Nic Hopkins reports on how the Government has squandered millions of pounds on tech contracts

THE voice of Martin Barnes betrayed more than a hint of exasperation as he tried, time and again, to count the human cost of yet another delay to a government IT contract.

Barnes, a director of The Child Poverty Action Group, was swamped with phone calls yesterday after it emerged that a long-awaited computer system for the Child Support Agency (CSA), already five months overdue, may not be in operation until this time next year.

Costs on the project had already run more than £50 million over the budget of £200 million, reports said.

The system, which is ultimately expected to simplify and hasten decisions on support payments by absent parents, was developed by aprivate consortium led by EDS, the US computer services group, under the Private Finance Initiative.

"We haven't a clue when the new system is coming in. Meanwhile, children in the poorest families receiving income support are losing£10 for every week this project is delayed," Barnes says.

The suffering among Britain's poorest children as a result of the delay may well be heavy. Equally, the damage it has done to the Government's reputation for handling IT contracts is severe.

In the past three years government departments are estimated to have wasted £1.1 billion on IT contracts that, at best, have been substantially more expensive than first planned. At worst, they have been scrapped, often leaving the taxpayer with a bill running into tens of millions of pounds.

Among the worst examples was the creation of a benefits card paymentsystem by ICL Pathway, which was ultimately scrapped at an estimated cost of £571 million to the Post Office and £127 million to the DSS.Other embarrassments include the creation of a computer system for the Passport Agency, which was delayed and cost £12.6 million to fix, whilethe air traffic control centre at Swanwick opened in January six years after it was due and £120 million over budget.

On the back of these repeated failures, the Government is about to handout the largest such contract yet. The Inland Revenue has invited tenders for a joint contract to operate the merged tax and national insurance recording systems, worth an estimated £5 billion over ten years.

The size of the contract has exposed a key problem for Whitehall when handing out such contracts. Competition is rare because only a handful of companies are able to design, implement and service the vast systems needed to run large departments.

Already, potential bidders for the Inland Revenue contract are said to be reluctant to take part in the tender process because they believethe contract will go automatically to the incumbents, EDS and Accenture. Their fears are justified, with research showing that 97 percent of contracts are retained by incumbents.

The Office of Government Commerce (OGC), which controls state procurement, says the UK market for public sector IT contracts is comparable with the US, where a report by analysts at The Standish Group shows 31.1 per cent of IT projects will be cancelled before they are completed.

The Standish Group study also shows that 52.7 per cent of government IT projects will cost 189 per cent of their original estimates. "The cost of these failures and overruns are just the tip of the iceberg," the study says. "The lost opportunity costs could easily be in the trillions of dollars."

A spokesman for the OGC, which was set up to reduce Whitehall's spending by £1 billion by the end of 2002-03, admits there is a need to improve the way departments manage their IT contracts.

Industry observers are far less kind. "The IT industry has the Government over a barrel," one analyst, who asked not to be named,says. "Whitehall can talk all they want about improving the situation, but they'll get nowhere."

While government IT contracts account for about 30 per cent of the high-tech industry as a whole, barely a month goes by without more news emerging of a project that has gone off the rails.

Richard Holway, a director of Ovum Holway and one of the leading analysts of Britain's IT services sector, says government contracts run into trouble most often because the public servants charged with managing them hand all control over to the contractors.

"Think of it as like a person having a new kitchen fitted. They theywould usually outsource it, but they wouldn't let the tradesmen choosethe colour of the cabinets and the style of the tiles."

EDS used that reason for the delays in launching the CSA computer system. The company said the system was complete and undergoing testing but also "highly complex and more sophisticated than anticipated due to a change in government requirements".

Amanda Lewis, a partner at the law firm Berwin Leighton Paisner, who has worked on more than 100 government IT contracts, says that is precisely the reason taxpayers usually carry the cost of contracts that have run over budget, rather than the companies carrying them out.

"It is hard to make the company take responsibility for delays and cost overruns after the Government changes its mind and says it wants onething when it originally asked for something different," she says.

This factor is exacerbated by the "unusually intricate" nature of large public sector IT contracts, as well as the Government's policy to push its departments on to the internet "purely for the sake of it".

Lewis adds: "The difference between Government and the private sector is that companies have a simple goal when they offer an IT contract -they want to improve their bottom line.

"The Government says it wants to have an appropriate level of services online by 2005, but there is no clear business benefit, no clear reason why they're doing it."

Lewis is also a critic of the public sector culture that encourages management by committee. "In the public sector, you are not usually given any incentive for making decisions. People who go into the public sector don't do so because they're great managers."

Recognising that without better management there will be no improvement, the Government is setting up programmes to show public servants how to make executive decisions and to explain the nuances of the IT market.

But a spokesman scotched any hope of an immediate improvement. "There are no quick fixes, and it would be reckless to predict otherwise."

System Failure

 Source: Computing Magazine

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