Universal Credit implementation: monitoring DWP's performance in 2012-13 - Work and Pensions Committee Contents

3  Problems with UC implementation and IT development

The NAO's assessment

34. As has been noted, the NAO report published in September 2013 identified serious weaknesses in the way that DWP had managed the UC programme to date. It recommended that DWP show that it had done the following by the end of 2013:

·  Produced a realistic plan with clear programme objectives, linked to policy design and service requirements.

·  Used a management approach that allows policy experts, operational teams and systems developers to work together.

·  Established effective governance processes and structures.

·  Tightened its financial management and control over spending.

·  Reassessed its existing programmes and capabilities in light of the experience on Universal Credit.[31]

35. The Secretary of State's view when the NAO report was published was that the problems it highlighted were "historical".[32] He told us in December that "every one" of the NAO recommendations had already been implemented. He said that, although he "fully agreed" with what the NAO report said, there had been very little that was "new" in its findings because "most of that evidence came, I felt, from our internal reports".[33]However, much of the information in the NAO report was new to us, as DWP had chosen not to share the findings of its internal reviews with us.

IT expenditure and the "twin track" approach

The IT write-off ("impairment")

36. The NAO report found that, in May 2013, DWP had identified the need to write off £34 million (17%) of the costs of the IT assets developed for UC which had been found to be no longer useable.[34]As set out above, the delay in publishing the DWP Annual Report & Accounts (ARA) 2012-13 arose from the prolonged negotiations between DWP and the NAO about the amount of this write-off. We were informed on 9 December, the day of our evidence session on the ARA, that the write-off would amount to £40.1 million out of total UC IT assets valued at £196.1 million.[35]

37. The Secretary of State's view when we challenged him about this waste of public money was: "there is always a sense [...] that only governments fail on IT. That is not exactly the case—the reality is that many [private sector organisations] [...] write off almost 30-40% of their IT developments".[36]

38. DWP revealed at the evidence session on 9 December that, in addition to the write-off, £91 million of the remaining assets would now be "written down" (or amortised) in five years (by March 2018) rather than the usual 15 years. DWP explained that the shorter write-down period was due to IT assets now being recognised as having a shorter life than other assets. The Director General for Finance told us:

    I would argue that the way in which we had set our accounting policies previously to write down software code over a 15­year period was almost certainly too long and one of the things that we are discussing with the NAO separately is the way in which we apply accounting policies towards software code as we go forward.[37]

39. The report by the Comptroller and Auditor General(C&AG—the Head of the NAO) on the DWP Accounts for 2012-13, which includes commentary on UC IT expenditure, was not available to us when we questioned the DWP witnesses on 9 Decemberbecause the ARA which it accompanied was not published until the following day (see Chapter 5 for further details).In his report, the C&AG took a different view about this shorter writing-down period.He regarded this adjustment in the treatment of the IT assets as "a major change" which had arisen "owing to the considerable reduction in their expected useful life"; and pointed out that it would treble the annual amortisation of these IT assets from £6.1 million to £18.2 million a year.He said: "The underlying issue [...] is that the Department has written off £40.1 million on assets it will now never use and spent a further £91 million on assets that will support only a limited service for 5 years, with clear consequences for public value".[38]

Digital (or "end-state") solution

40. One of the key changes which we discussed with DWP witnesses in the December and February evidence sessions was the new "digital solution" for UC which will eventually replace the IT system currently in use for the Pathfinder. DWP plans to migrate from the current UC software being used in the Pathfinder to a replacement digital system by the end of 2017.[39]It is therefore pursuing a "twin track" approach of continuing to use the existing IT in the Pathfinder while the more permanent digital solution is developed.

