National Audit Office criticises shared services arrangements

Sharing back-office functions costs more than expected and are yet to deliver savings

Government spending watchdog the National Audit Office (NAO) has criticised the track record of shared services initiatives, where the five projects it has tracked are already £500m overbudget.

The criticisms of the shared services arrangements, which are supposed to cut back-office costs within the public sector, retread some familiar ground, with the public sector lambasted for failing to act as "an intelligent buyer", implementing overly costly and complex software, and not delivering expected savings amid spiralling costs.

"The initiative for government departments to share back-office functions has suffered from an approach that made participation voluntary and tailored services to meet the differing needs of individual departments," said Amyas Morse, head of the NAO.

"The result was overcomplexity, reduced flexibility and a failure to cut costs."

The shared services that were evaluated included ones for the Department of Work and Pensions, the Department of Transport, Research Councils UK, the Department for Environment, Food and Rural Affairs, and the Ministry of Justice.

Most of those shared services arrangements use enterprise resource planning software from Oracle, apart from the Department of Transport, which uses SAP.

Those ERP systems are "complex and have proven to be expensive" said the NAO.

It also noted they are designed to deliver most savings when widely used across the shared services.

But the NAO also noted that "as the use of the centres has been voluntary, departments have struggled to roll out shared services fully across all their business units and arm's length bodies".

To date, the five shared services analysed were expected to have cost £900m to build and operate, but have so far cost £1.4bn. They were also expected to have generated savings of £159m by the end of 2011, but so far only one service has broken even.

The NAO noted that these shared service arrangements had been established by the previous government, and that the Cabinet Office had taken steps to improve the track record of public sector IT.

But it also noted that the strategy was ambitious and had imposed tight deadlines for delivering the necessary changes.

Around 80 per cent of central government employees are now covered by shared services centres.