Could this be one of the reasons public sector pay rises were only 1%?

Reposted from accountingweb

 
NAO Aspire report
 

The National Audit Office identified a “lack of rigour” in HMRC’s commercial management of the Aspire IT outsourcing project that helped double the department’s expected costs on the 10-year deal to £10.4bn.

Reactions to the NAO’s report on Managing and replacing the Aspire contract zeroed in on the discovery that the contractors’ profits had also doubled to £1.2bn up to March 2014, representing 15.8% of the revenue made in that period and more than twice the £500m originally projected in 2004.

Changes in the project scope requested by HMRC in 2006, 2007 and 2009 were the main cause for the extra costs, which were incurred by:

  • Merging Inland Revenue and Customs and Excise in 2005-06 (Cost: £1.0bn)
  • Investing in new PC-based infrastructure and contact centre services, commissioning more new development work and storing more data than originally envisaged (Cost: £3.0bn)
  • Extending the contract by three extra years in 2007 (Cost: £2.3bn). Doing this just three years into the contract is likely to have constrained its ability to change the contract since then, the NAO noted. “Further, it chose to increase spend by £3bn knowing that the contract may not consistently provide market prices.”

As a result of these scoping changes the contract went through a series of renegotiations. During the most recent review in 2012, HMRC undertook to spend £104m each year. 

HMRC has the right to examine the Aspire consortium’s books and to share in extra profits earned. But during the 2012 negotiations the department gave Capgemini and Fujitsu reliefs against this arrangement. As a result, where the department would have been entitled to £71m, it has only received £16m.

HMRC switched suppliers from EDS to the Aspire consortium led by Capgemini in 2004 due to significant cost overruns on the previous contract. In its report, the NAO described Aspire as “an appropriate means” of working through its long-term technology challenges and limiting risks.

But since then costs have continued to go up – with the projection rising to £8.5bn by 2007 and eating up 44% of HMRC’s supplier budget by 2011.

HMRC has maintained in the past that Aspire has helped it achieve more than £1bn in cost savings, but the NAO estimated the project’s costs would rise to £10.4bn by 2017, reporting that department did not have the independent expertise to challenge its suppliers.

Having recognised its shortcomings in this area, HMRC is trying to rebuild its internal capability, but faces a further struggle to renegotiate the contract until 2017 while it defines its post-Aspire technology strategy, said Amyas Morse, the head of NAO.

“There are serious risks to HMRC’s business if the programme to replace the contract fails to meet its objectives by June 2017 when the contract ends,” the NAO warned.

Those risks include: HMRC having to pay over the odds to extend the Aspire arrangement due to a lack of competition; inability to continue switching to efiling and collection process due to limitations in its legacy systems; a fall in service quality to taxpayers, “putting the amount of tax collected at risk”, the NAO said.

To date, Aspire has cost the government around £8bn since it took over in July 2004. Aspire was seen as the only way to maintain continuity and improve the department’s technology performance at the time, but in 2011 the Cabinet Office decided that Aspire was no longer a suitable way of providing value for money.

The NAO report acknowledges that Aspire delivered the continuity of service to ensure HMRC collects around £500bn of tax each year. with few significant service failures.

“The contract has helped HMRC to improve its operations by reducing operating costs, increasing tax yield and improving service to customers,” the NAO said.

Reactions to the NAO’s report on Managing and replacing the Aspire contract zeroed in on the discovery that the contractors’ profits had also doubled to £1.2bn up to March 2014, representing 15.8% of the revenue made in that period and more than twice the £500m originally projected in 2004.

Changes in the project scope requested by HMRC in 2006, 2007 and 2009 were the main cause for the extra costs, which were agreed through a series of renegotiations (see partial timeline above). In 2012 for example, HMRC undertook to spend £104m each year.

HMRC achieved year-on-year savings through these negotiations, but conceded many of the controls that had been built into the contract to safeguard value for money, the NAO noted.

HMRC has the right to examine the Aspire consortium’s books and to share in extra profits earned. But during the 2012 negotiations the department gave Capgemini and Fujitsu reliefs against this arrangement. As a result, where the department would have been entitled to £71m, it has only received £16m back from the extra profits earned.

HMRC switched suppliers from EDS to the Aspire consortium led by Capgemini in 2004 due to significant cost overruns on the previous contract. In its report, the NAO described Aspire as “an appropriate means” of working through its long-term technology challenges and limiting risks.

But since then costs have continued to go up – with the projection rising to £8.5bn by 2007 and eating up 44% of HMRC’s supplier budget by 2011.

HMRC has maintained in the past that Aspire has helped it achieve more than £1bn in cost savings, but the NAO estimated the project’s costs would rise to £10.4bn by 2017, reporting that department did not have the independent expertise to challenge its suppliers.

Having recognised its shortcomings in this area, HMRC is trying to rebuild its internal capability, but faces a further struggle to renegotiate the contract until 2017 while it defines its post-Aspire technology strategy, said Amyas Morse, the head of NAO.

“There are serious risks to HMRC’s business if the programme to replace the contract fails to meet its objectives by June 2017 when the contract ends,” the NAO warned.

Those risks include: HMRC having to pay over the odds to extend the Aspire arrangement due to a lack of competition; inability to continue switching to efiling and collection process due to limitations in its legacy systems; a fall in service quality to taxpayers, “putting the amount of tax collected at risk”, the NAO said.

To date, Aspire has cost the government around £8bn since it took over in July 2004. Aspire was seen as the only way to maintain continuity and improve the department’s technology performance at the time, but in 2011 the Cabinet Office decided that Aspire was no longer a suitable way of providing value for money.

The NAO report acknowledges that Aspire delivered the continuity of service to ensure HMRC collects around £500bn of tax each year. with few significant service failures.

“The contract has helped HMRC to improve its operations by reducing operating costs, increasing tax yield and improving service to customers,” the NAO said.

The Aspire project is such a big, long-running and complex saga, that very few individuals can get a global overview of exactly what is going on and whether it really is delivering value for money and better quality service. The self assessment online system, for example, appears to work well and cope with its peak workload each January, but the jury is still out for real time information (RTI) for PAYE.

For students of the project, the NAO’s periodic reports present a rare opportunity to gauge progress and assess whether HMRC’s technology performance is likely to improve. The latest report, for instance, includes some revelations that will surprise even the most cynical of observers.

Since 2004, for example, HMRC has been paying Capgemini to maintain the financial model that the department uses to maintain control over the prices per unit paid. HMRC is content with the way Capgemini is maintaining the financial model, which the NAO found was using out of date data on workload volumes. By not adjusting the model to reflect changes in actual and forecast volumes, HMRC missed the opportunity to control costs better over the contract lifecycle, the auditors noted. [Para 3.11-3.18]

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One Response to Could this be one of the reasons public sector pay rises were only 1%?

  1. sdbast says:

    Reblogged this on sdbast.

    Like

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