41. This change was madeas part of the new delivery approach proposed by Howard Shiplee, the UC Senior Responsible Officer, following the "reset" of the programme in February to May 2013. It was approved by the Ministerial Oversight Group in November 2013. By the time of our evidence session in February, DWP had renamed this approach as the "end-state solution".[40]

42. Mr Shiplee explained in December that the digital solution was essentially an "open source", web-based approach. It was cheaper to build and use "because you do not have to pay large licence fees for it." This option had not been available in 2011 when UC development began, but rapid developments in technology had now made it possible. He also made clear that the original "digital by default" approach, which would require the vast majority of claimants to manage their claims and report changes of circumstances online, was no longer "a sensible or appropriate solution" because of the security risks. He argued that "no one is using a totally online approach" when dealing with dispensing large sums of money.[41]

43. The end-state solution will initially deliver UC to 100 people, after whichthe results will be assessed and decisions made on whether to extend the service to more claimants.The Secretary of State explained in February that, when it was working effectively, it would be expanded to 1,000 claimant households, then to 10,000 and then extended nationally. However, the Permanent Secretary acknowledged then that "we are still many months away from having a system that can do 100 people".[42]

44. The estimated cost of the digital solution to November 2014 is £25-£32 million.At the same time, the Department will spend £37-£58 million on existing IT to increase functionality so that UC can be extended to couples and families as part of the Pathfinder during 2014.[43]It is not yet known how much will be allocated for the end-state solution after November 2014. The C&AG said that "these are considerable sums [...] in a programme where there are significant levels of technical, cost and timetable uncertainty". He also highlighted DWP's own acknowledgement that "there remains uncertainty regarding the useful economic life of the UC software pending the development of an alternative digital solution."

45. The C&AGnoted that, at this early stage, "there are uncertainties over the exact nature of the digital solution". In particular, it is not clear:

·  How it will work

·  When it will be ready

·  How much it will cost

·  Who will do the work to develop and build it.

He also emphasised that "without clear and effective management, in the future the Department may also find it needs to impair some of these new digital assets".[44]The Permanent Secretary's view was that "it is not surprising that the National Audit Office describe it as uncertain. It is uncertain, but that is what we are working through."[45]

46. The C&AG has also reiterated the view set out in the September 2013 NAO report on UC that, in order to achieve value for money in UC development, which it has not done to date, DWP needs to "learn the lessons of past failures". Specifically, he said that DWP needed to:

·  Properly commission and manage IT development.

·  Exercise effective financial control over the programme.

·  Set realistic expectations for the timescale for delivery.[46]

IT support for UC development

47. The "reset" of the UC IT programme and the move to developing the digital/end-state solution included increased involvement of staff from the Government Digital Service (GDS) which is part of the Cabinet Office, and greater oversight of the project by the Cabinet Office.[47] DWP indicated in January 2014 that three DWP IT officials and five GDS officials were working on the "digital solution".[48]There were press reportsin early January that GDS was accelerating its withdrawal from the UC project because of divisions between the Cabinet Office and DWP about the approach to the IT solution. Thisindicated that the Cabinet Office's preference had been toscrap the existing UC IT and start afresh, rather than pursuing the twin-track approach.[49]Rt Hon Francis Maude MP, the Minister for the Cabinet Office, was also reported as describing implementation of Universal Credit as "pretty lamentable" and saying that it was "very regrettable" that so much money had been wasted due to mistakes in the IT in the first two years of development.[50] The Secretary of State told us that the press reports were "ludicrous" and that the position was that:

    The Cabinet Office are still supporting and assisting us, but it was always very clear they would be handing over to us as we take over. The Department will run this themselves, but the Cabinet Office will remain, as I have made clear on a number of occasions, close to this project and still act as advisers and support us throughout the whole process, which is what their role is.[51]

48. Howard Shipleetold us that "we are actively bringing in our own people, who will start to replace the GDS people, so we are doing it ourselves".[52] DWP has estimated that it will need to recruit 50 IT specialists to carry out the work on the digital solution.[53] The Permanent Secretary noted that "this entire system assumes you have your own people doing it; that is necessary if you are going to run an online presence". He said that Kevin Cunnington, who joined DWP in October 2013 as the new Director General for Digital Change, had"already acquired some people" although at the moment they were "in the tens [...] not hundreds" and that the programme would have to "grow a lot before it completes". He said that the staff would have to be "in-house and we have to make sure that we can afford them within the constraints that we are used to." The Secretary of State believed that developing the new system using in-house expertise was ultimately a cheaper option than paying external providers.[54]

49. It is regrettable that £40 million has been wasted on IT software for UC that now has no use. The useful life of IT on which a further £90 million has been spent has been reduced from 15 to 5 years. DWP's view is that this is a normal feature of IT development, including in the private sector. Whilst we understand that delivering UC is very complex, and that the development of any major new IT system will inevitably suffer setbacks, it is concerning that it took so long for DWP to acknowledge openly that there were such serious problems and to make the necessary switch to a different approach. There also remains a deeply concerninglack of clarity about what the new digital or "end-state solution" for UC IT means in practice. The NAO's view is that these "uncertainties" include: how it will work; when it will be ready; how much it will cost; and who will do the work to develop and build it.

