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The coalition's election pledge to cap IT contracts at £100m will become official policy from next month.

A procurement policy notice released by the Cabinet Office sets 1 April as the deadline when the cap will come into force for central government departments, their agencies and non-departmental public bodies.

The £100m limit is being introduced as the "government wishes to reduce significantly the delivery risk of very high value projects which use ICT to deliver their business objectives and also to achieve better value for money overall from its investment in those projects", according to the notice.

The cap will apply to all IT contracts, projects, frameworks and call offs within those frameworks, the Cabinet Office says, and in future, all contracts will need to be designed with the £100m limit in mind.

The policy notice doesn't spell the end of large IT projects, however; IT projects will be allowed to exceed £100m on the grounds of national security or to ensure the continuity of a critical government service.

Projects will also be allowed to exceed £100m where "a strong case can be made that doing so increases the overall cost to the taxpayer, notably increases the risk of failure or increases the security threat to the public body or government as a whole", the notice says.

Whitehall will be expected to achieve the new upper limit for IT contracts by:

  • Encouraging the reuse of existing assets.
  • Making changes to procurement such as the application of lean methodology to buying.
  • Greater competition among suppliers including through the increased use of SMEs.
  • Creating contracts differently, for example, by reducing their length for or separating out commodity hardware from a new project and purchasing it through an existing contract, or separating out telecoms needs and buying them through the PSN frameworks.

Capping the cost of projects will lead to a greater number of suppliers being used for government IT work and more contracts awarded to individual companies rather than consortiums, the notice says.

However, it acknowledges potential problems with the new model, including a potential reduction in economies of scale and issues with staff until the system is bedded in.

There could be "a shortage of public sector capability in the range of expertise required to deliver this new approach that could lead to project failures" and "a potential risk that departments may choose to use a number of suppliers to mask the overall cost of a project", the notice says.

This article was originally published at Guardian Government Computing.

Guardian Government Computing is a business division of Guardian Professional, and covers the latest news and analysis of public sector technology. For updates on public sector IT, join the Government Computing Network here.

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