Examination of Witnesses (Questions 60-79)
Monday 15 December 2003
Mr Mike Eland, Mr Len Morris, and Mr Kevin Franklin
Q60 Mr Jenkins: In the real world, when
you have to sell a service, if you put a service out and only
1% pick it up, you go bust, do you not?
Mr Eland: What we are doing is
creating a new e-business programme which is going to provide
considerable benefits to taxpayers. In doing that you obviously
make some mistakes early on.
Q61 Mr Jenkins: On page 15, we have a
Figure 7 which gives a little graph which I find very, very interesting.
When I was spending money on IT systems, it meant that my efficiency
rate within three years maximum was going to overtake my costs.
I notice in this graph that our cumulative cost over the years
goes on and on and on and our efficiency savings go in the right
direction, but it goes very, very slowly, does it not?
Mr Eland: What we are doing here
is something which is not just simply rolling out another IT application.
We are looking to make a radical transformation in the way in
which we carry out our business. That inevitably does involve
a lot of upfront cost, but it also produces very considerable
benefits downstream. I do think a 1:3, a 1:4 cost benefit ratio
is a very good rate of benefit return.
Q62 Mr Jenkins: Is this the cumulative
revenue yield portrayed in this Figure 7, which is increasing
year upon year? Is that where the extra revenue is going to come
from to give us this 4:1 yield?
Mr Eland: You get return both
in terms of increased revenue yield, which is shown in that graph,
and also public expenditure savings as you get take-up, because
that enables us to reduce staffing in the processing areas.
Q63 Mr Jenkins: Those are the efficiency
savings, are they?
Mr Eland: Those are the efficiency
savings.
Q64 Mr Jenkins: When the efficiency savings
reach the cumulative cost total we are at break-even point then,
are we not? Now all the extra revenue yield is pure bonus for
us in effect. That will give us our 4:1 return.
Mr Eland: The 4:1 return is due
largely to revenue, yes, that is correct.
Q65 Mr Jenkins: In effect that efficiency
saving means we are going to lose jobs somewhere along the line,
does it not? We are going to cut staff. Right?
Mr Eland: Yes, jobs will change.
There is also an option for us to recycle the staff out of the
processing areas into other parts of the department.
Q66 Mr Jenkins: You are going to save
£130 million, are you not?
Mr Eland: Yes, we are hoping to.
Q67 Mr Jenkins: Is that an aspiration
or is it a real, thought-out figure which can give us confidence?
Mr Eland: That is a figure we
are beginning to harden up. By the time we produce our final business
case in March we will have a definitive figure. At the moment
it is in that range, yes.
Q68 Mr Jenkins: When you come back before
this Committee, hopefully with a business plan, we can have some
firm figures which we will be able to work on and hopefully they
will not be as disastrous as your first estimates.
Mr Eland: Yes; you can.
Q69 Mr Steinberg: The typical PFI scheme
for IT which we have come to expect and which comes to this Committee,
has a number of points which are always pretty similar: the costs
go out of control, it is a licence to print money for the contractors
who are lucky enough to get it, it usually does not work properly,
it is re-negotiated after a very short length of time, usually
costing a considerable amount of money for the taxpayer, it usually
does not work after four or five years. Does that ring a bell?
Mr Eland: I have studied other
IT projects.
Q70 Mr Steinberg: No, I just asked you
whether it rang a bell or not.
Mr Eland: I do not think that
is a description of this programme.
Q71 Mr Steinberg: So you have read the
Report then. When I read the Report that was exactly the feeling
I got. It was not just a feeling, it came out of the page and
jumped and hit me in the mouth. In 1999 the original deal with
Fujitsu was £500 million; it is now £929 million, double
in four years. Why?
Mr Eland: Because, as the NAO
Report makes quite clear, this is for additional services. That
is not a price escalation.
Q72 Mr Steinberg: Are these the amendments
you talked about?
Mr Eland: There are changes in
volume.
Q73 Mr Steinberg: Are these the amendments
you negotiated after two years?
Mr Eland: The original contract
had an estimation of what the cost would be based on particular
assumptions about staffing levels in the department and so on.
Q74 Mr Steinberg: Come on, Mr Eland,
you are flannelling. I do not want any flannel. The fact of the
matter is that after two years you had to renegotiate a contract
which has cost the taxpayer £500 million and within two years
you were re-negotiating and it is costing the taxpayer £900
million.
Mr Eland: No, we have bought additional
services.
Q75 Mr Steinberg: Why did you not do
that originally?
Mr Eland: Because, first of all,
when we signed the contract we were looking to be contracting
in size as a department but because of the work we are now doing
on the frontiers and in tackling fraud, we are increasing in size
as a department and therefore naturally the numbers of PCs we
need and so on have to go up.
Q76 Mr Steinberg: Tell me what had changed
so dramatically that it doubled the cost of the contract in two
years, doubled the cost of the contract.
Mr Eland: What we have in that
first part of the changing contract was an increase in the number
of users because of the expansion of the department. It was the
additional services we brought on line, such as the national co-ordination
unit and some of the case studies which are shown here in the
NAO Report. These are all additional services brought in on top.[2]
Q77 Mr Steinberg: How much more is it
going to cost?
Mr Eland: We now have an infrastructure
platform planned over the next 10 years which will enable us to
roll out this e-programme and deliver those significant benefits.
Q78 Mr Steinberg: Did I hear you say
that because of the number of people who were going to use it
it was going to cost more and that was one of the reasons?
Mr Eland: No, I am saying that
the number of people in the department has changed.
Q79 Mr Steinberg: So you have doubled
the number of people in the department and still only 1% of the
people actually use it to put VAT onto the internet.
Mr Eland: No, we have not doubled
the number of people in the department. We have increased the
number.
2 Ev 12-13 Back
| 
