9 The Inland Revenue looked at alternatives to using NIRS 2 to support the new legislative requirements, including clerical solutions and using other information technology systems. Most of these were rejected because they were not technically feasible or likely to involve greater risk or cost than enhancing NIRS 2. They concluded that NIRS 2 was the most practicable option for some 80 per cent of the work required.
10 The Inland Revenue had three main contractual options for commissioning the new NIRS 2 development work:
■ to negotiate a contract extension;
■ to ask Accenture to provide the additional resources required at Department of Social Security framework rates, under the original contract terms;
■ to exercise the break clause in the original contract and hold a new competition for the continuing operation and development of the system.
11 They opened discussions with Accenture about extending the contract. In response, Accenture offered to deliver all development work using a dedicated software support facility. Doing this and introducing longer-term planning of resource requirements would enable them to offer a lower price for enhancements than the Department of Social Security framework rates, which were the alternative charging mechanism.
12 The Inland Revenue then commissioned PA Consulting to develop a financial model to compare the cost of Accenture's proposals with that of using alternative suppliers. The work showed that Accenture's unit costs compared closely with the comparators, but breaking the NIRS 2 contract would have incurred additional costs estimated at £44 million. The results therefore supported the option to extend the contract with Accenture.
13 In addition to the financial evaluation, the Inland Revenue assessed Accenture's ability to deliver software of the required quality, the firm's commercial stability, legal, commercial and security issues, the legislative timetable, and the scope to improve their management of development work. After taking these factors into account, as well as a technical review of NIRS and latest Treasury guidance the Inland Revenue concluded that a contract extension provided the best option for meeting the legislative requirements in the timescale required.
14 The Inland Revenue used the extension to the contract to introduce new operating arrangements to resolve difficulties arising on the original contract which had contributed to delays in implementing the system. In doing so, they obtained legal advice that the extension complied with European procurement rules in all respects other than that the new payment arrangements to improve their control of development work did not strictly adhere to the terms of the original procurement advertisement. The advice recognised that this might give rise to claims for compensation from other suppliers, but that the risk of challenge was extremely low. However, the alternatives would not have allowed them to meet the timetable prescribed by new pensions legislation, which was already in force. They decided to proceed, as they considered that the costs of delaying the work programme and the advantages of the revised arrangements outweighed the risks attached to not complying fully with the procurement rules.
15 Under the new arrangements, Accenture continue to bear risks relating to the operation and availability of the system. The risks associated with system enhancements, however, are shared to a greater extent than under the original contract. The contract extension has introduced stage payments linked to the achievement of milestones, productivity incentives, and profit sharing arrangements.
16 The Inland Revenue have recognised that, in any relationship of this kind, it is not possible to transfer the business risk of non-delivery to the contractor. They have therefore strengthened arrangements for managing delivery risks by introducing their own project management methodology to the contract. This includes a system that ensures developments to the system are managed as a series of projects, which are overseen centrally and allocated a specific release date linked to the legislative timetable. There are joint working arrangements to secure increased collaboration and acceptance criteria are defined more clearly than before. The management arrangements for the contract extension correspond closely to subsequent government guidance on risk management in PFI contracts and IT projects.
17 The Inland Revenue and Accenture consider that their relationship has improved since the contract extension, due to the introduction and operation of partnership principles. Both sides describe the current relationship as open, trusting and effective in managing the contract, and have seen advantages accruing since the new arrangements were introduced. System changes required to support pensions sharing on divorce, changes in bereavement and incapacity benefits and the restructuring of national insurance contributions have been delivered successfully. The Inland Revenue reported that the NIRS 2 service had improved significantly since the new arrangements had come into operation and user satisfaction increased substantially. In the 12 months to 31 March 2001 service levels had consistently exceeded target performance and 2 major releases of high quality software had been made on schedule.