This Appendix provides information on how new work is priced under the partnership.
1 The Department's contract with EDS was negotiated on the basis that the information technology services required would change over time in response to new Departmental initiatives and developments and in response to technical developments in the use and capability of information technology. The contract recognised this by establishing a pricing mechanism for most services which:
■ commits EDS to reducing the cost of the work originally transferred from the Department by some 35% over the ten years of the contract;
■ allows the Department to buy varying volumes of work at prevailing unit prices, which are related to the cost of transferred work;
■ pays EDS on a three step scale for staff resources, with the lowest price being paid for work ordered over 12 months in advance of the requirement, with increasing prices being paid as the period of notice becomes shorter;
■ allows EDS to adjust daily charge-out rates for staff to take account of the effects of inflation, subject to negotiation and appropriate caps;
■ tracks the productivity for various work areas and ensures that the Department can obtain the benefit of improved productivity in ordering additional work;
■ permits a retrospective reduction in the price which the Department pays for staff if, as a result of EDS productivity being lower than forecast, the Department is obliged to order resource from EDS at short notice, thereby incurring greater costs than anticipated;
■ recharges the cost of additional infrastructure on a cost-plus basis; and
■ allows the Department to pay for capital investment, including a capital charge, over an agreed period.
The contract also allows the Department to share any EDS profits over a predetermined threshold.
2 A key element of the pricing mechanism is the Fixed Standing Charge. This is the price agreed in the contract for the volume of work originally transferred to EDS. The Department undertakes to purchase from EDS each year the equivalent of the transferred volume of work at the Fixed Standing Charge, the cost of which is progressively reduced over the life of the contract.
3 Information systems and information technology requirements in excess of the volume of work transferred are purchased from EDS at additional cost. For staff costs, the rates for this additional work are based on the unit prices which underlie the Fixed Standing Charge and vary according to how far in advance the necessary resources to do the work are ordered by the Department. Orders placed more than twelve months in advance attract no premium over the Fixed Standing Charge rates. Staff resources ordered with less notice attract one of two rates of premium, depending on whether they are ordered more or less than three months in advance.
4 In this way the pricing mechanism ensures that:
■ the productivity gains EDS must make to achieve the contractual year-on-year reduction in the Fixed Standing Charge reduce the cost of all work done for the Department; and
■ the Department is encouraged to assist EDS by planning its staffing requirements as far in advance as possible in order to secure lower unit prices.
5 The resources (staff, capital and infrastructure) required for the development of each piece of new work is assessed by EDS and included in the proposal.