IT outsourcing move costs the DVLA £33m

The Driver and Vehicle Licensing Agency (DVLA) has paid £33m in transition costs to move its IT outsourcing deal from one supplier to another.

The figure, revealed in the DVLA's annual accounts, is 11 per cent of the overall value of the £301m deal struck with PwC Consulting, now part of IBM, in September 2002 following the expiry of the agency's previous contract with EDS.

Transition costs are becoming an important issue as the government increasingly relies on outsourcing for much of its technology service provision. Over the next two years it will sign IT deals worth £12.5bn (Computing, 2 October).

The government is legally obliged to run competitive procurements when contracts expire, and as a result changes supplier five times more often than the commercial sector, says Robert Morgan, chief executive of outsourcing advisors Morgan Chambers.

One of the major deals in the pipeline is the £4bn Aspire project at the Inland Revenue which could see the department's business transferred away from its incumbent suppliers.

Morgan says the government should consider whether the current rules on re-tendering are appropriate.

'The physical, cultural and financial costs are huge and if the government is getting a good service and the cost differential is not that great then there should be some mechanism to allow them to stay with the incumbent,' he said.

Greater transparency and auditing procedures around the performance of suppliers would avoid concerns that fewer open competitions would lead to corruption, he says.

'Government needs shorter contracts with more opportunities to terminate for failure but equally more freedom to continue with successful suppliers.'

Whitehall buying agency the Office of Government Commerce emphasises the need to look at value for money over the whole life of the contract.

'The accounting officer in the individual department has to decide who will win a tender on the basis of the whole-life value for money. It is to do with more than just up front capital costs,' said a spokeswoman.

The DVLA says the complex and large-scale transition was delivered four months early with no disruption to services or customers.