BT dumped by the Revenue in £4bn bidding battle

The Inland Revenue has ditched the BT and CSC consortium from the list of bidders for its £4bn IT outsourcing contract, much to the surprise of industry experts.

The ditching of the Fusion Alliance, which also consisted of SchlumbergerSema, means Cap Gemini Ernst & Young's partnership with Fujitsu will be left to fight with incumbents EDS and Accenture for the Aspire contract.

A statement from the Inland Revenue said: "Following the evaluation of the responses to the Aspire Invitation to Tender (ITT), received in March 2003, the following will go forward to the next stage of the Aspire Competition: Cap Gemini Ernst & Young - in alliance with Fujitsu; and Revenue Professional Services - EDS in alliance with Accenture."

But Anthony Miller, principal analyst at Ovum Holway, said he is surprised to see the BT and CSC alliance dropped at this stage of the competition.

He told silicon.com: "I had really thought the Fusion Alliance was looking like a strong competitor, arguably stronger than the Cap Gemini Ernst & Young and Fujitsu alliance but obviously the Inland Revenue thought otherwise."

Having never taken on a public sector deal of this size CGEY and Fujitsu would face the "biggest challenge in their history" if they succeeded in ousting EDS, said Miller.

The Fusion alliance issued a statement saying it "heard this morning that it had not been chosen by the Inland Revenue to go forward to the next stage of the Aspire competition. We have always made it clear that we respected the integrity of the competition and this decision, however disappointing for us, is part of that process."

However, Miller warned that EDS and Accenture will not be counting their chickens just yet, due to increased scrutiny on EDS' track record with the UK government and a desire to open the Revenue contract up for genuine competition.

He said: "There is an underlying feeling that the government seems to be disposed towards changing suppliers rather than staying with the incumbents."

Miller believes the Revenue is still looking at an "all or nothing" deal for the final two bidders but he said it is "not impossible" that elements of the contract could be carved out and split between the two parties.

The Aspire competition for the massive outsourcing deal now moves into an assurance phase that will involve due diligence, negotiation, access to senior Revenue executives and transition planning.

The winner will be announced before the end of the year, with the 10-year contract expected to commence from 1 July next year. In addition to developing the future technology platform for the Revenue the deal will cover the support and maintenance of over 70,000 desktops, 177 IBM and Hewlett Packard Unix servers and 200 ICL mainframes.

Aspire, along with the imminent £4bn Ministry of Defence IT outsourcing deal, are likely to be the first tests of the government's commitment to improve its track record on IT projects following initiatives from its procurement agency the Office of Government Commerce.

In fact the Revenue was forced to stump up almost £10m to fund the cost of new bids for its contract to encourage competition against EDS, which may face penalties over problems with the introduction of the government's tax credit computer system.