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HM Revenue & CustoMs
ASPIRE – the re-competition of  
outsourced IT services
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL | HC 938 Session 2005-2006 | 19 July 2006

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HM Revenue & CustoMs
ASPIRE – the re-competition of  
outsourced IT services
 
Ordered by the 
LONDON: The Stationery Office 
House of Commons 
£11.25
to be printed on 17 July 2006
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL | HC 938 Session 2005-2006 | 19 July 2006

contents
exeCutive suMMARy 
1
PARt 1 
This report has been prepared under 
The procurement 
12
Section 6 of the National Audit Act 1983 
for presentation to the House of Commons 
The need for new IT contracts 
13
in accordance with Section 9 of the Act.
Preparing for a new contract 
15
John Bourn 
Contracting options 
15
Comptroller and Auditor General 
Encouraging competition 
16
National Audit Office
26 June 2006
Bid evaluation 
16
The ASPIRE contract 
18
The National Audit Office  
The Department’s management of the 
20  
study team consisted of:
procurement process
Leena Mathew, Stephen Callow and  
Nick Lacy, under the direction of  
PARt 2
Jane Wheeler
The transition 
22
Managing the risks in changing supplier 
23
This report can be found on the National 
Audit Office web site at www.nao.org.uk
The transition timescale 
24
Transition costs 
25
For further information about the  
National Audit Office please contact:

The transition’s impact on services 
26
National Audit Office 
The transition of NIRS2 
27
Press Office 
157-197 Buckingham Palace Road 
Victoria 
London 
SW1W 9SP
Tel: 020 7798 7400
Email: xxxxxxxxx@xxx.xxx.xxx.xx
© National Audit Office 2006





PARt 3
APPendiCes
Management of the contract 
28
1  Study scope and methodology 
44
Initial performance 
29
2  Recommendations from the Committee of  
45 
The delivery of business-critical projects 
29
Public Accounts
Cost of ASPIRE 
32
3  Office of Government Commerce guidance  
47 
for re-competitions
Acting as an intelligent customer 
34
4  Lessons learnt from the EDS ‘Eagle’ contract  
48 
Evaluation of supplier and contract performance 
35
and the Accenture NIRS2 contract
Renegotiating ASPIRE to take on the former 
36 
5  The risks of transition and the early stages  
50 
HM Customs and Excise’s PFI IT contract
of ASPIRE
PARt 4
6  Lessons from ASPIRE 
52
Lessons from ASPIRE 
38
7  Diagram of the interrelation of the main  
54 
parties in ASPIRE
1  Preparing for the end of existing contracts 
40
8  The NIRS2 transition 
55
2  Aligning the new contract to business needs 
40
3  Creating competition 
41
4  Managing the transition 
42
5   Maintaining service delivery during  
42 
the transition
Photographs courtesy of Alamy.com and Getty Images


executive summary
exeCutive suMMARy

executive summary
1 
In January 2004 the Inland Revenue, now  
3 
This report examines how well HM Revenue and 
HM Revenue and Customs,1 entered into a contract 
Customs handled the procurement and the subsequent 
with Capgemini to provide IT services to support the 
transition to a new contract and supplier. It covers:
Department’s business. The strategic outsourcing contract, 
known as ASPIRE (Acquiring Strategic Partners for the 

the procurement: whether the Department took 
appropriate steps to choose the right option to meet 
Inland Revenue), replaced the Department’s previous 
its IT needs and get value for money (Part 1);
contracts with EDS for IT services and with Accenture for 
the National Insurance Recording System (NIRS2). The 

the transition: the Department’s management of the 
ASPIRE contract, which came into operation in July 2004, 
transition from one supplier to another (Part 2); and 
is worth between £3 billion and £4 billion over a ten year 

