Managing and replacing the Aspire contract - Public Accounts Committee Contents


2  Managing the risks to tax collection and value for money

10. The National Audit Office concluded that the Aspire contract has provided high levels of service continuity and systems availability and noted that there have been few major incidents that have affected HMRC's system performance since the contract began. HMRC told us that it does not expect tax losses as a result of the proposed changes. HMRC's risk register includes reduced tax take as a result of a failure to replace Aspire successfully, but it has not quantified that risk. [11]

11. We questioned HMRC's ability to manage these changes given its track record in managing IT contractors. For example, in 2009 it engaged a contractor outside the Aspire contract to consolidate 12 separate regional databases to form a centralised data management system for PAYE and National Insurance. However, delays and errors following the implementation of the system affected millions of taxpayers, cost HMRC £78.9 million to fix and resulted in nearly £1 billion in tax revenue being lost to the Exchequer.[12]

12. HMRC maintained that it had learned valuable lessons about implementing large projects through the development of Real Time Information (RTI) which, while not pain-free, demonstrated that HMRC could achieve substantial change very effectively. HMRC also highlighted the successful digitisation of tax credits serving 410,000 citizens, which had been introduced successfully in eight weeks, built using only in-house resources. HMRC also cited other examples of change it said it had successfully managed, including updating company car tax, the creation of a single account space for businesses, and the digitisation of HMRC's forms to allow on-line submissions. HMRC welcomed the opportunity to work with small and medium-sized enterprises (SMEs) and noted its contract with a small firm called Kcom, one of its first contractors through an independent bid process, which had resulted in the speedy and efficient introduction of innovative solutions such as on-line chat and secure messaging.[13]

13. Yet HMRC's management of the Aspire account suggests it has been repeatedly outmanoeuvred in its negotiations. The total cost of the contract reached £7.9bn in March 2014, which HMRC admitted was expensive while insisting that it had provided a high quality, stable platform for tax collection. From that, Capgemini and Fujitsu had secured a combined profit of £1.2bn, giving a profit margin of 15.8%. HMRC has benchmarked the price of Aspire services and projects on several occasions. The results of the benchmarking have suggested that HMRC has often paid well above market rates. [14]

14. 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. HMRC negotiated away key value-for-money controls including its right to share in excess profits and to withdraw activities from the Aspire contract, which was partially reinstated in 2012. It also negotiated a three-year extension to Aspire in 2007, just three years into the contract, when there was still seven years left to run. The decision in 2007 to accept a fixed monthly charge for data centre services from Fujitsu, which accounts for 23% of Aspire costs, also proved poor value for money, given the extent to which these costs have been driven down by technological change. HMRC estimates that, through the negotiations, it secured savings totalling £750 million.[15]

15. Although progress has been slow and it has yet to see the business case, the Cabinet Office expressed confidence that HMRC was taking the right approach and showed a good understanding of the risks that need to be addressed. The Cabinet Office also acknowledged its role in issuing the new guidelines, and accepted that it would also be accountable should efforts to replace the Aspire contract end in failure. The Cabinet Office maintained that its 'red-lines' on IT procurement were pragmatic, and if HMRC's business case was not convincing by next March, there was the contingency of extending the Aspire contract beyond 2017 if necessary. However, an extension would risk HMRC paying more for technology than it otherwise would due to the absence of competitive pressures; undermine HMRC's ability to modernise and digitise its tax collection processes; and service quality to taxpayers may be impaired. The Cabinet Office told us that while it could formally recommend that HMRC does not proceed with its change programme, the final decision would rest with HM Treasury.[16]


11   Qq 30,31,39,107; C&AG's Report, paragraph 6 Back

12   Q 30; C&AG's Report, para 2.9 Back

13   Qq 118.126,135 Back

14   Qq 98,101,121; C&AG's Report, paras 14, 3.14 and 3.19 Back

15   Qq 101-105,132-133,138,171; C&AG's Report, paras 14, 3.7, 3.16, 3.18 and figure 8 Back

16   Qq 221-222,224,240,243 Back


 
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Prepared 27 January 2015