The Public Sector Comparator had some deficiencies

4.11  In preparing the Public Sector Comparator the Agency assumed that:

■  annual expenditure on in-house IT services could reasonably be represented by the actual cost of IT services for 1996-97; and

■  the number of in-house staff and contractors would remain constant over the seven years of the proposed partnership, a "steady-state scenario".

4.12  The Agency extracted the costs for 1996-97 from a new general ledger system, introduced at the beginning of that year. They told us that the previous system was not sophisticated enough to allow information to be extracted for earlier years. The costs for 1996-97 may, however, have been higher than average because of payments made in that year for establishing computer facilities at the Agency's temporary headquarters following damage to their offices in the Docklands bombing in February 1996.

4.13  The assumption that the same mix of in-house staff and contractors would be needed over the full period of the proposed partnership may also not have been valid. In 1996-97 the Agency were introducing a unified licensing system, an IT development larger than IT projects normally undertaken by the Agency. Significantly, the model of the cost of IT services supplied by CMG, against which the public sector comparator was compared, assumed a decrease in development work from the year 2000 onwards. Comparing the steady state scenario in the public sector comparator with CMG's costs which assumed reduction in demand was not comparing like with like and may have overstated the potential savings. To redress this discrepancy we sought information that would have allowed us to calculate how much CMG, under the partnership, would have charged the Agency for development work in 1996-97. Information about the development work, however, did not exist in sufficient detail to quantify the work for pricing purposes. As an alternative approach we accepted the Agency's view that the amount of development work in 1996-97 was within the range of annual amounts of development work included for the first two-and-a-half years of the partnership. CMG's estimated charges for this development work are between £2.5 million and £3.2 million per annum. On the basis of these figures the potential level of savings reduce from £10.7 million to between £4.9 million and £8.0 million.