1.25 Contracts for information technology and telecommunications services have generally been between five and ten years and a ten year contract period, although long at the time, is in line with current trends5. Increasing the contract period may help to reduce annual charges if contractors are prepared to recover their capital costs over a longer period. And it may allow Departments to benefit from a more developed working relationship with their contractor. Long contract periods for telecommunications and information technology contracts, however, do carry risks because these markets are subject to rapid technological changes and purchasers may want new forms of service delivery. A long term contract with one supplier therefore presents the risk that services could become obsolete. It can also limit scope for achieving value for money for new requirements if it means their provision will not be subjected to a competition. In addition, competition in the telecommunications industry is increasing and is expected to increase further in coming years, so there is also a risk that prices in a long term contract may not fall in line with market
1.26 The effectiveness with which changes are dealt with will be an important element in judging whether the contract period is appropriate. Under a long term contract it is, therefore, important that:
■ there is sufficient flexibility to handle change;
■ there are mechanisms to ensure prices are competitive with the market; and
■ there are terms to allow the Department to hold a new competition for the contract at the end of the period.
1.27 In view of these concerns, the Department required the bidders to consider future changes and incorporate in their proposals the ability to expand to include certain new services and types of technology. The Department and BT meet regularly to consider jointly whether services changes are desirable throughout the contract period. The contract also allows the Department to compare BT's prices with those of other suppliers and to negotiate changes if BT's prices are no longer value for money (see Part 3).
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5 The Treasury Taskforce noted that the average length of Private Finance Initiative Information Technology contracts had risen from seven to ten years in their draft "Standardisation of PFI Contracts - Information Technology" which they circulated to the public and private sectors for comment in July 1999. pressures.