Three, two, one ... can Revenue get IT right this time

Would it be three, two or one? That was the only question on the lips of the IT industry’s keenest Whitehall watchers last week.

By last Tuesday night, speculation had reached fever pitch with endless permutations and combinations being turned over. By Wednesday morning it was all over. Only now the real battle begins.

The small matter in question was – is – the Inland Revenue’s IT Aspire contract, the biggest of its kind in the UK and one that is worth somewhere between £300m and £400m to an industry that is very much feeling the pinch.

Since March, a team – led by John Yard, director of the Revenue’s business services – has been evaluating three bids to run the tax body’s technology department.

In the frame were three consortiums: the Revenue Professional Services, featuring the current contract holders EDS and Accenture; Cap Gemini Ernst & Young in alliance with Fujitsu; and the Fusion Alliance, made up of BT, CSC and SchlumbergerSema.

But by last week, officials from the Revenue, HM Customs & Excise and the Treasury (you knew Gordon Brown’s team would not be far away, didn’t you?) had realised that there was no point in continuing negotiations with Fusion.

The news that only detailed negotiations with Revenue Professional Services and Cap Gemini Ernst & Young would take place was released on the Wednesday morning.

Officials had been under pressure to get an announcement out before parliament rose last Thursday and MPs went on their holidays.

In the days leading up to the announcement, cynics had smelt a six-month delay. Rumours were rife that the Thursday deadline would be missed, leaving officials in limbo until MPs returned in the autumn.

Aspire, this train of thought assumed, would then slip down the ministerial priority list until later in the year – much later.

But in fairness to the Revenue, it lived up to its promises. The contenders had been told they would hear in the middle of July if they were to be excluded from further negotiations.

Some took that to mean last week, some this. But with commendable precision the Revenue revealed its hand on the 16 July – the middle day of the month.

That announcement will now see Accenture and Cap Gemini Ernst & Young, two consulting divisions spun off in recent years from their accountant parents, go head-to-head.

The Revenue offered no reasons for its decision. In a brief statement, it merely confirmed: ‘Following the evaluation of the responses to the Aspire invitation to tender, received in March 2003, the following will go forward to the next stage of the Aspire competition: Cap Gemini Ernst & Young (in alliance with Fujitsu) and Revenue Professional Services (EDS in alliance with Accenture).’

Next on the cards is what the Revenue called the ‘assurance phase’ in its statement. This involves due diligence, negotiation, access to senior executives throughout the department, and transition planning. A winner of the competition will be announced in December, with the new contract starting on 1 July 2004.

Despite some of the problems experienced by the other suppliers in government work, the BT group had always looked the most vulnerable of the three bids.

Accenture may have come under fire over the past few years over the national insurance system it installed, but it’s still in the running.

The Revenue may currently, as confirmed by paymaster general Dawn Primarolo in an appearance before a Commons committee this month, be seeking to recover from EDS ‘additional business costs’ attributable to IT failings relating to the new tax credits system, yet EDS is still in there.

But for many who had been watching the tender process closely, if one bid were to be dropped at this stage, it was likely to be the Fusion Alliance’s. And so it turned out to be.

That said, its omission was by no means a foregone conclusion. Throughout the entire process, officials have insisted that they saw ‘all three shortlisted bidders as extremely strong contenders to be our technology partner and all have the ability to submit the winning bid’.

After the myriad problems experienced in major IT projects in terms of cost overruns and reliability in recent years by the Revenue – and the public sector at large, if truth be told – the checks and balances put in place this time around have been impressive.

Officials have been at pains to point out that EDS and Accenture will have to fight to retain their contracts. Accenture has been running the £200m national insurance recording system (NIRS) contract since May 1995, while EDS has been running a 10-year, £2bn contract for the Revenue since May 1994 covering the IT that underpins the bulk of the Revenue’s work.

Overseeing the process, as well as the team led by John Yard, is a supervisory group chaired by Tim Flesher, the department’s deputy chairman, which has been closely involved.

Meanwhile external consultants from PA Consulting and Shaw Pittman have also been engaged.