initial performance: the Department’s management 
term, with an option to extend for up to eight more years. 
of ASPIRE and how the contract is dealing with 
The Department embarked on the competition, having 
changing requirements (Part 3).
evaluated various options for providing its IT services 
including whether to extend the existing contracts. It 
4 
Our study methodology is at Appendix 1. It 
concluded that its requirements could best be met by 
included interviews with the main project team, bidders 
a strategic partnership with co-partnering with a single 
and suppliers; review of the contract and procurement 
supplier having overall accountability for IT delivery.
documents and of the process used to test the financial 
model for the contract; comparisons of ASPIRE with 
2 
ASPIRE is crucial for the Department in meeting its 
other contracts in the UK and overseas; benchmarking of 
objectives. The Department serves 29.5 million taxpayers, 
contract profit margins, and advisers’ and procurement 
around two million employers and one million companies, 
costs, and case examples of business-critical projects 
as well as 70 million accounts in the national insurance 
to examine the effects of changing supplier on projects 
system. It employs 95,000 full time equivalent staff across 
spanning the transition. With effect from 1 April 2006 the 
around 600 offices and in 2005-06 collected almost 
Department extended the ASPIRE contract to include the 
£400 billion in receipts. The Department is responsible 
services previously provided by Fujitsu under the former  
for collecting the bulk of tax revenue as well as paying tax 
HM Customs and Excise IT PFI contract together with 
credits, policing the national minimum wage, collecting 
other former ‘in-house’ IT services. While this report  
student loan repayments as well as strengthening the 
refers to the change in the contract it does not evaluate  
UK’s frontiers. During 2005, the Department’s IT systems 
the value for money of the revised contract. 
issued 16.5 million income tax self assessment statements, 
1.4 million corporation tax notices to file, six million 
personal pension statements to employers and processed 
9.7 million annual tax codings reviews. 

Until April 2005, responsibility for ASPIRE was vested in the Inland Revenue. Under the Commissioners for Revenue and Customs Act 2005 HM Revenue 
and Customs assumed the functions previously vested in the Inland Revenue and HM Customs and Excise. In this report, references to HM Revenue and 
Customs, or the Department, cover both the functions of the Inland Revenue up to 18 April 2005 and the new HM Revenue and Customs.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
1

executive summary
Main conclusions
8 
Contributing to bidders’ costs and the costs of 
transition to encourage and maintain sufficient competition 
5 
The Department was successful in completing 
during the procurement was an essential step to achieving 
the first major re-competition of a large public sector 
value for money in this deal. Compared to the total 
IT contract. As the Department’s IT services had been 
value of the ASPIRE contract the costs of procurement 
already outsourced there was no public sector comparator 
and transition totalling £75 million were small – some 
available. It was concerned that potential competitors 
two per cent of the projected value of the contract. The 
might perceive EDS to be a strong incumbent that could 
Department estimated that transition costs would be 
not be easily displaced. But the Department secured 
in the range of £30 million to £50 million. The actual 
competition for the £3 billion ASPIRE contract which 
transition costs were £37.6 million paid to Capgemini 
meets its IT needs, and completed the transfer from 
and £5.7 million paid to EDS and Accenture as the 
one supplier to another without a loss in service to the 
incumbent suppliers. There remains a question whether 
Department’s customers. 
the Department needed to pay this much. Although the 
Department was in new territory, it might have obtained 
6 
It is the usual practice when purchasing goods and 
better value for money from this spending by maximising 
services for the bidders to meet their own costs and to 
the benefits from its contribution to the cost of bidders’ 
pay the costs involved in taking over the position from 
design and implementation studies and from tighter control 
the previous supplier. It is not usual practice for the 
over the transition costs. The actual transition costs were 
purchaser to create the competition by contributing to 
negotiated after the contract was awarded and included 
firms’ costs of bidding, paying the winner’s costs in taking 
a profit margin of 15.5 per cent for Capgemini. One 
over from the existing supplier, discounting the transition 
lesson is to negotiate the terms on which transition costs 
costs for the purposes of comparing bids and paying the 
are to be paid while the procurement is still underway to 
incumbent supplier to effect the transfer. The payment 
benefit from the competitive tension. The Department also 
of such costs is not unknown, and the Committee of 
incurred an extra £2 million on the delayed transition of 
Public Accounts outlined the circumstances in which 
NIRS2 which did not run according to plan. Further lessons 
this could be advantageous namely to avoid such costs 
are to secure the intellectual property rights to use the IT 
being incorporated, with a mark up, in higher charges, 
system after the contract ends and require the incumbent 
and to encourage bids.2 In the case of ASPIRE the 
supplier to share information with bidders, and to ensure 
premium paid by the Department to secure a competition 
the contractor bears its own cost overruns. 
was £8.6 million in contributions to bidding costs, and 
£43.3 million in paying for contractors’ transition costs.
9 
The new supplier has provided IT services from 
day one of the contract, meeting or exceeding target 
7 
There was justification in this case for using 
service levels. Since transition there have been some 
incentives to encourage competition. The Department’s 
delays on projects, attributable mainly to changes in 
reasons for paying this premium and discounting it when 
the Department’s requirements. For ongoing projects 
evaluating the bids were to secure a competition to get the 
the Department agreed cost, time and delivery outputs 
best results. It ruled out the possibility of renegotiating the 
which were more cautious than those agreed under the 
existing contracts, after taking legal advice which indicated 
previous contract, and for 18 months the new supplier 
it would risk legal challenge from the incumbents’ 
was paid for ongoing projects on the delivery terms of the 
competitors. The Department also considered that not 
previous contract which stipulated payment on the basis of 
to pay these costs would send out a wider signal to the 
resources used but using the costs agreed under the new 
market that the Department was effectively locked-in to the 
contract. The payment terms of the new contract are linked 
incumbent supplier because the costs of transition would 
more closely to project delivery than under the previous 
make the competition unwinnable for any supplier other 
contract, and these are being applied to new projects.
than the incumbent. 

