MoD unveils £4bn outsourcing shortlist

The Ministry of Defence (MoD) is to include strict performance-related penalty clauses for its £4bn 10-year IT outsourcing contract that will allow it to change the service provider after just three-years.

The shortlist for the Defence Information Infrastructure (DII) contract was officially unveiled today and features four consortiums, each led by a major name in IT services industry.

They are as follows:

* The EDS-led Atlas, with Fujitsu, Cogent, General Dynamics, and LogicaCMG;

* IBM with BAE Systems, Computacenter, Steria, NTL and Echelon;

* Lockheed Martin with Deloitte Consulting, Hewlett Packard, QinetiQ, SAIC and Unisys;

* The CSC-led RaDII group with BT, CGEY and Thales e-security

The MoD will narrow that down to three bidders later this year and, following a review by the Office of Government Commerce, will award the contract in the first quarter of 2005. The first implementation stage will be complete by early 2007 and the whole new infrastructure is expected to be fully operational by 2008.

One of the key aspects of the procurement process is risk mitigation and the MoD said it is doing all it can to ensure the project does not go the way of other large failed government IT contracts.

As part of that the chosen supplier will face onerous contract clauses that allow the MoD to "step-in" and change the contractor if things go wrong.

The preferred bidder will be given a 10-year contract to design and build a single information infrastructure for the MoD, covering some 177,000 desktops and disparate systems worldwide.

But the MoD will retain ownership rights and an incremental deployment of the project will include constant benchmarking and a contractual review every three years that will allow it to ditch the supplier if serious problems arise.

Chris Church, assistant director of commercial management for the DII, said the MoD will sign a deal with one major contractor who will then sub-contract different parts of the project to other service providers in the consortium.

"We are looking for a number of contractors at the top level so we can mitigate against the risk of single contractor failure. If one is failing we will have the right in the contract to change the construction of the consortium and who we contract with," he said.

The MoD would not reveal figures for cost savings targets but said the single IT infrastructure will provide greater efficiencies.

Bob Quick, DII integrated project leader, said: "There will be an uplift in capability. There are benefits we’ll get in terms of economy of scale."

Up to 1,900 defence staff could be affected by the introduction of DII but the MoD said it does not yet have accurate figures on how many workers will be transferred to suppliers or made redundant.

Trade unions have already been consulted for advice, however, and the contract is likely to allow for a "mixed-economy" of in-house and outsourced staff.