Customs and Fujitsu PFI deal will now "exceed £1bn"

The cost of Customs and Excise's renegotiated PFI IT contract with Fujitsu is now expected to more than double to over £1bn over the course of ten years – and a possible merger with the Inland Revenue could force costs even higher, according to a report by public spending watchdog the National Audit Office (NAO).

The contract was renegotiated earlier this year because Customs needed an enhanced technical platform to support the provision of new services and the replacement of deteriorating legacy systems.

Customs had calculated the cost of changing supplier would be less than the £250m extra paid to Fujitsu but that a switchover would put almost £1bn of existing and future revenue at risk.

The department admits in the report, Transforming performance of HM Customs and Excise through electronic service delivery, that it may yet be forced to negotiate a further settlement if Fujitsu's further changes are required following a current government review, led by Treasury adviser Gus O'Donnell, that could see it merged with the Inland Revenue.

"The department [Customs] consider that their IT infrastructure could, if necessary, be connected to the Inland Revenue's systems at no significant additional costs. However, if the O'Donnell review leads to the breaking up of current service provision under the PFI contract, Customs would likely have to reach a negotiated settlement with Fujitsu," the report said.

The details of the Fujitsu deal were revealed in the NAO report, which specifically assessed the performance of Customs' £327m IT-based 'e-service' programme to improve services and efficiency through electronic service delivery. That was largely given the thumbs up and financial benefits of the programme are estimated by Customs to be £1.2bn over the ten year period to 2010 in increased revenue.

Customs' progress in putting services online and getting people to use them also compares favourably to other government departments, said the report. But one area of concern is electronic VAT returns, which has less than one per cent take-up currently against a target of 50 per cent by 2006.

The NAO also warns that the programme is still in its early stages and major risks remain. It recommends contingency plans to deal with any breakdowns in service to customers when the new e-services go live, and the need to address the risk of new IT systems producing inaccurate information which is then used as the basis for decision-making in other parts of government.

Sir John Bourn, head of the NAO, said in the report: “Customs and Excise have made good progress in getting their electronic service delivery programme underway. The programme is, however, at the early stage of its development and there is a long way to go to translate the strategy and plans into performance improvements on the ground. An IT programme of this magnitude inevitably presents some large risks and our report recommends to Customs how to address these risks.”

Customs and Excise was contacted but was not immediately available for comment.