Follow us on Twitter

Access our Document library

Meet the team

Indian services giant picks up UK pensions contract unchallenged (updated)

Posted by admin on Tue, 09/03/2010 - 12:53
Printer friendly


pension.jpg
Indian IT services firm Tata Consultancy Services TCS)  has been chosen to administer Britain's new national pension scheme as the signing of a contract is rushed through prior to the general election.
 
The duration of the contract, awarded by Personal Accounts Delivery Authority for the UK-wide pension National Employment Savings Trust (NEST) , is for 10 years with a possible extension for another five years. It's worth around £600 million to TCS. 
 
NEST is the UK government’s low-cost pension scheme previously known as personal accounts. The scheme is due to come into effect in 2012. TCS will be responsible for providing IT-enabled services related to employer participation, member enrolment, collection and reconciliation, cash management, accessing pension savings and administration of accounts.
 
TCS was the only firm left in the running for the contract when other outsourcing firms, including UK firm Logica, withdrew  after deciding that the project was not commercially viable.  "As we proceeded through our detailed procurement process TCS emerged as an extremely strong bidder, both in terms of their capabilities in pension administration and in their ability to provide value for money for NEST members,"  insisted PADA Chief Executive Tim Jones.  
 
Tory politicians are furious that the deal has been signed so close to the general election. “We are amazed that when the implementation date seems to be getting further away, this contract is being signed in such a hurry,” said Conservative Shadow pensions minister Nigel Waterson. 
 
There is a break point in the contract in October which would allow any Tory administration to revoke the contract although this would cost the government £25 million to invoke.  
 
But Angela Eagle, the pensions minister, told the Financial Times: “We have not done anything that ties the hands of a future government. There is a break clause in October which would allow the contract to be terminated, and doing it this way de-risks the project. The contract was signed by the permanent secretary [who as accounting officer has to be sure public money is properly spent], which demonstrates that we are acting properly.”
 
This is the largest public sector  ICT contract won by an Indian firm in the UK to date. TCS has scored some other notable UK public sector successes of late, including a  £150 million contract in November from local government authority Cardiff Council, and a £55 million deal with the Child Maintenance and Enforcement Commission. 
 
A sea change?
 
The contract should be seen as a clear indication that the appetite for global delivery has changed among UK public sector organisations in the light of a new era of public spending cuts, according to John O'Brien of research house Ovum. “We continue to expect offshore BPO to be the exception rather than the norm in the UK public sector. However, the NEST program is a good example of how the model is likely to evolve over the next few years,” he said. 
 
“Since NEST is being set up from scratch, it makes perfect sense to engage with the appropriate private sector supplier, which has the capability and capacity to deliver administration services on this scale - as opposed to building the capability in house at significant cost to the taxpayer. This approach is also less politically charged than other forms of outsourcing or offshoring, since there aren't the same concerns around potential job losses, and if anything this approach may help create new jobs in the UK.
 
“There is a significant offshore element to the deal too. In its steady state, PADA expects 60% of the non-customer-facing IT and back-office administration to be performed in India, while customer-facing call centre services will remain in the UK, as will data storage, to ensure that personal records are not transmitted overseas. This approach is surely the most sensible way for the public sector to engage in offshoring as it seeks to continue to provide vital services to its citizens while maintaining stringent controls on costs and data integrity.”
 
But he added that there were some risks for TCS. “At this early stage it is unclear how many UK organisations will sign up to NEST,” said O'Brien. “Nonetheless we expect it will become a popular alternative for the many employers that do not have the financial resources to provide occupational pension schemes for their employees. It may also prove more attractive than other current products on the market, since it will be run by a not-for-profit organisation and is therefore likely to be highly competitive.
 
"This has got to be good news for TCS as the scheme administrator, which stands to benefit from NEST's success if it does a good job. Of course, the high-profile nature of the program will put TCS's performance on the deal firmly under the spotlight."