EDS faces fight to hang onto taxman millions

The Inland Revenue has launched a campaign to tempt the great and the good of the IT services industry to bid for its IT support contract when the existing deal with EDS runs out in 2004.

Worth an estimated £300m to £400m per year, EDS will have a fight on its hands to retain the lucrative 10-year deal, one of the largest public sector technology contracts on offer.

The winner will face a tough task. The tax department is determined to transform its business and become more service orientated - a change which will be underpinned by a complete upgrade of legacy systems.

When it handed its support contract to EDS in May 1994, the Revenue estimated it would have to pay out around £1bn to the services firm over the 10-year cycle. Seven years later and the figure has shot up to £2.4bn.

In front of the Public Accounts Committee last year, Revenue IT director John Yard admitted his department invoked 100 penalty clauses against EDS during the first five years of the partnership.

A National Audit Office report in March 2000 warned the department should "retain sufficient independent capability to assess projects objectively" to avoid "becoming locked into the partnership".

It is understood that the Revenue is determined to open the contract up to full competitive bidding and rather than a consortium of suppliers the department is keen on appointing a single prime partner. IBM Global Services is likely to provide one of the strongest challenges to EDS.

Initial bids are expected in the first quarter of next year.

Consultancy firm Accenture, which runs the troubled National Insurance Recording System (Nirs2), will also be fighting for the renewal of its contract in 2004.

The company - formerly Andersen Consulting - won the bid in 1995 but ran into trouble after a backlog of pensions and benefits miscalculations left 120,000 pensioners underpaid by £41m. The Inland Revenue acquired the contract in April 1997 when it merged with the Contributions Agency.

Full details of the contract are available at http://www.inlandrevenue.gov.uk/aspire/