7. The original contract for NIRS 2 made provision for routine enhancements and a ceiling on additional development work. The ceiling was expressed as 2000 function points per annum, at a fixed price per point agreed in May 1997, 2 years after the original contract was placed. However, between May 1997 and April 1999 the Government announced a number of significant legislative changes which affected the areas of national insurance and pensions dealt with by NIRS 2 (Figure 1). These changes far exceeded the provisions in the original contract.7
| Figure 1: Main legislative changes affecting the National Insurance Recording System | |||
| Development | Proposed | Enacted | Implementation date |
| Restructuring of National Insurance contribution thresholds and limits | November 1997 | Social Security Act 1998 | Phased from April 1999 |
| Enabling SERPS pensions to be shared on divorce | June 1998 | Welfare Reform and Pensions Act 1999 | December 2000 |
| Revised rules for calculating Incapacity Benefit | October 1998 | Social Security Act 1998 Misc Amendments (Regs) 1999 | April 2000 |
| Reform of bereavement benefits | October 1998 | Welfare Reform and Pensions Act 1999 | April 2001 |
| Introduction of stakeholder pensions | December 1998 | Welfare Reform and Pensions Act 1999 | Available April 2001. Employers must offer by October 2001 |
| Introduction of State Second Pension | December 1998 | Child Support, Pensions and Social Security Act 2000 | April 2002 (earliest) |
Source: National Audit Office summary of relevant Government announcements
8. The Inland Revenue consider that the ceiling on enhancements in the original contract negotiated by the Department of Social Security was adequate, based on all reasonably foreseeable assumptions. Those concerned could not have foreseen the extent to which, following the general election in 1997, there would be significant changes in legislative requirements. Even had they been foreseen, in their view it was not appropriate for an Accounting Officer to take into account the possibility of a change of government in planning the system.8
9. After the General Election, the proposed legislative changes were announced over a period of a year, from November 1997 to December 1998. The Department of Social Security assessed the technical feasibility and costs of each of these policy changes, but told the National Audit Office that they were not in a position to establish fully the aggregate effect of the changes on NIRS 2. Their ability to assess the overall capacity for NIRS 2 to accommodate the package of changes within the proposed legislative timetable was limited by uncertainties about the initial stabilisation of the system. As the original system had not been fully delivered, it was more difficult to assess the extent to which it would need to be modified. Thus it was not apparent to the Department of Social Security that the required developments might, in aggregate, exceed the annual enhancement limit included in the NIRS 2 contract, or more fundamentally, whether the system had the technical capacity to absorb the level of change required.9
10. The Inland Revenue confirmed that as far as they were concerned they would normally try to establish the full implications, costs and lead times for implementation taking into account issues that cut across departmental boundaries. The circumstances would determine the degree of flexibility they might need to build in to allow for possible changes, but it would be bad value for money to provide unlimited flexibility to allow for the possibility that at some point in the future the policy might change.10
11. When they took over responsibility for NIRS 2, in April 1999, the Inland Revenue formed a joint design team to assess the options with staff from the Department of Social Security and with technical support from Electronic Data Systems (EDS), their strategic information technology partners, and Accenture. The team considered the scope of the legislative commitments, the feasibility of delivering them through NIRS 2 or alternative means, and the risks and dependencies involved, in order to derive an estimate of the scale and optimum timing of future developments. In October 1999, they concluded that new development work would require between 5,860 and 7,240 function points to be delivered between October 2000 and April 2002. As this exceeded the limit in the original contract of 2,000 function points a year, the Inland Revenue examined ways of meeting the commitments arising from the legislative changes.11
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7 C&AG's Report, paras 2.2-2.5; Qs 150-157
8 Qs 3, 72-75, 96-99, 158-161, 191-196
9 C&AG's Report, paras 2.8-2.9; Qs 3, 97-99, 159
10 Qs 3-6, 46-48, 50, 57-58, 162-163
11 C&AG's Report, paras 2.11-2.12; Qs 88-92, 110