1.17 In 1995, we published a report on the process and results of the market test of the Information Technology Office1. The report concluded that the contract provided reasonable safeguards to the Department's, taxpayers' and staff's interests, and that EDS appeared both capable and willing to meet the Department's objectives. Although the Department had introduced contract management processes to enable the desired benefits of the partnership to be achieved, the report acknowledged that the effectiveness of these processes could only be fully evaluated once the relationship had settled down.
1.18 This report focuses on how the Department has managed the award of new work, which as Figure 2 shows, accounts for about a quarter of the forecast £2 billion total value of the EDS contract. In a partnership such as the one between the Inland Revenue and EDS, which relies on the development of trust and understanding between the two organisations, management of the risks associated with the award of new work is a challenging area for value for money.
1.19 This challenge extends beyond the generally accepted risks associated with procurement because information systems and information technology are central to the efficient and effective operation of the Inland Revenue. The new information technology systems developed by EDS to support the major change programme currently under way within the Department will influence the future efficiency and effectiveness of many aspects of the Department's operations. The processes for awarding new work are therefore some of the most critical elements of the Department's management of the contract. They are the focus of this report.
1.20 For the purposes of the examination, we defined new work as any project to develop new information technology systems or significantly enhance existing systems. New work originates from several sources:
■ developments in Government policy, including Budget changes and initiatives, such as the introduction of self assessment, working families' tax credit, and individual savings accounts;
■ developments in Departmental strategy, such as the Call Centre experiment to investigate the scope for conducting more of the Department's business with taxpayers and other clients via the telephone;
■ requirements identified by individual Inland Revenue business units, such as an integrated repayment system for the Financial Intermediaries and Claims Office; and
■ developments in the Department's information technology infrastructure, such as the project to replace the Department's personal computers and terminals with millennium-compliant equipment capable of supporting more powerful systems (the infrastructure 2000 project), which EDS is helping to integrate into the office environment.
1.21 Most of the expenditure on new work tends to be concentrated on larger projects. Of nearly 400 projects authorised since the start of the contract, 50 (around 13 per cent) accounted for 95 per cent of EDS development effort. Within these 50, the introduction of income tax self assessment and the Department's infrastructure 2000 work are the largest projects, each accounting for over a quarter of EDS development effort. Other significant projects are those implementing government initiatives such as the introduction of corporation tax self assessment, the collection of student loan repayments and the new construction industry scheme. Examples of smaller projects, involving less than one per cent of EDS development effort, include the introduction of the Valuation Office Agency's national database of property valuations, enhancements to Oil Taxation Office systems, and computer support for the Department's Large Employer Compliance Office.
1.22 The decisions and actions which are crucial to determining the long-term value for money of new work start with the Department specifying its outline requirement, continue through its evaluation of proposed solutions from EDS, and end with trials and acceptance of the completed system. The size and form of the solution accepted at the evaluation stage largely determine the costs of live running and on-going maintenance. We therefore concentrated our examination on the processes for commissioning new work, from the initial identification of the business requirement to the beginning of live running. Our study did not examine EDS performance in delivering the service after completion of the development phase.
1.23 The report addresses three main issues:
■ the Department's processes for commissioning new work (Part 2);
■ the maintenance and development of the skills necessary to assess the proposals and performance of EDS (Part 3);
■ how the cost of the service is compared with what is being achieved elsewhere (Part 4).
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1 Inland Revenue: Market Testing the Information Technology Office (HC245)