1 From the 1960s onwards the Inland Revenue developed increasing levels of computer support for its business activities until it was running one of the largest administrative computer networks in Europe. By the early 1990s, its Information Technology Office, which developed and ran the Department's systems, employed over 2,250 and had an annual budget of £250 million.
2 After testing the market and taking external advice, the Department concluded in 1992 that fundamental improvements were required to its information systems and information technology, and that a strategic partnership with a single private sector provider would best meet the objectives of:
■ gaining rapid access to modern information systems and information technology skills, tools and technologies;
■ achieving substantial improvements in cost-effectiveness;
■ improving significantly the speed of response in the development and enhancement of systems;
■ optimising career opportunities for Information Technology Office staff.
Following a competition, a ten-year contract was let to Electronic Data Systems Limited (EDS). The work, staff and assets of most of the Information Technology Office were transferred to EDS in two tranches, in July 1994 and January 1996, with some staff remaining with the Department to manage the contract.
3 The Department and EDS run the contract as a partnership, from board level downwards, with both parties putting considerable effort into making the structures work and delivering the high service levels required. Fundamental to the success of the partnership are a clear vision and strategic direction, and a common recognition that it is the objective of both parties to secure benefits under the arrangements. Such an approach requires active management. To assist this, the Department established a risk management strategy, which is reviewed on a regular basis, so that important issues can be drawn to senior management's attention on a timely basis.
4 The contract with EDS is not a fixed price contract because the information systems and information technology needs of the Inland Revenue are constantly developing and changing in response to external factors, such as government policy and Budget changes, and internal factors, such as initiatives to improve the administration of the tax system. New work will account for about a quarter of the forecast £2 billion revenue spend on the EDS contract. The management of the risks of new work is a challenging area for value for money, particularly as the information technology systems developed by EDS will contribute to the future efficiency and effectiveness of many aspects of the Department's operations. This report focuses on the way that new work is commissioned by the Department.
5 In considering how the Department manages the risks associated with the procurement of new work, the report examines three main issues:
■ the Department's process for commissioning new work;
■ the maintenance and development of the skills necessary to assess the proposals and performance of EDS; and
■ how the cost of the service is compared with what is being achieved elsewhere.