Matt Foster explores how HMRC is looking to life after Aspire – the single biggest ICT deal in all of government.
It’s the government’s single biggest IT deal, costing almost £8bn over a decade and accounting for 84% of HM Revenue & Customs’ spending on technology. But the Aspire contract between the tax authority and supplier Capgemini now finds itself out of step with the government’s desire to end its reliance on long-term deals with big firms in favour of shorter, more targeted contracts with a wider range of suppliers. That leaves HMRC officials with the daunting task of planning for a very different technological future, while trying to ensure that the upheaval doesn’t undermine systems which allow it to collect some £500bn a year in revenue.
Aspire was the successor to a previous 10-year deal between HMRC and Electronic Data Systems, and was a struck at a time when lengthy, exclusive deals between departments and technology outsourcing firms were commonplace. But the government IT landscape has changed dramatically since the Aspire contract – originally signed in 2004 and expected to run for a decade – received a three-year extension in 2007.
Last year, the Cabinet Office set tough new rules for departments, banning single IT deals over £100m unless they could identify an “exceptional reason” to go ahead, ending automatic contract extensions, and preventing any single supplier from providing both services and systems integration to the same area of government. The move was designed to drive down costs, encourage innovation, and help departments better hold their own in contract negotiations.
The contracts overhaul is also meant to be accompanied by a push to improve departments’ own digital capability, and end a situation in which, as the Institute for Government’s Daniel Thornton explains, some parts of government have “contracted out their brain” and now have a limited understanding of their technology businesses. “It absolutely makes sense to build capability in-house and issue short term contracts,“ says Thornton, “because if the market moves or technology changes, you can adapt much more quickly.”
But while the Aspire approach may now have fallen out of favour, the long-running deal has benefited HMRC in a number of ways, as a recent report by the National Audit Office notes. “Aspire has provided service continuity, enabling HMRC to collect around £500bn of tax each year with few significant failures,” the spending watchdog says. It also points out that the deal has seen “few major incidents” affecting HMRC’s infrastructure, with 95% of major technology projects since April 2008 implemented without any big setbacks.
Aspire has also been in place at a time when HMRC itself has undergone major structural changes and sought to improve services, as the NAO’s report points out. “Over the contract’s lifetime, HMRC has integrated two former departments… It has progressively generated more tax yield from its compliance work and substantially reduced its headcount through more automated processes. It has improved customer service, such as by helping more taxpayers to make their returns online. HMRC’s operating costs fell by 30% between 2006-07 and 2013-14. The projects and services provided through Aspire have been central to these improvements.”
Yet the Aspire deal’s costs have soared over the lifetime of the contract. An estimate of £4.1bn was used by HMRC when evaluating Capgemini’s original bid – but the NAO predicts that overall costs will come to £10.4bn by the end of the deal in 2017. The department has commissioned much more work through Aspire than it originally intended, partly because of the merger of Inland Revenue and HM Customs & Excise. But MPs on the Public Accounts Committee also found that HMRC had been “outmanoeuvred by suppliers at key moments” in the contract. According to PAC, HMRC secured savings on the contract but negotiated away the right to share in excess profits or test prices against the market, while the committee also questioned the decision to extend the deal just three years in.
The challenge HMRC faces, then, is trying to ensure that it keeps hold of some of the benefits of Aspire – the service continuity and stability provided by the deal – while moving away from a model which has proved expensive and is no longer in line with where central government wants departments to be. And the tax authority, which believes it can save £200m a year by scrapping the Aspire contract, is up against a tight deadline, with less than two years left to get the new arrangement in place.
The NAO has said a failure to meet the deadline could have “serious risks to HMRC’s business”, including the department having to extend the contract “and continuing to pay more for technology than it needs [to] because of no competitive pressures”. PAC’s warning was even more stark, saying HMRC “appears overly complacent given the scale of the transformation required”.
“Continuity is the highest priority”
As a first step, HMRC has sought to bring the existing Aspire deal into line with wider government practice. In 2012, it signed an agreement with Capgemini, which promised to secure more than £200m in savings on the contract over its final five years; open up more work to contractors outside of the Aspire framework; bring in new processes for commissioning services; and boost skills within HMRC to ensure it could properly handle the new model. Also key to the 2012 deal was an agreement on “novation” – essentially allowing HMRC to cut out the middle man and directly manage subcontractors Fujitsu and Accenture.
