HMRC has come under fire from MPs over the costs of managing the transition from its current single-supplier Aspire contract for its IT infrastructure to multiple smaller IT contracts, amid concerns that the department lacks an adequate business plan and the necessary skills for the switch to be successful
As part of its ongoing inquiry into managing and replacing the Aspire contract, the Public Accounts Committee (PAC) wanted to know the details of how this would be handled and put questions to HMRC chief executive Lin Homer and the department’s chief digital and information officer, Mark Dearnley, who recently joined HMRC from head of IT at Vodafone.
PAC chair Margaret Hodge said she was ‘sceptical’ about whether HMRC would be able to put new arrangements in place by June 2017, when the Aspire contract is set to expire.
Under this deal, which costs HMRC £187m annually for hosting the key IT systems for collecting £500bn of tax revenues, Capgemini is the prime contractor overseeing a number of sub-contractors and partners including Fujitsu.
New Cabinet Office rules preclude any one supplier from having a government contract for more than £100m.
Summing up progress so far against HMRC’s previously published timetable, Hodge said, ‘You do not have a business plan because you are still negotiating, but you should have had it. You have not managed to remove Fujitsu’s right to exclusivity. You may have been acting on those negotiations, but there has been no result.
‘You have recruited a few top people, but you have not recruited down throughout the organisation the sort of capability you will require to manage hundreds of contracts, have you? All I am saying is that it is always promises with very little evidence to us that you are delivering.’
In particular, Hodge said a big question for the committee was ‘what are the costs associated with that change from Capgemini, Fujitsu et al, through to nobody with anything worth more than £100m?’
In their evidence, Homer and Dearnley indicated that no information on the costs involved would be available before spring 2015, saying that the business case is currently going through the internal governance processes and will then have to be externally validated.
While Dearnley told the committee that HMRC estimates suggested that once the transition was complete, the total cost base for IT would come down more than 25%, he was less sure of the actual costs of going through the transition, partly because of uncertainty over TUPE requirements, where equipment would be located and the need to recruit additional IT staff.
Dearnley said: ‘For the pure cost of doing the commercial and technical part of the transition for the next two years, we have budgeted £5m this year and £25m the following year. I emphasise that those are budget figures at the moment.’
Dearnley also indicated that HMRC wants to upgrade its IT infrastructure, saying the plan was to move applications into the cloud, making it easier to manage peak loads in areas like self-assessment returns and tax credit renewals.
Several members of the committee expressed concern over what Sir Amyas Morse, head of the National Audit Office, described as a 'very tough timescale' and challenged Homer over the risks that HMRC could suffer a financial loss if there were delays or problems in implementing the new IT systems, suggesting that the department’s track record with previous major system upgrades was mixed.
Hodge said: ‘You are doing a massive thing here. I cannot believe that there is not a risk that we will lose money out of the £500bn we currently collect through the Aspire contract during that transition. I just do not believe it, and I think you have got to have a figure in there for risk.’
Hodge also highlighted concerns over HMRC’s ability to manage multiple smaller contracts, noting that ‘only 3% of your IT expenditure you have put out to contract beyond the Aspire contract. I mean, you have got no ruddy experience of this at all.’
This was echoed by Labour MP Austin Mitchell, who said: ‘I am not sure of your competence to take on a lot of little contractors, given the fact that when you replaced the 12 regional national insurance and PAYE centres with one national service, you made a real balls of it.
‘You lost about £1bn in revenue forgone and it cost something like £75m to put right. That does not tell me that you are going to be competent to handle a lot of little contracts without the supervising role of a big contractor.’
Dearnley maintained that HMRC would meet the 2017 deadline without having to extend Capgemini’s contract to support essential services, and confirmed the department would start talking to potential new suppliers early in 2015.
Dearnley said: ‘One piece of transitional work that we have to do ahead of migration is to redesign our business processes and all our systems, so that we can move from a world where there is one very large broken-down bill every month with Aspire, to a world where we can manage 400 suppliers and a supply chain for those.’
One option under consideration is for HMRC to specify a service and system integrator, who takes responsibility at the top level for all of the systems. Dearnley said HMRC was weighing up whether an external firm should be contracted to perform this role, or whether this was a skill set that it wanted to create and develop within HMRC.
The committee also heard Dearnley and Homer acknowledge that HMRC staff regularly report they have better IT at home than the technology on offer in their workplace, with recent employee discussions under its ‘Building our Future’ initiative throwing up the argument ‘We have faster, better kit at home. When are you going to give us the tools of the trade?’