4.18 The contract with EDS allows the Department to market test:
■ any new requirement;
■ an existing service provided by EDS, if the Department can provide evidence that the existing service provision is uncompetitive.
In exercising this option, the Department would need to balance the operational advantages of continuing with a single contractor under its strategic partnership with EDS against any possible cost advantages of subcontracting elements of its information technology service to other providers.
4.19 Up to end of 1998, the Department had carried out no formal market tests of existing services provided by EDS. This was because there had been no prima facie evidence that an EDS service was uncompetitive with the market, the circumstances contractually required to permit a market test. And, even if they had occurred, EDS is entitled to match or improve on the market price, before the Department can proceed to a full market test. In 1998 the Department tested one new service, the provision of an Internet capability for the Department. The service was contracted to a third party supplier on the basis of capability.
4.20 In theory, competitions under these arrangements should provide a clear comparison between the value for money provided by EDS and by other potential suppliers. In practice, the facility has significant limitations.
■ In tendering for work, unless the service was completely ring-fenced, outside suppliers would not have the advantages which EDS derives from integration with other services it provides to the Department, including operational and technical economies of scale, and client-specific knowledge. This could disadvantage outside suppliers in an evaluation.
■ It is difficult to obtain firm evidence on the comparative cost of services, as shown by the Department's benchmarking work.
■ The contract requires that, if an outside supplier is shown to offer better value for money than EDS, EDS should be permitted to match or better that value, if it wishes to do so. This is likely to discourage third parties from providing proposals intended to be competitive, except when they know that EDS does not have the skills or the desire to provide the service.
4.21 These factors will not necessarily affect bids for new work where either EDS does not wish to bid or cannot offer any added value compared with other suppliers. In other cases the factors are likely to prevent market testing giving a true assessment of value for money against the outside market.