A lack of internal expertise is hindering efforts to reform the Government’s largest IT contract and has led to waste, the government spending watchdog has said.
The Aspire deal signed in 2004 saw IT outsourcing firm Capgemini contracted to run HM Revenue & Customs’ (HMRC) entire IT estate – with several specialist sub-contractors working within the contract – to ensure continuity of service and provide rapid access to up-to-date skills and technologies.
But since the financial crisis of 2008 the Government has been attempting to introduce more competition into its IT procurement processes, and the Cabinet Office has made it clear that, as a long-term prime contract for technology, Aspire is no longer suitable and that changes needed to be made.
According to the report from the National Audit Office (NAO), since 2011 HMRC has accepted this view and attempted to reform the contract, which has cost £7.9bn between July 2004 and March 2014, but it has had limited success in negotiating these changes with suppliers.
The report finds that HMRC was overly dependent on the technical capability of the Aspire suppliers between 2004 and 2012, which limited its ability to manage the contract commercially, and it now faces a considerable challenge to put in place a replacement contract before the current one ends in June 2017.
The NAO said that HMRC had yet to produce a business case or full project plan and had still not fully quantified resources it required or capability gaps it needed to bridge. If a new programme is not in place by June 2017 the report said it could result in a "severe impairment" of HMRC's ability to modernise its tax collection processes and could ultimately put the amount of tax collected "at risk".
Amyas Morse, head of the National Audit Office, said today: “HMRC faced complex, long-term technology challenges, and Aspire provided an appropriate means of working through them and limiting risk. However, there has been a lack of rigour in HMRC's commercial management of the contract.
“It is essential in any contract that the client retains the independent expertise to challenge the supplier. We welcome HMRC’s recognition of this part way through the Aspire contract and its efforts now to rebuild its capability.
“HMRC now faces a considerable challenge in a limited amount of time to negotiate reform to the contract while at the same time defining its technology strategy for post-Aspire.”
The report acknowledges that Aspire has provided the continuity of service to enable HMRC to collect around £500bn of tax each year with few significant service failures, as well as helping to reduce operating costs, increase tax yield and improve customer service.
But HMRC used provisions within the contract to extend the contract and increase the amount of services and projects bought through it, most of which have consequently not been market tested.
The NAO estimates that, as a result, by the time the contract ends in June 2017, HMRC will have spent £10.4bn compared to the £4.1bn used when evaluating Capgemini's bid, and evidence from benchmarking suggests that it has paid above market prices for the extra work.
Furthermore, the report says pressures to find cost savings in the short term led HMRC to trade away its negotiating power and hindered its ability to get strategic value from such a long-term contract.
In response to the report, and HMRC spokesman said: “HMRC has one of the largest outsourced IT contracts in the world, enabling us to deliver a very wide range of services to more than 50 million customers.
"We are committed to delivering all this for the minimum cost to the taxpayer. As the NAO report recognises, the Aspire contract helped the department to collect almost £506bn for the UK in the last year alone as well as improving services to customers.
"The NAO also recognises the progress that HMRC has made over the last two years in developing in-house technical skills, so that we are less dependent on external suppliers. For instance, we recently opened a new Digital Delivery Centre in Newcastle as part of our Digital transformation programme.
"We will continue to improve the performance of the contract over the next three years."