50. DWP is now pursuing a twin-track approach to UC IT. This means that further money (£37-£58 million) will be spent on the existing IT system in the Pathfinder so that it can be extended to couples and families during 2014. At the same time, DWP is funding the development of the end-state solution. Some £25-£32 million has been allocated for this to November 2014, and presumably it will cost much more as the programme continues, although no figures for this expenditure are yet available.

51. The end-state solution will first be tested on 100 claimants and DWP is still some way from being in a position to take this small step. Although we agree with an incremental approach, there is a difference between sensible caution and a snail's pace. It will only be possible to prove that the end-state solution will work for themillionsof households which will eventually claim UC when the IT can be tested at scale.

52. At the outset of the UC project, DWP assured us, Parliament and the public that this scheme would be able to avoid the problems of previous government IT projects. It is crucial that future reports and updates use clear, plain-English explanations of the plans and outcomes, so that we can judge whether this is the case.

53. We recommend that, in response to this Report, DWP provide more details about what the end-state solution for UC IT means in practical terms. It should also set out its latest estimate of:

·  the costs of developing the end-state solution beyond November 2014, including the separate costs of employing additional in-house IT specialists; and of contracts with external consultants and IT providers; and

·  when the end-state solution will be ready to test on the first 100 claimant households; when and how it will be extended to a more representative number of claimants; and when it is expected to be fully implemented.

We also recommend that, in light of the small number of claimants currently receiving Universal Credit and the slow progress, DWP consider again whether it would not be more effective, and represent better value for public money, to focus solely on the end-state solution and abandon the twin-track approach.

31   NAO Report, Summary, para 25 Back

32   HC Deb 5 September 2013, col 470 Back

33   Oral evidence taken on 9 December 2013, Q77 Back

34   NAO Report, Summary, para 14 Back

35   Letter to the Chair from the Secretary of State for Work and Pensions, 9 December 2013 Back

36   Oral evidence taken on 9 December 2013, HC 867,Q64 Back

37   Oral evidence taken on 9 December 2013, HC 867, Q26 Back

38   Report by Comptroller & Auditor General (C&AG) on the DWP Annual Report and Accounts 2012-13, paras 10 and 14. (Hereafter "Report by the C&AG") and Statement on the Report by the C&AG on the DWP Annual Report and Accounts 2012-13, 10 December 2013 Back

39   DWP Annual Report and Accounts 2012-13, para 11 and Notes on the Accounts, 16d Back

40   Oral evidence taken on 3 February 2014, Q210 Back

41   Oral evidence taken on 9 December 2013, HC 867, Qq27-31 confirmed that access via smartphones would be part of the digital solution.ecause it is quite clear they do need to  Back

42   Oral evidence taken on 3 February 2014, Qq209-210 and Q213 Back

43   Report by the C&AG, paras 13-15. See also HC Deb 13 January 2014, cols 454-5w Back

44   Report by the C&AG, paras 11, 13 and 16 Back

45   Oral evidence taken on 3 February 2014, Q213 Back

46   Report by the C&AG,, para 16 Back

47   HC Deb, 10 July 2013, cols 21-22 WS Back

48   HC Deb 13 January 2014, cols 454-5w Back

49   "Flagship benefits scheme faces more delays after rift", The Guardian, 8 January 2014 Back

50   "Francis Maude: Implementation of Universal Credit was "pretty lamentable", Daily Telegraph 8 January 2014 Back

51   Oral evidence taken on 3 February 2014, Qq222-223 Back

52   Oral evidence taken on 9 December 2013, HC 867, Q117 Back

53   HC Deb 13 January 2014, cols 454-5w Back

54   Oral evidence taken on 3 February 2014, QQ217-219 Back

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