report examines the way this new work is
commissioned.
Contracts for complex procurements such as information
technology require active management to ensure that the benefits
are delivered. Sir John reports that the framework used by the
Inland Revenue to manage the risks associated with commissioning
new work is basically sound and should ensure that value for money
is achieved, if applied consistently. Pressure to deliver an
increasing workload to demanding timetables has led to closer
working with EDS, increasing the importance of effective risk
management. The report makes some recommendations for further
improvements in the Department’s strategy for risk management.
Commissioning organisations need to maintain independent
expertise to operate partnerships effectively. Sir John notes the
Inland Revenue’s success in maintaining and developing the skills
needed to run the partnership, but is concerned that low staff
rotation in teams critical to its success has resulted in a
concentration of skills and knowledge in a small number of people.
This exposes the Department to significant risk, should one or more
of these people leave.
Although there are incentives in the contract to improve
efficiency, these may be insufficient to keep pace with the market
over the ten year life of the partnership. External perspectives
through, for example, benchmarking against other information
technology service providers can help the Department manage this
risk. Sir John reports the difficulties encountered by the Inland
Revenue in obtaining reliable information on hardware and
infrastructure costs directly from other organisations to benchmark
the services provided by EDS. Based on its initial work on
activities representing around 37 per cent of spend on the
contract, the Department concluded that, overall, the parts of the
contract examined were competitive. The main area of concern was a
low, but improving, level of software development productivity.
The report makes 16 recommendations for managing the risks
associated with running the partnership, including:
- retaining sufficient independent capability in the Department
to assess projects objectively, so as to avoid becoming locked in
to the partnership and restricting options to change suppliers at
the end of the contract in 2004;
- increasing the rotation of staff in specialist units working in
partnership with EDS, to address the risk of important skills and
knowledge being concentrated in a few key people; and
- exploring how to obtain reliable evidence to enable it to
extend its benchmarking of the services provided by EDS.
Sir John Bourn said today:
"Partnerships like the one between the Inland Revenue
and EDS, rely on trust and understanding between two organisations,
qualities which are particularly important as requirements change
and develop. Management of the risks associated with new work is
therefore a challenging area for value for money. Much has already
been achieved, and the Department must ensure that it retains the
capability to manage the relationship and keep its options open for
the future."
Notes for Editors
Following a competition, in May 1994, the Inland Revenue awarded
a ten year contract to EDS for the provision of most of its
information technology requirements. The work, most of the assets,
and 1900 staff of the Department’s Information Technology Office
were transferred to EDS. The market test was examined in a previous
National Audit Office report Inland Revenue: Market Testing the
Information Technology Office (HC245, 1995-96).
By 31 March 1999, cumulative revenue expenditure under the
contract with EDS stood at £874 million and payments for the use of
capital amounted to £163 million. The forecast revenue spend over
the ten year life of the contract currently exceeds £2 billion.
The Committee of Public Accounts plan to take evidence from the
Department and EDS on the report on Wednesday 12 April 2000.
The National Audit Office outsourced this examination to take
advantage of private sector expertise in information technology
procurement issues. Following a competition, the contract was
awarded to Lorien PLC.
Press notices and reports are available from the date of
publication on the NAO website at http://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 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 21/00
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