HMRC slammed over Capgemini contract costs

The Committee of Public Accounts has slammed the spiralling cost of HM Revenue & Customs' (HMRC) IT services contract with Capgemini.

Edward Leigh MP, chairman of the Public Accounts Committee (PAC), called the costs "hard to justify", following the costly transition of the Aspire (Acquiring Strategic Partners for the Inland Revenue) contract from Accenture and EDS to Capgemini back in 2003.

Some of the most controversial costs, said Leigh, were around HMRC's decision to subsidise the costs of rival bidders to the Accenture/EDS joint-venture. This subsidy was intended to increase competition but according to Leigh it merely resulted in increased costs.

Following the publication of the PAC's report into the Aspire contract, Leigh said in a statement: "The recompetition of the IT services for the former Inland Revenue ended with the incumbent suppliers, EDS and Accenture, being replaced by Capgemini. The transition was successful but very costly.

"It is hard to find a justification for the department's paying so much, nearly £52m, towards bidders' costs to encourage competition. Any department doing this in future must show there is no other cost-effective way of securing competition."

Although Capgemini's bid was subsidised by HMRC, at £2.8bn for 10 years, it also came in £32m higher than the incumbent Accenture and EDS contract. However, HMRC considered Capgemini better placed to meet future IT needs, according to the PAC.

Leigh added: "The department could also have been sharper in its negotiations. The actual costs of transition were agreed after the contract was awarded and competitive tension had vanished and the costs even included a profit margin for the successful bidder.

"There has been a very steep rise in HMRC's spending on IT services - the forecast figure is some £8.5bn over the 10 years of the contract, compared with the original estimate of nearly £3bn."

Capgemini is forecast to make around £1.1bn from the contract - more than four times the amount originally envisaged, according to the PAC.