Headlines: June 9th, 1997

The 2 year project to replace the National Insurance Recording system operated by the Contributions Agency is behind schedule. The new system, which will cost the Agency about £134m, is critical to provide the necessary support for new pensions provisions which came into effect in April 1997. Six months after the Agency signed the contract with Andersen Consulting in May 1995 the first signs began to emerge that all was not well. As a result of protracted negotiations the Agency agreed in July 1996 to vary the contract and to accept a phased implementation starting in February 1997 with completion in April 1998.The replacement system is one of the largest and most complex relational database project in Europe, containing 62.5 million records. It does not use any mainframe technology. When fully operational it will support over 5000 users at the agency in Newcastle and over 100 local offices throughout the UK.

The contract was the first major Information Technology contract awarded under the Private Finance Initiative. Andersen Consulting will receive no payment until the system is operating satisfactorily. From April 1998 they will be paid on the basis of usage. The project has become the test of whether the PFI can deliver the intention to improve the value for money for public and private sectors and whether it can create better relationships between public and private sectors through the transfer of risk and responsibility. The effect of transferring responsibility to the contractor was that the Agency was unable to monitor the project closely. Under the revised contact the allocation of risk remains broadly the same and the contractor could suffer severe financial penalties if implementation target are not met.

The financial implications of the slippage are considerable. The Agency will lose £6.1m, mainly in potential estimated lost savings. The bill for Andersen is £23.1m. This is made up of £8.0m in lost revenues, £8.5m for development of the phased approach, £3.5m for running the system until the revised start date of April 1998 and £3.1m compensation payments to the Agency. Question now being asked about the appropriateness of using PFI for a project of this size and complexity, given the poor track record and well recognised uncertainties in implementing major IT projects in public service.

Concern now is focused on whether the system can be delivered to specification on the new target date. The contract provides for financial remedies in the event of failure to deliver, but this would be little consolation the Agency who believe that there is limited scope for managing without the system beyond April 1998. David Martin of Andersen’s said: “We are completely confident that all the deadlines in the phased implementation plan can be met.”

Sir John Bourn, head of the National Audit Office, said that the contract to develop and operate the replacement National Insurance Recording system represents strikingly good value for money . But he added that this is providing the service contracted for is delivered.