Examination of Witnesses (Questions 60
- 79)
MONDAY 24 JANUARY 2005
INLAND REVENUE
Q60 Chairman: But ministers do not
need to be involved in this; there should be some sort of health
warning. People have to be aware of what is going on—that
they are on low incomes already and there is a possibility this
is going to be demanded back, and you are now in charge of this
administration and you can make it easier for people to cope with
this, can you not?
Mr Varney: I think we have tried
in the code of practice to set out a set of rules which mean we
will try not to inflict more damage than we need to in terms of
recovery; we try to publicise also the availability of the appeals
and the opportunity that individuals have to complain.
Q61 Mr Steinberg: How do the Inland
Revenue collect taxes, and how did the Benefit Agency pay benefits
before IT was introduced?
Mr Varney: Through lots of local
offices, I suspect.
Q62 Mr Steinberg: Was it more successful?
Mr Varney: I doubt that we know
what the error rates were.
Q63 Mr Steinberg: Certainly they
would not write off a million cases, would they? Somebody would
notice, I suspect.
Mr Varney: I suspect that is right
but I think you can have different sorts of errors and different
sorts of problems.
Q64 Mr Steinberg: How does the Department
continually justify these incompetent IT firms such as EDS and
Capita? Why do they keep getting contracts? Do they have a monopoly?
Mr Varney: No, but I think—and
I do not want to say anything that is going to be no longer in
the Department's interests should we go to court—these are
hugely complex systems in terms of challenges. We thought we had
a contractor which had experience of managing big projects and
I think, as my predecessor said, we were clearly disappointed
that the system did not deliver.
Q65 Mr Steinberg: But it never delivers,
does it?
Mr Varney: I think in private
industry the success of big systems is about 25%, systems that
deliver outcomes as prescribed, or that is what the American evidence
is, so these big systems are really major issues about getting
proper control systems—
Q66 Mr Steinberg: If that is the
case, that it is 25% in the private sector and clearly not much
better in the public sector, why do you not write in the contracts
severe penalty clauses? Why do you have to tell us that it will
take possibly a number of years to come to some sort of settlement
through the courts? If you had some decent solicitors or barristers
or lawyers working for you, presumably they would write into the
contracts "If anything goes wrong you pay for it"?
Mr Varney: There is a more severe
penalty regime in the new contract we have done—
Q67 Mr Steinberg: But why was it
not in the old contract? I have sat here now since 1999, I suspect,
and I have heard exactly the same excuse every time, "Ah,
but this time we have made it much more difficult for them."
Mr Varney: I was going on to say
that there are penalties in the EDS contract, they are defined
in terms of event and quantum and ability, so there is some financial
penalty, but in the commercial world it is true that if you put
extensive penalties in you end up in some way paying for it in
the bidding system. There is not a group of people out there willing
to offer you a payment of damages and not price it into their
contract. So it will get priced into the contract, and I think
what we have tried to do—
Q68 Mr Steinberg: But they are desperate
for the work, are they not? They have a monopoly. There are so
few of them that they are cutting each other's throats for the
work, are they not? It amazes me that Capita seem to crop up virtually
every time that we have a meeting, and EDS crops up every other
time, and Siemens are another one, and I am at a loss to think
of anybody else. There only seem to be the three of them, and
they all fail.
Mr Varney: There are a small number
of companies, that is correct. I think the response of the public
sector is the right one which is to have a gateway process, try
and share experience and knowledge, and really there is not much
more I can do than what I am doing at the moment which is to pursue
EDS to a solution.
Q69 Mr Steinberg: Who is the new
company? Capgemini. What confidence have you got in them to deliver?
Mr Varney: We went through a process
which people said could not be done of swapping out our IT provider,
and this is a large complex change and it addresses one of the
issues you have raised in that we have switched from one of these
companies to another, we ran a tender, we looked at the—
Q70 Mr Steinberg: And what guarantees
have you got from Capgemini?
Mr Varney: We have penalties within
the contract.
Q71 Mr Steinberg: This time.
Mr Varney: This time.
Q72 Mr Steinberg: Do you expect anything
to go wrong?
Mr Varney: I am always expecting
something to go wrong.
Q73 Mr Steinberg: So you are expecting
something to go wrong?
Mr Varney: It is not just coming
before this Committee but anybody who has 100,000 people dealing
with 30 million—
Q74 Mr Steinberg: What could go wrong?
Mr Varney: Lots of things.
Q75 Mr Steinberg: Tell us, because
they will be listening and then they will make sure it does not
when you tell us what you expect to go wrong.
Mr Varney: That is one of the
reasons we have a management process for managing IT and risk,
which I think lies at the heart of how we are trying to manage
this.
Q76 Mr Steinberg: EDS are going to
pay compensation, we are told, and you say it is going to take
a while before the court decides, and obviously it is not right
for me to press you any further on that. I was going to but when
I listened to you giving answers to Mr Sheridan I thought it was
better not to, but in the Report I read somewhere that compensation
could be expected of something like £34 on average per person
who is going to be compensated. That does not seem very much to
me, £34 per person?
Mr Varney: First of all, I am
grateful for you not pursuing the EDS issue, but I think the compensation
you are talking about is in terms of appeals[3].
Q77 Mr Steinberg: Yes.
Mr Varney: On the appeals in the
first year that we dealt with them that was, indeed, the average
that came out, £34. In the year to date we are roughly agreeing
compensation at about the same percentage of cases, which is I
think around 20%.
Q78 Mr Steinberg: So you are as tight-fisted
as EDS, then?
Mr Varney: Hang on, I am trying
not to make EDS tight-fisted but the level of compensation has
almost doubled, which reflects the fact that many of the cases
we are now dealing with have had longer periods of time where
there has been worry and stress.
Q79 Mr Steinberg: Just going back
to EDS, and I will not pursue the case any more, will they be
considered for further contracts?
Mr Varney: I am sure they will
be competing, and this will be part of their track record.
3 Note by witness Q76 and Q77: Correction:
The Inland Revenue pays compensation under Code of Practice 1
when handling complaint cases, not appeals. Back
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