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NAO says HMRC over-sweetened IT suppliers

Millions paid in aid - but systems still failed

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HM revenue and Customs may have been too generous in giving £52m in aid to its IT suppliers when it transferred computer contracts worth £3bn from EDS to Capgemini, said the National Audit Office in a report today.

The department gave financial aid to its old and new suppliers in 2003 to ensure the transition from one to the other went smoothly and without causing any disruption to tax payers and tax credit claimants.

According to the NAO, the department paid £8.6m to cover the costs of Capgemini's bid for the 10-year ASPIRE contract, worth £3bn to £4bn. It then paid another £37.6m to Capgemini to cover the cost of transition, or taking HMRC systems of EDS' hands. The department paid another £5.7m to EDS and Accenture to help them hand their systems over to Capgemini.

These payments were "justified", said the NAO, because they were required to encourage competition. Government contracts had not been attracting enough bidders.

However, the NAO said in a statement: "There remains a question whether the department needed to pay this much."

It might have got more bang for its buck, it said. It could have kept a tighter control over transition costs. It could also have got its suppliers to produce better design and implementation plans for the money it paid.

The planning stages of ASPIRE also failed to predict the departments' burgeoning IT needs. Two and a half years since Capgemini started work at the HMRC, the NAO has reported "significant cost increases" because of unanticipated IT needs.

Nevertheless, the department transferred its business to Capgemini "without any loss of service to customers", said the NAO.

Yet problems did arise following the transition from EDS to Capgemini of ERIC, the computer system that does preprocessing of tax returns. National Insurance records were inaccurate because they were not fed correctly with information from Eric.

Eric was part of the PAYE modernisation programme, called MPPC (Modernising PAYE Processes for Customers), which has since been rumoured to have been delayed again. The department said there had been no delay. However, the NAO said, there had been a transition of the national insurance records system, NIRS2, and other delays to "mission critical projects". These were caused by the department's "changing its requirements", though the ASPIRE contract was commended for being flexible enough to accommodate moving goalposts.

HMRC had already been forced to accept some of the blame for its computer glitches, as revealed by the House of Commons Public Administration Committee in February. Flaws in the tax credits IT system, which led to overpayments of £5.2bn in the last three years and may take years yet to correct, were symptoms of a poor design.

This was arguably rooted in the fundamental administrative principles on which the tax credits system was based, borrowed as it was from different Canadian and Australian systems and hashed together. This then became the basis of a Kafkaesque administration that often told the recipients of tax credits "the computer says no" whenever their lives did not tally with the computer records.

The 2004 annual report of the Parliamentary Commissioner for Administration, which first noted that management of tax credits was failing, noted how government computer systems tend to be poorly thought out, planned and piloted.

Capacity problems are said to have led to the testing of the tax credits being rushed so that its introduction could be made by April 2003. One source close to the project said testing was cut from 20 weeks to six because IT staff were needed urgently to deal a problem with another computer system, that of National Insurance records.

This sort of scenario, the NAO has concluded, necessitates some sort of grand overseer who can make sure the government IT projects are not constrained by a lack of resources, as they are, and help manage capacity across all suppliers working for all departments.®

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