HMRC's Aspire outsourcing contract has cost almost twice original estimates because HMRC has commissioned more work than originally anticipated - despite warnings from the National Audit Office (NAO) that costs could escalate.
As a result, instead of costing a total of £7.9bn in the 10 years between July 2004 and March 2014 - twice the original expectations of between £3.6bn and £4.9bn. And the total cost could reach £10.4bn by the time the extended contract finally expires in 2017.
The Aspire is led by services giant Capgemini, which took over from EDS in 2004, but which also includes a number of smaller partners to handle different specialist roles.
"We warned that HMRC could spend over £7bn, nearly twice the original projections... We recommended that HMRC closely monitor lifetime contract costs, and ensure it had robust project management arrangements to get the best supplier performance possible," concludes the report.
Projects that may have contributed to that multi-billion pound over-spend include online filing of tax returns. HMRC also had to contend with a complex merger of the Inland Revenue with Customs & Excise in 2005 to create the current tax-collecting monolith.
However, the NAO suggests that HMRC and its Aspire partner have achieved a high level of satisfactory implementations - in contrast to a plethora of IT disasters elsewhere in government over the same period. "HMRC and Capgemini have implemented 95 per cent of major technology projects since April 2008 without a high-priority incident, although problems with some projects have had a significant impact," claims the NAO.
The five per cent of high-priority incidents include glitches in HMRC's PAYE database migration and centralisation project, which caused huge disruption that was blamed on failings in HMRC's own processes rather than poor performance by the Aspire IT suppliers.
Furthermore, costs had been bumped up as a result of an excessive level of changes made once the extensive planning for projects had been completed. While praising Aspire and HMRC for their mutual cooperation over such changes, the NAO suggested that the degree of change made it difficult for HMRC to fully hold Aspire suppliers to account "for their performance across the portfolio of projects".
The NAO was also critical that despite the length of the contract HMRC had not evaluated the overall strengths and weaknesses of the arrangement since it started - and recommended that it should start to do so straightaway, given the contract re-tender due in 2017.
Perhaps most damning of all, though, is the level of profit that the NAO believes the Aspire contractors have been able to make from the contract since it started - £1.2bn, which is 16 per cent of the £7.9bn that HMRC paid in the 10 years to March 2014.
This was partly because HMRC "did not market test any significant element of the contract [after 2004] but has used benchmarking to inform periodic contract negotiations", suggested the NAO.
Furthermore, in the search for short-term cost savings "led HMRC to trade away some of its negotiating power and hindered its ability to get strategic value from such a long-term contract...
"HMRC conceded many of its commercial safeguards through major renegotiations of the contract between 2007 and 2009, including the right to share in supplier profits when they were higher than target and the right to compete for services. Since 2012, HMRC has negotiated some of these controls back."
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