It's time to kill big IT contracts, says taxman's CIO

"I've met many programme directors who've said 'I'm doing a £100m programme', I say 'I feel very sorry for you'"

Phil Pavitt - the man in charge of the UK government's largest IT outsourcing deal - believes Whitehall needs to end its love affair with supersized IT contracts.

Pavitt has been busy reshaping the taxman's £9.75bn IT services contract, dubbed Aspire, since taking up the role of CIO at HM Revenue and Customs (HMRC) in September last year.

With main Apsire contractor Capgemini relying on 240 suppliers to help it deliver the contract, the sheer scope of the deal can cause headaches for the taxman's IT department.

HMRC CIO Phil Pavitt believes that big isn't beautiful when it comes to outsourcing contracts
(Photo credit: HMRC)

There have been cases of HMRC's internal IT team taking on work that should have been carried out by the outsourcer, resulting in the department "paying twice" to get the job done, the HMRC CIO said.

"We have a complication where the role of who does what after a number of years of being outsourced is complex and it does blur," Pavitt told the GovNet Government IT 2010 conference last week.

"It's time as an industry, and with my partners it is time as an outsourcer, that we began to reduce dramatically those programmes to sizes that can be understood, swallowed and delivered," he added.

Pavitt subscribes to the belief that no IT outsourcing contract should be larger than £100m.

"£100m is never £100m - in an £100m programme people forget why they started and the people responsible at the outset are rarely there at the end," he said.

"All major changes should become medium changes. I've met many programme directors who've said 'I'm doing a £100m programme', I say 'I feel very sorry for you, ring me back when you're doing a £20m one'."

Pavitt's comments follow a recent pledge by the Tories who - in reaction to the overspends in huge projects such as the £7.1bn Defence Information Infrastructure - said no IT project under a Conservative government would be larger than £100m.

The Conservatives' premise is that rather than relying on one large overarching system, government departments could be served by a network of smaller, cheaper systems able to understand each other's data.

The idea is that small interoperable systems within government would be able to have new functions and features bolted on and could be built up in a modular, Lego-like fashion.

The Conservatives hope that smaller IT projects will be easier to manage and less prone to delays and running tens or hundreds of millions over budget.

However, large IT transformation projects represent a financial risk for suppliers - who have to invest a lot of money upfront to make them work - and Tola Sargeant, analyst with TechMarketView, said limiting work to short-term £100m contracts could scare off suppliers from bidding on public sector work.

"I have heard suppliers complain recently that big public sector outsourcing contracts have come down in length from 10 to 12 years, to five to seven years," she said.

"They say that it is not long enough to carry out transformation and still make their money back.

"If it meant that the length of the contract came down then they might struggle to find suppliers who were willing to take up the contract."

A good compromise could be...

...the hybrid approach taken in the IT services deal struck between Cardiff City Council and Indian outsourcer TCS last year, Sargeant said.

Under the terms of the multi-million-pound deal, TCS is contracted to carry out a series of smaller projects over the next 14 years, however each project has to be separately approved by the council before going ahead, providing scope to change elements such as project size and subcontractors along the way.

Meanwhile, the HMRC's own Aspire outsourcing contract has already been trimmed down, with a renegotiation of the deal last year resulting in £110m being taken out of the annual cost, thanks to a mixture of price reductions and the decommissioning or resizing of about 40 systems.

The HMRC remains one of the biggest spenders on tech in the public sector with the third largest IT budget across government.

Spending on IT accounts for nearly one quarter of HMRC's budget, setting the taxman back £840m per year. It's a figure set to dwindle: the IT department has been told it must reduce spending by five per cent, in line with budget cuts across the department.

However, cost-cutting does not always bring rewards for a CIO: according to Pavitt, Whitehall doctrine specifies it is the IT chiefs who spend the most in Westminster that set IT policy for the whole of government.

"In my first few weeks of the job I was visited by leading members of the Cabinet Office," he said.

"In that conversation with me they mentioned I am in the top purchasing club... That means you have tremendous influence on buying power, buying ideas and management and so on.

"I said 'If I reduce costs by 50 per cent what happens?', 'Well, you leave the club,' I was told.

"So here I am relieved of my ability to influence government's ability to purchase if I am clever and do my job. It's one of the most perverse things that I've heard.

"We don't have a 'demonstrable reduction of cost club', we have a 'sheer size of spend club'. Surely this is the wrong way round."

Pavitt has an immense IT estate under his control, with HMRC relying on 650 major tax and benefit systems and 2,500 databases hosted on 6,300 servers in nine datacentres. On the PC side HMRC has 90,000 desktops, 9,000 laptops and 90,000 printers.

The HMRC has amassed these systems, Pavitt said, partly as a result of a reluctance to ever take a system out of action in case it might be needed in future.

"You might point out to lines of business that they had a system that for eight years [was] unused but they worry about the ninth year when it might be.

"That risk adverse environment is a challenge when your IT budget is based on consumption," he said.