2.2 The Contributions Agency's 1995 contract with Accenture to develop and run NIRS 2 covered replacement of the previous National Insurance Recording System and enhancements required to support legislative changes arising from the Pensions Act 1995, which were due to take effect from April 1997. The contract also made provision for routine enhancements and an agreed annual volume of additional development work, measured in function points.8
2.3 Under the NIRS 2 contract, Accenture did not receive payment until the system was operational. Payment is through an operating charge which varies up to a fixed ceiling according to the number of specified transactions processed by the system. The contract also provided for certain enhancements to the system to be included in the basic operating charge, including those arising from routine amendments to social security or pensions legislation, such as annual changes to contribution rates.
2.4 Other changes were to be priced using function points. The shortlisted bidders included a price per function point for enhancements in their tenders. The contract, when awarded specified a range of prices for enhancements depending on the size of the system in function points. The appropriate price was to be determined at a later date, once the size of the system had been agreed between the Contributions Agency and Accenture.
2.5 In May 1997, the Contributions Agency and Accenture agreed a price for system enhancements based on function points, reflecting the point on Accenture's price range bid appropriate to the agreed assessment of the size of the system. The payment for enhancements implemented in a financial year would be evenly spread over the next five years. The price applied up to a limit of 2,000 function points a year. This represented the scale of enhancements expected of NIRS 2 based on experience gained on enhancements to the original NIRS 1 system.
2.6 The Contributions Agency recognised that the scale of enhancements might exceptionally exceed the agreed level. Under these circumstances they would need to reach agreement with Accenture on the cost and timing of such additional work. Additional work could have been purchased at framework rates already in place between the Department of Social Security and Accenture. These rates were considerably higher than the rates agreed for the 2,000 function points.
2.7 The original enhancement rate per function point proposed by Accenture were considerably higher than other bidders because of the different structure of their offer. However, the Contributions Agency calculated that, as Accenture had offered a much lower price for the basic operating charge,9 the cost of enhancements would not affect the evaluation of the bids unless enhancements exceeded 4,000 function points a year. The Agency had considered this to be most unlikely.
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8 Function points are a recognised industry standard used to measure the size of a software development. They are derived from the number of transactions in a system, for example, the number of inputs and outputs and cross-references within the computer program.
9 Between £32 million and £50 million compared with the next lowest offer of between £82 million and £146 million