Taxman tears up the rulebook to award IT upgrade

The Inland Revenue has bent the law by awarding a multi-million pound deal to Accenture to upgrade its National Insurance computer system (Nirs2) without going through the correct tender procedures.

But a report from the National Audit Office (NAO) has concluded the tax department had no choice after the original contract was drafted badly.

The Revenue had to significantly upgrade Nirs2 after tax changes proposed in 1998. Auditor general Sir John Bourn launched an investigation after incumbent supplier Accenture won the upgrade contract with relative ease.

In a report released this morning, Bourn concludes that although the Inland Revenue looked at competing suppliers and found little difference in unit price, penalty clauses within the contract meant moving to a new supplier would have been too expensive.

"The estimated £44m cost of breaking the contract effectively ruled out the option of using alternative suppliers for the developmental work," Bourn said in the report.

It is estimated that the completed upgrades will cost the Revenue between £70m and £144m.

According to the report, the inflexibility of the Department for Social Security's £76m contract with Accenture (then known as Andersen Consulting) in 1995 restricted the Inland Revenue after it inherited the system in 1999.

It points to a number of stark lessons for the future of PFI contracts. "Departments must understand what the impact would be on their computer systems of major legislative changes," it says.

"They should consider whether contracts should include specific mechanisms to deal with major enhancements of this nature. This might involve the reintroduction of competition or inviting bidders to propose a separate pricing structure."

It also implicitly criticises government ministers for pushing through rapid legislative changes without considering the consequences for the Revenue.

A spokesman for the Inland Revenue welcomed the report. "No legal challenge was ever made to the extension of the contract," he said, "but we accept the recommendations regarding the need for flexibility."

Despite its biting criticism of the contract drafting, the NAO report concludes that the upgrade process has been a success. "In the circumstances, awarding the contract to Accenture was the best option, and has enabled the Inland Revenue to improve the way the contract is managed."

Peter Holmes, Accenture Managing Partner, UK Government Practice, said he was also pleased with the report.

"The new arrangements have already achieved results, and Accenture is well placed to deliver the extra work which has resulted from major legislative changes on time," he added.

Find out what IT director John Yard has to say about the Inland Revenue's IT blunders:
On the Spot: John Yard, director of business services, Inland Revenue
http://www.silicon.com/a48966