Committee of Public Accounts Report, London Underground Public Private Partnerships, HC446, March 2005.
2
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

executive summary
10  There have also been significant cost increases due 
Wider lessons
to the Department’s increased demand for IT services 
and projects which was higher than it anticipated at the 
12  Across government there are around 540 Private 
time the procurement was run. The actual profits made by 
Finance Initiative (PFI) contracts with a total capital value of 
the supplier have also been higher than expected when 
almost £40 billion3 and other IT outsourcing contracts. As 
the Department awarded the contract because of the 
these contracts reach the end of their first-term, departments 
higher volume of work and large number of IT projects 
are likely to face similar competition and transition issues to 
in development but the overall target profit margin has 
those HM Revenue and Customs has encountered. 
not been exceeded. The contract prices include profit 
margins in line with industry margins, with lower margins 
13  ASPIRE provides lessons on preparing for the end 
for lower value-added service lines and higher margins in 
of a contract and encouraging competition, and for 
the riskier project area. The contract includes a provision 
managing the transition from one supplier to another and 
for prices to increase annually with the Retail Price Index 
in providing sufficient flexibility within a contract to deal 
and annual reductions for efficiency improvements. Prices 
with likely changes in IT requirements. Good practice 
can be varied for events outside the contractor’s control 
to help departments in re-competing their IT contracts 
and there are penalties for underperformance. Prices can 
and managing transitions (Part 4 of this Report) should 
and have been renegotiated up and down where volumes 
result in financial savings from better contracts, and 
change. If the overall target profit margin of 12.3 per cent 
reduce transition costs and the risk of service disruption. 
is exceeded, the Department can obtain an equal share of 
Implementation of this including the good practice 
the extra profits. 
which the Department developed and adopted is likely 
to save at least 10 per cent of the costs of procurement 
11   The overall value for money of this contract, and 
and transition and our recommendations are aimed at 
the premium the Department paid to secure it, will 
departments doing that in similar situations.
ultimately depend on how well it meets the Department’s 
IT needs over the lifetime of the contract, including how 
14  Now that the public sector has demonstrated it is not 
well it deals with the degree of change in taxes and other 
locked into retaining well established incumbent suppliers 
services and the Department’s systems and organisation. 
for contracts of this size, there is a need for the Office of 
It will also depend on how well the Department controls 
Government Commerce to provide guidance on: 
costs and manages performance to ensure the benefits 

