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By | Mark Ballard 8th December 2006 13:17

Gov IT procurement talks enter third year

Meeting next week to thrash out contracts

The government is expected to concede some precious ground to the IT industry over difficult contractual negotiations that have just entered their third year.

The contentious new (now not so) model contract terms that were introduced in November 2004 against staunch industry opposition might be watered down to reflect the widespread belief that the Office of Government Commerce (OGC), the HM Treasury's procurement sheriff, has been tough on suppliers to the detriment of government IT.

Roger Bickerstaff, a contractual lawyer with Bird & Bird, who has advised the OGC, said: "There's a joint get together on 11 December. That will be the first time there's been any real engagement."

The OGC ignored industry's warnings in 2004 that the new terms risked further damaging the government's already dreadful reputation for handling IT projects by holding suppliers to impossible working conditions, and it's recalcitrance continued until mid-way through 2005 when, following criticism from academics, insurers and lawyers, it declared that it would reconsider the terms after all.

After a series of Parliamentary questions asked by Liberal Democrat MP Vince Cable (which were shamelessly hijacked and repackaged as a Conservative query), it is estimated that the current British public sector IT spend is £10bn. Yet this signifacant and protacted disagreement over the best way to draw up contracts that ensure the money is not wasted, have been conducted in secret.

The £1bn Department for Constitutional Affairs DISC (development, innovation and support contracts) project, the procurement of which became the OGC's test bed for the new terms, was awarded in September to Atos Origin and Logica CMG. But the both the DCA and OGC have avoided discussing the conclusions of the review.

However, said Bickerstaff, the OGC had conceded that it needed to change its approach to dealing with the IT industry: "The OGC realised there were issues that needed talking through."

This is thought to be the first time in two years that industry has had any substantial hope of taking part in constructive talks with the OGC.

The controversial new model terms were similar to those used in the contract drawn up for the DCA's Libra project, a Public Finance Initiative (PFI) project that was arguably the most troubled IT project ever commissioned by the British government, and was recommissioned as part of DISC. The failure of the punishing Libra contracts was one of the reasons why the government banned the use of PFI in IT projects.

Yet the PFI model was used in drawing up the tough contracts for the NHS' ambitious £12.5bn National Programme for IT, which put Accenture under so much strain that it had to resign from the project with losses of $450m.

The OGC said in summer 2005, after the model contracts had been in circulation for nine months, that it would advise public sector commissioners against using them because there may have been some sense in the industry's opposition to them after all.

Yet, Bickerstaff said, they had become standard fare in public sector contracting, and it was common for even more stringent contractual terms to be introduced.

This approach to contracting might be likened to ideas popular in the Spanish Inquisition and the CIA that better confessions are extracted out of people when they are put in thumb screws.

"Law firms are using this as a starting point and then just lobbing in tougher stuff," said Bickerstaff. But this was an "inappropriate overhead" that suppliers compensated for with higher prices and didn't "lead to any likelihood of project success," he said.

Bickerstaff said he routinely struck certain of the more onerous terms out of the contracts he drew up, even when he represented the public sector.

This included the financial distress clause, which demand that if a company is in financial distress its payments are siphoned off, just when it needed them the most, into a reprocurement fund.

He also struck out trigger termination rights, which had caused suppliers to raise their prices to compensate for the additional risk on their investments in large IT projects.

Bickerstaff had become concerned that public sector procurers where being told to "comply or explain" with the contested terms when they were evaluated as part of the OGC's Gateway Review process, which is supposed to monitor large IT projects and prevent them from going off the rails. But the reviews are conducted in secret.

Pat Barlow, government sales chief for BT Global Services and chair of the Intellect working group due to meet the OGC on 11 December, admitted there was a meeting due, but refused to say any more without Intellect's permission.

Nick Kalisperas, Intellect's government liaison, said it was in "sensitive discussions"that he was not prepared to talk about.

Industry is criticised for making more profit on public sector than on private contracts. Yet industry representative Intellect has been in the privileged position to discuss secretly with the government the means by which its members spend billions of pounds of public money.

Clearly, after two years of failure to reach an agreement, and with the National Audit Office having said that a lack of transparency was one of the causes of difficulty for the National Programme for IT, it is time for both government and industry to come clean on how they are spending this money.®

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