4.3 The contract to provide information technology services was let to EDS after a carefully structured and thorough competitive process. In that sense, the tender provided the best option the market was prepared to offer at the time of the competition. Although the current cost of the service is largely based on the Fixed Standing Charge determined during the tender competition, as adjusted by the post-contract verification, the Department needs to obtain assurance that contract costs continue to be competitive.
4.4 There are three main reasons why this is important.
■ First, whilst effective processes for managing a contract and commissioning additional work can increase the probability of an organisation continuing to achieve value for money, they do not guarantee it. For example, a contract may allow the supplier to increase prices faster than the market generally, or other suppliers may develop different and better solutions. External comparisons are therefore necessary to check the outcomes of the management process.
■ Second, although the Fixed Standing Charge for the work transferred reduces by 35 per cent over the contract life and provides an incentive for EDS to improve the efficiency of the Department's information technology services, this incentive may, in practice, be insufficient to ensure that EDS keeps pace with the market. The market must therefore be checked independently.
■ Third, the Department has a duty to account to Parliament for its use of public funds. While the partnership approach offers advantages to the Department by enabling it to work with a single contractor to secure a service responsive to policy and information technology developments, it provides less assurance on the comparative value for money of solutions than a more traditional "adversarial" approach to procurement, in which there are frequent competitions to provide individual packages of well-defined services. The Department therefore needs to seek assurance from elsewhere, for example external comparisons.
4.5 The Department can check EDS prices against the market in two main ways: by benchmarking, that is comparing aspects of the partnership against the performance of other organisations; and by exposing proposed or existing services to competition (see Figure 13).
Benchmarking and market testing |
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Figure 13 |
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| Benchmarking is a process for comparing the performance of different organisations. It requires organisations to exchange information on defined aspects of their operations, such as methods, processes, costs or prices, either directly or through an independent intermediary. The benchmarking can be used to study and compare most aspects of organisational performance within and between economic sectors and types of activity. For example, the performance of call centres could be compared between the public and private sectors. Market testing is the process of comparing the value for money of goods or services by using open competition. It usually refers to a situation where the goods or services of an existing supplier are compared with those of others to establish the value for money offered by the existing supplier. | |