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Story URL: http://www.silicon.com/publicsector/0,3800010403,39158320,00.htm

MPs slam EDS compensation deal with taxman
EDS will only pay back £26.5m if it wins future government contracts

By Andy McCue

Published: Tuesday 25 April 2006

MPs have called for the government to ban IT suppliers from insisting on confidentiality clauses in contracts, following a controversial compensation settlement between HM Revenue & Customs (HMRC) and IT services company EDS.

EDS last year agreed to pay HMRC £71.25m in compensation after serious problems with the tax credit computer system led directly to gross losses of £209m for the department.

But parliamentary watchdog the National Audit Office (NAO) has slammed the settlement after HMRC revealed that £26.5m of the total compensation sum will only be repaid if EDS wins sufficient future business from the government.

A new NAO report on the continuing problems with the tax credits system out this week has criticised the deal as an "unwelcome arrangement" and said there is no guarantee EDS will win sufficient business to trigger full payment of the compensation.

The report said: "Government should not be placed in the invidious position of having to commission further work from a contractor in order to recover compensation for underperformance."

In particular, the NAO criticised a confidentiality clause which protects both HMRC and EDS from disclosing the full terms of the settlement and called for the Treasury to force government departments to abstain from such clauses in IT contracts.

The NAO said: "Confidentiality arrangements should not be accepted where they will impair accountability for public money. Contractors need to accept that if they do business in the public sector, the terms of such settlements should be in the public domain."