Revenue & Customs needs better in-house skills to cope
when its current £7.9bn IT contract expires in 2017, the spending watchdog has
said.
The National Audit Office said the
tax authorities needed more expertise to challenge suppliers over their performance
and value for money.
It said the Aspire contract had
brought benefits but contractors had made much larger profits than envisaged.
Revenue & Customs said it had
become "less dependent" on outside knowledge.
Aspire is the government's largest IT
project, with expenditure of £7.9bn between July 2004 and March 2014.
Under a contract agreed by the last Labour government, French IT firm
Capgemini and its subcontractors maintain and operate Revenue & Customs
(HMRC) tax systems as well as providing other ICT services
such as computers, telephony, printing and networking.
'Too accommodating'
In its first review of the contract
for eight years, the NAO said it had helped improve the agency's operational
capability, enabling more tax and VAT returns to be submitted online and
reducing fraud and error.
While the contract had helped bring
in higher tax yields and deliver significant cost savings, it said, the tax
authorities had been "overly dependent" on the technical capability
of its suppliers, limiting their ability to manage the contract and secure
commercial benefits.
It suggested there was evidence that
HMRC's relationship with Capgemini and other firms had become "too
accommodating" and had "ceased to offer performance challenge or to
create price tension".
It said Capgemini and its major
subcontractors, including Fujitsu, had made £1.2bn in total profits from the
contract so far, double the level that had been modelled in 2004.
The suppliers' profit margins, while
not out of line with the industry average, were higher than anticipated as the
contract had been extended and more work awarded, it said.
New model
While acknowledging that steps had
been taken to build up HMRC's internal IT resources, such as the hiring of a
new digital director, it said there were still "significant gaps" in
its expertise.
Since coming to power in 2010, the
coalition government has insisted that Whitehall departments work with a wide
range of contractors to drive competition and innovation and that contracts were
not automatically extended.
The NAO said the Aspire contract was
"no longer consistent" with this model, but while HMRC and Capgemini
had agreed to make changes to the contract in 2012, it warned that there had
been "limited success" so far.
It said HMRC faced a
"considerable challenge" in reforming the contract while also
developing a successor programme from 2017 that would "modernise and
digitise" tax-collection systems while also ensuring value for money and
guaranteeing levels of service to the public.
"HMRC faced complex, long-term
technology challenges, and Aspire provided an appropriate means of working
through them and limiting risk," said Amyas Morse, the head of the NAO.
"However, there has been a lack
of rigour in HMRC's commercial management of the contract. It is essential in
any contract that the client retains the independent expertise to challenge the
supplier."
'Depressing'
Labour MP Margaret Hodge, who chairs
the cross-party Commons Public Accounts Committee, said the handling of the IT
contract had been "unacceptably poor".
"It is deeply depressing that
once again a government contract has proved better value for the private
companies involved than for the taxpayer," she said.
HMRC said Aspire was one of the
largest outsourced contracts in the world and had helped to generate tax yields
of more than £500bn to the Exchequer last year while providing a range of other
services.
"The NAO recognises the progress
that HMRC has made over the last two years in developing in-house technical
skills, so that we are less dependent on external suppliers," a spokesman
said.
"For instance, we recently
opened a new digital delivery centre in Newcastle as part of our digital
transformation programme.
"We will continue to improve the
performance of the contract over the next three years."
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