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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.

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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.

"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."

Sir John Bourn


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