And, as a final insurance policy, the Revenue’s own internal audit office has been used in the capacity of independent auditor throughout the evaluation period.

That process had ensured that the shortlist that arrived in March was nothing less than muscular. It was drawn up after the Revenue had spoken to more than 10 potential suppliers last year. But for some involved in the tender, the strength of the shortlist was also its weakness.

To that group the drawing up of a ‘shortlist’ that featured four of the world’s top six IT suppliers and then narrowing it to three over the course of several months smacked of wasted time and effort.

On this point it would be easy to side with the cynics. Just as they assumed delay, the extent to which the Revenue wants to be seen to be behaving in a fair and proper way invites eyebrow-raising.

Was the whole shortlisting process unnecessarily complicated – and unnecessarily costly?

Was the decision the Revenue announced last week one that could have been taken last year?

Its equivalent might be taking a flyer on the destination on next season’s Premiership title and, as contenders, identifying Arsenal, Chelsea, Manchester United, Newcastle, Liverpool and Blackburn. And then, after a few weeks of consideration, plumping for Manchester United as the likely destination of the championship.

Or Arsenal.

Or Chelsea.

But what’s at stake is even more significant than the Premiership title. For one thing, there is the staggering scale of the numbers involved.

There’s the money – up to £400m – though the Revenue admits the value could be ‘affected’ by performance improvements in technology and the extent of the department’s business transformation over the lifetime of the contract. For ‘affected’, read ‘raised’.

Then there’s the length of the deal – a maximum of 18 years with a planned term of 10 years and possible continuations for up to eight years.

And then there’s the mind-boggling array of hardware that the contract will deliver across the department.

Aspire will cover no less than 73,000 desktops, 200 systems, 20 ICL mainframes, and 177 IBM and HP Unix servers.

But aside from the sheer physical scale of what has to be delivered by the contractors, Aspire is really about something much more important.

After some very notable problems with its IT systems over the past decade – and after the less than desirable execution of the new tax credit system – nothing less than the taxman’s reputation is on the line.

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EDS Services company

EDS is leading a consortium with fellow IT services company Accenture as its main partner. As the incumbent supplier, it has not been afraid to push the benefit of its experience of the 127 interconnected systems it manages for the Inland Revenue.

‘The first thing our bid will focus on is business continuity,’ said Craig Wilson, EDS UK client executive, earlier this year. ‘The idea that you ignore that complexity and build something new just beggars belief. We are proud of what we’ve done and are happy to have that record examined. What we won’t do is stand on that record.’ But EDS knows that its existing relationship with the taxman will have to change if it wins the contract.

‘With Aspire, it doesn’t just need an IT partner, it needs somebody who will help it become a policy enabler. The Revenue is looking for a more diverse source of ideas. You’ll see our partners played more aggressively to the front of the innovation curve.’ Wilson says that the decision comes down to who is best to take the department forward, while keeping the existing systems running.

‘What the Revenue will see from us is a very comprehensive set of plans for how to go from where they are now to the kind of structure they want to see in the future,’ he said.

Cap Gemini Ernst & Young

Martin Cook, vice-president of CGEY’s public sector business, said earlier this year that the company’s credentials were the key to success.

‘We have a great record on outsourcing, on transformation, on supporting government modernisation programmes, on architecture. So you get the best of us, the best of our partnership arrangements and a freshness of approach which will be compelling,’ he said.

Cook acknowledged that the Revenue has been frustrated by some aspects of its existing contract.

‘First, the inability of that relationship to support them in the kind of change and transformation they really think they need,’ he said.

‘Secondly, they found it difficult to get hold of the best products and services from wherever they were available. The clear things worrying the Revenue about their existing relationships are precisely where we are notably strong.’

Like his rival bidders, Cook recognises the importance of a smooth transition.

‘You can’t have change for change’s sake. There’s no point trying to make things better until you secure the day job,’ he said.

But CGEY wants to appeal to the workers as well as the decision makers.

‘One of the critical success factors about transition is keeping as many of the people who have rights to transfer to work for us. We think we have a great story to tell.’