the contract provisions needed to deal with the 
of the contract are achieved. The Department does not 
end of a contract and securing the best prospect of 
have an estimate of the final costs of ASPIRE because 
effective competition at that time;
it is difficult to predict the level of IT demand, price 
changes and changes to the Department’s activities over 

the use of incentives to stimulate competition; and 
the lifetime of the contract. It has yet to evaluate the new 

managing the transition to a new supplier.
supplier’s overall performance. The business change and 
innovation aspects of the ASPIRE contract have assumed 
15  The changes required for the merger of the Inland 
greater importance with the creation of HM Revenue and 
Revenue with HM Customs and Excise so early in the life 
Customs in April 2005, and the increased levels of work 
of the ASPIRE contract suggest the need for a mechanism 
which have placed greater pressure on the Department 
by which government IT contracts can be looked at as 
and Capgemini’s capacity to deliver. The Department 
a whole, as the decisions made by one department can 
will need to continue to review resourcing priorities with 
affect others. Such horizon-scanning would ensure that 
Capgemini so as to maintain ongoing services as well as 
IT contracts across government are managed effectively: 
delivering change programmes, and ensure it has robust 
examining overarching issues of competition, supplier 
arrangements for managing the contract so that it delivers 
capacity, exit arrangements and transition planning. This 
the best performance from the contractor.
would enable departments to have meaningful discussions 
about contract strategies and timings rather than pursuing 
purely independent strategies. The lesson for government 
departments is that even with that central oversight, they 
need to build into their contracts a sufficient level of 
flexibility to deal with machinery of government changes.

HM Treasury PFI signed project list.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
3

executive summary
Key facts, findings and conclusions

Consulted the market early, fostered competition by 
persuading senior management in the IT industry to 
16  The Department estimated extending the 
bid for the contract and convinced bidders that it 
existing contracts would cost £4.1 billion compared 
intended to seek genuine competition. 
with £3.8 billion for the chosen solution (a strategic 
partnership with co-partnering with a single supplier 

Encouraged competition by partially paying bid 
having overall accountability for IT delivery). Once 
costs (£7.7 million for work to allow bidders to 
that option had been selected the Department went 
demonstrate their IT capabilities), paying for the 
out to competition and developed its IT requirements 
‘unique’ costs of transition (£37.6 million)  
which included further changes in requirements and 
and excluding the costs of transition from the  
changes in contractual volumes. The RPS bid (EDS/
bid evaluation. 
Accenture) was within 1 percent of the Capgemini bid 

Maintained competitive tension until the final 
at £2.83 billion. The costs incurred by HM Revenue and 
contract award by negotiating with two bidders 
Customs during procurement (£27.5 million), transition 
until the end of competition, aided by agreeing to 
(£47.5 million) and in the first year of the ASPIRE 
contribute towards the costs of the losing bidder 
contract (£539.3 million) are set out in Figure 1 opposite. 
(£0.9 million). 
Compared to the contract it replaced, the new supplier is 
paid on the basis of performance achieved (outputs) rather 
18  The Capgemini bid best met the Department’s 
than resources used (inputs). ASPIRE also has incentives 
IT needs. The eventual value for money of ASPIRE will 
for improved efficiency over the lifetime of the contract 
also depend on how far the Department can control 
and greater flexibility for the Department to decide the 
additional costs arising from changes to the contract. It 
most desirable point for re-competition.
will also depend on how well investment in individual 
projects and the programme as a whole supports its 
change programme for integration, improving efficiency 

The Procurement 
and achieving its Public Service Agreement targets.6, 7 
17  To secure competition and to choose an option to 
The detailed results were:
meet its IT needs, the Department:

Capgemini’s bid (£2,830 million) was £32 million 
higher than that (£2,798 million) of the other final 

