6 The original NIRS 2 contract included provision for system development work to meet foreseeable legislative changes. There was an annual limit to the quantity of system enhancements which could be ordered at the agreed price, based on the Contributions Agency's experience in operating the previous National Insurance Recording System. The pricing arrangements for system enhancements were finalised after the contract award.
7 In 1998, the government proposed changes to pensions and national insurance legislation on a scale which considerably exceeded the level expected when the contract was agreed. The Department of Social Security had provided advice to Ministers on the technical feasibility and costs of each of the policy changes. The implications of each policy were, however, assessed separately, and the Department's ability to assess the capacity of NIRS 2 to accommodate the overall package of changes within the proposed legislative timetable was limited by uncertainties about the initial stabilisation of the system, and the lack of clarity around the timescales for these changes. This meant that they were not in a position to establish fully the aggregate effect of the changes on NIRS 2.
8 At the point when the Inland Revenue took over responsibility for NIRS 2, it was unclear whether the contract contained sufficient headroom to cater for the development work needed. They therefore worked with the Department of Social Security, Accenture and EDS to determine the volume of new work required by the legislative changes, for which responsibility was now shared between the two departments, and the feasibility of delivering it through NIRS 2. The Inland Revenue concluded that the scale of the new work exceeded the contract limit and decided to examine how best to meet the commitments.