In yet another example of a sprawling government contract gone monumentally wrong – the second of the day – HMRC has splashed £7.9bn on an IT outsourcing deal that is looking very tough to justify.
Capgemini and Fujitsu won the ten-year Aspire deal – a merged Inland Revenue and Customs & Excise contract – way back in 2004, and inherited staff and IT services work that had been handled by HP over the prior decade. The estimated cost to March 2014 had been £3bn to £5bn.
Fast forward to this spring and the outsourcing agreement was extended for three years to ensure continuity of service and access to up-to-date tech skills, taking the taxman's total spend on this deal to £10.4bn by 2017. This extension came in spite of the Cabinet Office's efforts to steer government away from mega outsourcing deals with mega integrators.
A report by the National Audit Office stated the suppliers had kept the lights on to help collect £500bn in taxes each year with few significant server failures – but this had come at a cost.
"HMRC has commissioned much more work through Aspire than was modelled when the contract was let and has not market-tested any significant element of the contract," the NAO stated.
It claimed that in four out of every five projects, HMRC and the outsourcing firms altered the plans, timing or budget.
"Evidence from benchmarking suggests that it had paid above market prices for this work," the report claimed.
The NAO estimates the Aspire contract will cost the taxpayer £10.4bn when it wraps up in three years, versus the £4.1bn "used when evaluating Capgemini's bid". It added that pressures to find cost savings led HMRC to "trade away" negotiating power and "hindered its ability to get strategic value from such a long-term contract".
The report also found HMRC was far too reliant on the “technical capability” of the suppliers and this dampened its ability to manage the contract "commercially".
"HMRC faces a considerable challenge to reform the Aspire contract while evolving a new approach to its technology suitable for its planned move to digital services. HMRC now has minimal time contingency to do this before the Aspire contract ends in June 2017," it added.
In a statement on the back of the report, Margaret Hodge, chairman of the Public Accounts Committee, said that while HMRC may receive a decent level of IT services by the end date, costs more than doubled.
She added that HMRC had failed to negotiate well, speaking of the "depressing" situation that "once again a government contract has proved better value for the private companies involved than for the taxpayer, with CapGemini and Fujitsu pocketing an incredible £1.2bn in combined profits - more than twice HMRC expected".
The plan to replace Aspire with the extension is "still half-baked" Hodge added, "with no business case and no idea of the skills or resources needed to make it work". ®