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HM Revenue & Customs: ASPIRE – the re-competition of outsourced IT services

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 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.”

Head of the NAO Sir John Bourn

Notes for Editors

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Press notices and reports are available from the date of publication on the NAO website at Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  6. 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.

PN: 48/06