1.1 The Inland Revenue is one of the largest and most geographically diverse Government departments, employing some 65,000 people in more than 700 offices throughout the United Kingdom.
1.2 Starting in the late 1960s the Department developed increasing levels of computer support for its business activities. The in-house Information Technology Office was responsible for building and running the computer systems, which now form one of the largest administrative networks in Europe. By the early 1990s, the Information Technology Office was one of the largest public sector organisations of its kind, with around 2,250 employees, and an annual budget of some £250 million.
1.3 By the late 1980s, the Inland Revenue recognised that fundamental changes would need to be made if the Information Technology Office was to continue to support the Department's business requirements in the 1990s and beyond. The Information Technology Office faced a number of pressures and constraints including:
■ increasing internal demand for information technology;
■ the complexity of development work on existing systems, which had been designed in-house, resulting in extended development times and increased costs;
■ difficulties in attracting and retaining skilled staff and in developing their skills at the pace demanded by technological change;
■ increasing reliance on contractors to provide the skills required;
■ funding constraints, which led to new developments taking priority over efficiency improvements.
1.4 In 1991, the then Government's White Paper "Competing for Quality" (Cmd 1730) established the policy that, wherever possible and appropriate, public sector services should be tested against the market, with the work going to the provider offering best value for money for the taxpayer. In response, and with the advice of outsourcing consultants, the Department conducted a market test of its information systems and information technology services. The test was guided by four key objectives:
■ to gain rapid access to modern information systems and information technology;
■ to achieve substantial improvements in cost-effectiveness;
■ to improve significantly the speed of response in the development and enhancement of systems; and
■ to optimise career opportunities for Information Technology Office staff.
1.5 The Department concluded that a strategic partnership with a single private sector supplier was the route most likely to provide it with the stability, flexibility and resources needed to achieve its objectives. In May 1994, following an open competition, the Inland Revenue awarded a ten-year contract, the Information Technology Services Agreement, to Electronic Data Systems Limited (EDS). The work, most of the assets, and 1,900 staff of the Information Technology Office were transferred to EDS in two main tranches, in July 1994 and January 1996.
1.6 The contract with EDS is not a fixed-price contract, reflecting the fact that the information technology services to be provided would change over the ten-year life of the partnership in response to Government policy developments, Budget provisions, changes in the economic climate, developments in technology, and customer service expectations. In contrast to more traditional procurement arrangements, where individual suppliers are contracted to deliver defined services without continual, detailed liaison with the customer, the Inland Revenue's partnership agreement with EDS allows for regular reviews of the service to be supplied and how risks are to be shared. These arrangements, which include regular meetings between the partners, including discussions at board level, form a relationship in which both parties secure benefits over the life of the contract. Appendix 1 provides details about how the partnership operates.
1.7 Contracts for complex procurements such as information technology services require active management to ensure that the benefits are delivered. The Department established a risk management strategy at the outset, under which a comprehensive risk management plan is reviewed on a quarterly basis. The plan analyses the probability and potential impact of risks which could affect the successful operation of the partnership and identifies actions designed to address the risks and the individuals responsible for managing them. These arrangements are intended to ensure that important issues are drawn to the attention of the Department's Partnership Review Board on a timely basis.