The Agency continuously underestimated the cost of procuring the partnership

2.32  When the Agency's management board gave the go ahead for the definition study in April 1995 the then project manager estimated that securing a partner would cost the Agency £550,000. When the contract was awarded in June 1998 the Agency had spent approximately £3.4 million net of VAT. Of this sum approximately £2 million was fees paid to the Agency's principal advisors and £0.5 million to CMG for undertaking, in advance of the contract, work that would facilitate the rapid transfer of IT services (Figure 6).

2.33  The Agency prepared their original budget by assuming that securing a partner was directly proportional to the cost the Department incurred in outsourcing one element of their IT services. Figure 7 shows the extent by which the Agency's initial and subsequent estimates were exceeded.

Reasons for the increases are:

■  The Agency underestimated the amount of external advice required to prepare the contract documentation for a partnership that met with the management board's satisfaction. The decision in October 1996 to build the partnership around a joint venture company increased the workload of the procurement team.

■  The Agency estimated that the cost of employing advisors to process staff comments about the full specification was an additional £120,000. Between late January and mid-April 1997 ASE were actively engaged in dealing with and resolving comments raised by staff. The Agency's records are not sufficiently detailed to verify that processing the results of the reviews required approximately 180 man-days.

■  The Agency employed external advisors to stand in for Agency staff while they were on extended sick leave. The procurement team estimated that using advisors to fill these posts cost £125,000. Again the Agency's records are not sufficiently detailed to verify the actual cost.

■  The Agency and their advisors underestimated the amount of work necessary to specify the IT services required by the Agency and to resolve all intellectual property issues relating to the Agency's systems.

■  The Agency underestimated the amount of time advisors would be engaged in preparing for and being engaged in the negotiations with CMG. We have estimated from the advisors' invoices that the Agency paid fees of nearly £1,000,000 during this stage of the procurement. Figure 8 shows the increases in the Agency's estimates for this work over the procurement period and the estimated actual expenditure.

■  The Agency agreed in February 1998 to pay CMG for undertaking work necessary for the transition of the IT services to Radio Spectrum International in advance of the award of the contract. CMG put together a team to analyse the work needed to set up and establish Radio Spectrum International, to assess the Agency's staff and contractors for roles in Radio Spectrum International and to audit the Agency's existing IT infrastructure and information systems. Anticipating that the contract would be signed on 31 March 1998, the Agency estimated that this work would cost £230,000. The Agency and CMG agreed to continue this work beyond 31 March 1998 when it became apparent that there would be a delay to the signing of the contract. When the contract was signed on 8 June 1998 the cost of the pre-contract transition work had increased to £471,000.