IT Stockholm Syndrome is slowing down reform of bad practice in government

Profile picture for user slauchlan By Stuart Lauchlan July 24, 2014
Summary:
The UK government is committed to reform when it comes to IT procurement and deployment. But recent developments suggest that we've a long way to go before practice matches preaching.

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Liam Maxwell

The current UK government has made no secret of its ambition to force through radical reform in the way that the public sector procures and deploys IT after decades of waste, failure and negative headlines.

To that end, it effectively declared war on what it dubbed The Oligopoly, the small coterie of ‘big ticket’ IT and services firms that have dominated the public sector tech landscape for so long.

That intention to drive change is reaching something of a tipping point as the majority of existing multi-year, multi-million pound contracts with that so-called oligopoly will be winding down over the next 18 months.

According to the UK government’s Chief Technology Officer Liam Maxwell, the most ardent and vocal advocate of the oligopoly terminology, they will not be renewed, with contracts terms getting smaller and more SMBs being recruited at lower cost.


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Needless to say this is not a prediction that sits well with those big suppliers, which of late appear to be picking up some support from within government itself for their cause. This is leading to a form of IT Stockholm Syndrome that is slowing down reform.

Last month reports emerged that at least two senior ministers had broken ranks with the Cabinet Office - which is driving the procurement and efficiency reforms -  and complained to the Prime Minister David Cameron that SMBs are not up to the job done by the larger suppliers.

One government source was quoted in the Financial Times newspaper as stating:

Getting more SMBs in was an idealistic Tory policy in 2011 to shake up Whitehall. But in effect they are not necessarily the best fit for this sort of task.

Those are words that I’ve heard drop - off the record - from the mouths of more than one leading member of the oligopoly in recent months. It's uncanny.

Derek, in a former life, flagged up this resistance to change in a great (from his point of view) interview with Tim Gregory, then the new head of CGI (formerly Logica), who voiced a remarkably similar sentiment:

The first time one of these SMEs doesn’t deliver, when something goes pear-shaped, there will be no safety net. There’s no point in a government organisation trying to sue them, there’s nothing to sue. It will be gone.

He added:

You’ll be aware that the government is making life difficult for IT vendors. I find this adversarial approach quite unhealthy.

As it turns out, CGI’s not doing too badly still even under this apparently adverserial regime. It’s picked up full blown outsourcing contracts for six healthcare trusts in recent months, the most recent being a five-year ICT infrastructure contract with West Hertfordshire Hospitals NHS Trust valued at £25 million. (That's the sort of deal I thought we weren't doing any more, but hey ho, plus ca change etc etc.)

Going native

One of the biggest problems for the Cabinet Office - and one of the biggest weapons for the oligopoly - is a government technology variant on ’Stockholm Syndrome’. So many IT decision makers across the public sector are used to dealing with certain suppliers that they’ve gone over to the other side and become institutionalized.

This isn’t a UK specific issue. Some 22% of all public sector IT tenders across the European Union reference specific vendors, with Microsoft, Oracle, IBM, VMware and SAP as the top five most mentioned, according to research by OpenForumEurope.

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Source: OpenForumEurope

The UK is actually the country that adheres most to the open procurement EU rules here (that old British sense of fair play!), but there’s still a tendency to stick to what you know best that manifests itself as resistance to reform or to face up quickly enough to the need to change.

There was a salutary warning about this this week when the National Audit Office (NAO) published its latest findings on Her Majesty’s Revenue and Customs (HMRC - the UK tax office) progress on reforming its multi-billion pounds Aspire outsourcing contract with Capgemini.

This is the largest technology contract in the UK public sector, having cost £7.9 billion in the ten years from 2004 to 2014. The contract has been extended to run through to 2017, by which time the NAO estimates that HMRC will have spent £10.4 billion compared to a figure of £4.1 billion used when evaluating Capgemini’s bid.

HMRC now finds itself essentially at odds with the Cabinet Office policies on IT procurement, as the NAO report notes:

Long-term prime contracts for technology, such as Aspire, are no longer consistent with government policy. The Cabinet Office now requires government departments to let shorter-term contracts for ICT and work with a wider range of suppliers to increase competition and promote innovation. Departments, such as HMRC, must now take more direct responsibility for their systems and strengthen their technical and commercial capability.

In fact back in 2012, HMRC and Capgemini grabbed the headlines by agreeing to make changes to the Aspire contract which, when fully implemented, would bring the contract closer to the new policy. But progress on this has been painfully slow, warns the NAO. This seems to have had two root causes:

  • Pressures to find cost savings led HMRC to trade away some of its negotiating power and hindered its ability to get strategic value from such a long-term contract.
  • HMRC was overly dependent on the technical capability of the Aspire suppliers between 2004 and 2012, which limited its ability to manage the contract commercially.

Three things should have happened by now:

  • A direct contract should have been put in place with Capgemini’s main subcontractors, Fujitsu and Accenture. There is no sign of this.
  • Capgemini was to separate its responsibility for providing services and projects from its responsibility as an integrator of services and projects. A separate unit to deliver integration is in place, but HMRC has yet to set out the full commercial arrangements for this change.
  • More competition should have been introduced to fuel greater innovation, faster implementation and lower costs. Since 2012,HMRC has held competitions for only 14 contracts outside Aspire. Those have a total annual value of £22 million or 3% of the costs of Aspire.

Meanwhile Capgemini and Fujitsu are in line for estimated profits of £1.2 billion.

Amyas Morse, head of the NAO, commented:

HMRC faced complex, long term technology challenges, and Aspire provided an appropriate means of working through them and limiting risk. However, there has been a lack of rigor in HMRC's commercial management of the contract. It is essential in any contract that the client retains the independent expertise to challenge the supplier. HMRC now faces a considerable challenge in a limited amount of time to negotiate reform to the contract while at the same time defining its technology strategy for post-Aspire.

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What happens if it doesn’t manage this? Well, basically regardless of what Liam Maxwell and the Cabinet Office say, the likeliest outcome is obviously that the contract gets renewed and extended as it stands, with HMRC (or rather the taxpayer) paying more for technology than necessary because lack of competition. This would also make it more difficult to shake off legacy systems and move towards the aspired (no pun intended) digital services HMRC wants to introduce.

The lesson to be learned across all of government here is starkly laid out by the NAO:

There can be significant benefits in longer-term relationships including a degree of flexibility and joint working in solving complex, technical challenges over time. Conversely, the relationship can get too accommodating, and cease to offer performance challenge or to create price tension. We believe that some of both of these elements arose in HMRC’s Aspire contract.

There are a number of instances…of lack of challenge in objective setting, re-scoping and renegotiation which illustrate a lack of rigour in HMRC’s commercial management of the contract.

We see it as essential in any contract that the client retains the independent expertise to challenge the supplier.

In part two of this article here, the ghost of a supposedly dead NHS IT project rises up to remind us why government is so reluctant to take on its suppliers in open court.

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