Initial progress was slow, with HMRC competing just 14 contracts – representing 3% of the cost of Aspire – outside of the deal. The NAO also found that HMRC had yet to set up the promised direct deals with subcontractors, and found that a 2009 agreement to grant Fujitsu exclusivity over the provision of data centres for the department remained in place. That was in spite of the tax authority recognising that rapid advances in cloud storage meant the deal was no longer cost effective.
Both the Cabinet Office and HMRC declined requests from CSW to speak to HMRC’s chief digital and information officer Mark Dearnley, or the government’s chief information officer Liam Maxwell for this piece. However, a spokesperson for HMRC told us that maintaining services throughout the transition was top of its agenda.
“Ensuring operational continuity is the highest priority for HMRC, and will be a foremost consideration in all decisions taken in replacing the Aspire contract,” the spokesperson added. “Where appropriate, control measures are being carefully planned to mitigate against and reduce the risk of an impact on service continuity.”
Dearnley himself shed some light on the progress made when he appeared before MPs earlier this year. The HMRC tech chief revealed that the novation process was now complete, with Fujitsu working directly with the department to try and build in the kind of flexibility that the Cabinet Office had in mind. HMRC was, he added, finally able to move away from paying for dedicated infrastructure that had been “sized for the peak minute of the peak hour of the peak day” – but which was barely utilised the rest of the time – in favour of more cost-effective data storage.
“Even more importantly, private clouds get us in the position where we can start to move the running of applications between different providers and different data centres,” he said. “So with Fujitsu and this model, over the next two years we get into a place where our infrastructure becomes portable, and instead of having to buy from dedicated data centres we can actually start to use the digital services framework [required by the Cabinet Office]… and use many more providers to give us our infrastructure.”
The department has also bolstered its own in-house technical capability, bringing in around 70 new staff to it dedicated digital centres and readying itself for what Dearnley called the “next wave” of recruitment. HMRC confirmed over the summer that 250 staff would be transferred from Capgemini into the direct employ of the department to try and give it more control over its IT estate. In an internal e-mail outlining the move, Dearnley said: “The changes we’re announcing today will allow us to maintain consistency of service for customers while we plan for the future which, as now, will include a mixed model of both internal and external delivery using multiple partners.”
And the tax authority recently issued a two-year, £20m tender for consultants to advise it on the transition from dealing with one big contractor to potentially more than 400 smaller suppliers. A spokesperson for HMRC told CSW that the department was also “building our talent pipeline through industry placements for university graduates, apprentices and IT graduates to ensure we have the skills we need in the future”.
“We are now not talking about a big bang”
But while HMRC has pushed to improve its in-house capability, and tells us that it is “confident” it will meet the 2017 deadline for replacing Aspire, both Dearnley and HMRC’s chief executive Lin Homer have made it clear that the need for stability means the department has not ruled out keeping some parts of the contract in place as the end draws near.
As Homer told PAC: “If we ended up in a position towards the end with elements of the contract where we thought, ‘this is all going well but it feels quite risky, we tried that and it’s good, but it doesn’t feel quite stable,’ an option would be to say: ‘We’re going to leave a piece with you longer than we said.’ We have that power under the contract, but we do not believe that we will be in a position where we have to exercise that […] en masse.”
Dearnley has also stressed the benefits of moving away from the Aspire model in stages, arguing that such an approach is crucial to ensure that HMRC doesn’t experience major disruption to its services in 2017. “By being phased, we are now not talking about a big bang,” he said. “We are talking about lots of little bangs that hopefully do not even go bang, so that we can change our mind and learn from the earlier ones. It is an iterative, agile process towards it.”
The Major Projects Authority – the body set up in the last parliament to assess Whitehall’s handling of big government schemes – has yet to publish its Delivery Confidence Assessment of the way HMRC has worked to replace Aspire. However, Dearnley told PAC the scheme is “technically” rated as amber/red in the eyes of the MPA. According to the watchdog’s guidelines, that means successful delivery of the project remains “in doubt” with “major risks or issues apparent in a number of key areas”. The MPA does say that such a rating is common on big projects still in their earliest stages, however, and Dearnley told the committee that the rating was in line with his own expectations.
Bill Crothers, the government’s chief commercial officer, has acknowledged that the scale of the endeavour remains “absolutely enormous”. HMRC must not, he told PAC, “lose concentration” over the next two years. “It is high risk, and it will continue to be high risk for years to come until it is done, and I think it is incredibly important. That should guide everything we do. Yes, there are savings, but those three things – it’s enormous, it’s risky and it’s important – should guide what we do.”