2 The costs to the taxpayer
7. The Department originally estimated that the total
cost of setting up the Programme would be £55 million, with
gross savings (before costs) of £112 million up to March
2015, giving a net benefit to the Department of £57 million.[12]
The Department now estimates that the Programme will cost
£121 million and produce benefits of £40 million, resulting
in a net cost to the taxpayer of £81 million (Figure 1).[13]
Figure 1: Summary of costs and benefits of the project
| | ORIGINAL PLAN
| CURRENT FORECAST
|
| | April 2005
| March 2008
|
| Gross benefits (£m)
| | 112.4
| | 40.1
|
| Set-up costs (£m) |
34.7 |
| 113.6 |
|
| Severance costs (£m)
| 20.7 |
| 7.6
| |
| Total Costs (£m)
| | (55.4)
| | (121.2)
|
| Overall Net Present Value (£m)
| | 57.0
| | (81.1)
|
Source: C&AG's Report, Figure 1
8. The Accounting Officer agreed that the projected
net cost of £81 million was unacceptable and gave his personal
commitment to ensuring that the Programme would not result in
a net cost to the taxpayer.[14]
The Accounting Officer believed that the current projected net
cost was overstated as it was based on the £40 million in
benefits that the Department had identified with certainty.[15]
The Department expects the Programme to deliver further benefits
such as an ultimate saving of 309 full time equivalent staff posts.
It also intends to expand shared services to include routine procurement,
which it is confident would save significant sums.[16]
This is speculative, however, as the Department has not determined
the precise scale of the benefits of adding routine procurement,
the delivery timeframe nor the costs of achieving them.[17]
Given the Department's track record in establishing robust benefits,
cost estimates and a realistic timetable, we are concerned that
the Department may be being overly optimistic in its assessment
of the potential benefits.
9. In January 2006, the Department explored various
ways of containing cost increases in its Shared Services programme
and decided to use its contractors' offshore staff in India, rather
than UK-based personnel. It expected this to cost one-third of
the original estimate.[18]
In practice, the Department encountered difficulties in obtaining
security accreditation for the offshore team and, because of the
time pressures involved, some of the work that it had planned
to undertake in India was done in the United Kingdom at a higher
cost.[19] The Department
estimated that the use of offshore staff saved it some £44,000.[20]
10. The Department has, to date, paid Deloitte around
£4.6 million for assistance on this project. In April 2004,
the Department appointed Deloitte to provide consultancy support
to the Department's Support Services Review and subsequently extended
this contract to assist it in developing the outline business
case and the handover of the shared services design stage to IBM.
The value of that contract was some £2 million. Following
the appointment of IBM as the Department's main delivery partner,
Deloitte has provided quality assurance and other support on the
project at a cost to date of around £2.6 million.[21]
11. The Department undertook to subsidise the running
costs of the Shared Service Centre in its first years of operation.
The subsidy in 2007-08 was around £7 million. The Department
expected this figure to reduce to some £3 million in 2008-09.
However, due to the delays in the migration to the Shared Service
Centre of the Maritime and Coastguard Agency and the Highways
Agency, the Department is funding an additional £2 million
as there are currently fewer users of the Shared Service Centre
than planned and the Centre's running costs are significantly
higher than expected.[22]
Once the Programme is fully implemented the Department does not
expect to subsidise the Centre since it should recover all of
its costs from its customers.[23]
12. The Department told us that it had not had to
cancel or curtail any of its planned spending on other projects
to fund the overspend on this Programme. Through careful management
of its annual administration and programme budgets in the years
prior to 2007-08 and, in line with HM Treasury's Consolidated
Budgeting Guidance, the Department had built up sufficient end-year
flexibility within its Departmental Expenditure Limit to fund
the majority of cost increases relating to the Shared Services
Programme.[24]
12 Q 2; C&AG's Report, Summary para 2 Back
13
Qq 2, 61 Back
14
Qq 83, 111, 127 Back
15
Qq 2, 60, 69 Back
16
Qq 69, 111-112 Back
17
C&AG's Report, para 2.28 Back
18
Q 79 Back
19
Qq 79, 81 Back
20
Q 82; Ev 14 Back
21
Qq 89, 118-119; Ev 14 Back
22
Q 72; C&AG's Report, para 2.14 Back
23
Qq 72-74 Back
24
Qq 76-78; Ev 14 Back
|
