Executive Summary

1  NIRS 2 - the National Insurance Recording System - is a large and complex computer system designed to support the Inland Revenue's administration of the national insurance scheme. It was developed under the Private Finance Initiative to replace the previous National Insurance Recording System (NIRS 1). The Contributions Agency, then part of the Department of Social Security, was responsible for the development project. Following a competition, the Agency awarded the NIRS 2 contract to Accenture - then Andersen Consulting - in 1995. The contract covered the replacement of NIRS 1, transfer of data to the new system, development of the system to implement legislative changes arising from the Pensions Act 1995, and the operation of the new system until 2004.

2  In 1998 the Government proposed significant changes to pensions and national insurance legislation, for example to introduce stakeholder pensions and pension sharing on divorce. The Inland Revenue, who had taken over responsibility for NIRS 2 in April 1999 with the transfer of the Contributions Agency, negotiated an extension to the contract to cover the work needed to support these legislative changes. The original contract was valued at £45 million for operational services with provision for software enhancements increasing that to £76 million. The estimated value of the extension is between £70 million and £144 million, depending on the amount of work ordered over the remaining life of the contract. On the basis of development work ordered and planned to date, the Department's current estimate is for substantially less than £144 million (Figure 1).

3  We carried out a study of the extension to the NIRS 2 contract in order to ascertain:

■  why the Department needed to contract for additional development work beyond the scope of the original contract;

■  what options were available to the Department for carrying out the additional work, and how these options were evaluated;

■  how the Department evaluated the proposal submitted by Accenture in the absence of open competition;

■ whether risks were shared appropriately between the parties to the contract; and

■  what steps the Department had taken to ensure that the problems arising under the original contract are not repeated during the course of the additional work.

4  We decided to issue this report for two reasons:

■  to consider, on the basis of the NIRS 2 experience, the extent to which private finance initiative (PFI) contracts can provide the flexibility to accommodate changes in government programmes and practice that flow from government policy developments; and

■  to review developments on the NIRS 2 contract with Accenture following our initial examination1 and the subsequent reports by the Committee of Public Accounts.2 NIRS 2 is a major project, supporting the Inland Revenue's administration of the national insurance scheme, holding details of 65 million national insurance contributors and calculating benefits and other amounts payable, such as state pensions. A project of this size and importance is a matter of continuing public and Parliamentary interest.

5  The report does not cover the implementation or operation of the original system, progress with which is being monitored as part of our annual audits of the National Insurance Fund account.

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1 HC12, Session 1997-98

2 The contract to develop and update the replacement national insurance recording system (46th Report, Session 1997-98 (HC472))

Delays to the new national insurance recording system (22nd Report, Session 1998-99 (HC 182))

National Insurance Fund 1998-99 (31st Report, Session 1999-00 (HC 350))