11 HMRC has commissioned much more work through the Aspire contract than was modelled. We estimate that by the time the contract ends in June 2017, HMRC will have spent £10.4 billion compared to the £4.1 billion used when evaluating Capgemini's bid. The contract includes provisions for volume growth, scope change and extension. HMRC has used these provisions to (paragraph 3.17):
• merge the Inland Revenue and Customs and Excise ICT estates (£1.0 billion);
• undertake greater transformation than planned and increase the scope of services within the contract (£3.0 billion); and
• extend the contract by three years (£2.3 billion).
12 Both Capgemini and its subcontractor, Fujitsu, have achieved considerably more profit than was modelled in 2004. Many factors will influence the profit achieved, including the volume of work and the degree of innovation and risk transferred. Largely as a result of increases in scope and volumes suppliers have more than doubled their profits compared to the model. Profit margins, as measured by the contract, averaged 16 per cent to March 2014, also higher than the model had anticipated in 2004. HMRC believe that this is comparable with industry margins for similar services, though the scale and breadth of the contract makes like-for-like comparisons difficult (paragraphs 3.19 to 3.22).
13 After 2004, HMRC did not market-test any significant element of the contract but has used benchmarking to inform periodic contract negotiations. HMRC has grown the contract considerably without market testing despite evidence when benchmarking has been done that HMRC has paid above market rates. HMRC say it did not market test for a number of reasons including: technical constraints; the need to respond with speed to legislative changes; and contractual constraints that operated at points during the contract. HMRC has instead used the benchmarking evidence to negotiate savings on the contract. Based on payments made and projections agreed at the time of negotiations, HMRC estimates its savings to be £750 million up to March 2014 (paragraphs 3.14 to 3.16 and 3.18).
14 Pressures to find cost savings led HMRC to trade away some of its negotiating power and hindered its ability to get strategic value from such a long-term contract. When negotiating cost savings in response to successive funding settlements, HMRC conceded many of its commercial safeguards through major renegotiations of the contract between 2007 and 2009, including the right to share in supplier profits when they were higher than target and the right to compete services. Since 2012, HMRC has negotiated some of these controls back (paragraph 3.3 and 3.4 and Figure 8).
15 HMRC was overly dependent on the technical capability of the Aspire suppliers between 2004 and 2012, which limited its ability to manage the contract commercially. HMRC has recognised this. It has increased its capability since 2012. For example, by taking back responsibility for overall system design and how the parts of these systems work together. It has also appointed a new director general with relevant experience from the private sector to lead technological and digital transformation. However, significant gaps in HMRC's commercial and technical capability remain and it has not fully identified the gap between current and future capability needs (paragraphs 3.6 to 3.8).