Followed Office of Government Commerce 
guidance, drew on lessons from the previous 
bidder, RPS (EDS in alliance with Accenture). 
contracts which ASPIRE replaced and followed the 
But Capgemini’s bid better met the Department’s 
recommendations from the Committee of Public 
IT needs to support its change programme 
Accounts’ previous report on the Inland Revenue/
and implement business transformation. It was 
EDS strategic partnership.4 
around 21 per cent lower (£816 million) than the 
Department’s Should Cost Model had indicated. That 

Drew on the experience of the London Underground 
Model included some efficiencies over the life of the 
PPP that in some cases departments may not be 
contract but both bidders were more aggressive in 
able to develop sufficient competition without 
their forecasts of efficiencies.
reimbursing bid costs.5 

The Department assessed the value for money  

Evaluated eight contracting options and selected 
of the bids on the basis of a combination of  
a strategic partnership with co-partnering, where 
financial and qualitative analysis of potential 
a single supplier has overall responsibility and 
suppliers to provide the IT flexibility required to 
accountability for IT integration and the Department 
support ongoing IT applications and to implement 
has access to a range of suppliers and new technology 
business transformation.
so it is not locked into one or two large suppliers. 

Inland Revenue/EDS Strategic Partnership: The Award of New Work (28th Report 1999-2000).

C&AG’s report on London Underground PPP: were they good deals, HC 645, June 2004. 

Financing Britain’s Future – Review of the Revenue Departments, Gus O’Donnell, March 2004, HM Treasury Cm 6163.

Releasing resources to the front line – Independent Review of Public Sector Efficiency, Sir Peter Gershon July 2004.

ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

executive summary
ASPIRE costs
stage 
Costs 
Comment  
(£ million) 
Procurement
Procurement advisers and commercial lawyers
9.5 
Contribution to Design and Implementation 
7.7  
The Department capped its contribution to the Design and 
Studies and tender costs
Implementation Studies for each bidder. 
Departmental staff and running costs 
9.4 
18,000 staff days were charged. Also includes £3.1 million for 
IT support for Design and Implementation studies.
Due diligence  
0.9 
The Department capped these costs at £3.3 million for each 
 
 
bidder. £0.9 million was paid to EDS, who as the incumbent 
 
 
had less due diligence. Had Capgemini lost the competition it 
would have charged £3.3 million.
total 
27.5 
 
 
transition
Unique Transition Costs  
37.6 
Paid to Capgemini. EDS estimated Unique Transition Costs 
 
 
(UTCs) at £4.4 million if it had won the contract. (£3.4 million 
 
 
of UTCs paid to Capgemini/Fujitsu for NIRS2 transition is 
included in the £37.6 million). 
Costs paid to the Incumbent suppliers for 
5.7 
£2.3 million to EDS (support during the transition) and  
supporting the transition  
 
£3.4 million to Accenture for support during transition  
and the re-platforming of NIRS2.
Departmental staff and running costs
1.3
6,800 staff days were charged.
Consultants 
2.4 
Department of Work and Pensions staff and  
0.5 
 
IT support costs
total
47.5
 
 
Contract year 1 
Service lines
298
Project lines
244
 
Service credits in respect of services 
(2.67) 
This related to 8 IT system failures in the first contract year.  
There were 10 failures costing £3.25m in the first 15 months.
total 
539.3
Source: National Audit Office analysis of the costs incurred by HM Revenue and Customs from the different stages of ASPIRE, up to the end of the first 
contract year
NOTES
1  Costs in £ million including the VAT which is irrecoverable to the Department. 
2  In preparing for the transfer, the Department also incurred £14 million for the rights to use NIRS2 after the termination of the contract although the  
intellectual property rights remained with Accenture. This represented a closing payment as part of the 1995 PFI contract.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
5

executive summary

An Office of Government Commerce review 
 n 
The Department reviewed Capgemini’s financial 
concluded that the Department had run the 
estimates for ‘unique’ transition costs. While the 
competition to a high standard and had maintained 
Department laid out the principles for qualification 
an effective competition.
as a unique transition cost and controlled individual 
transition costs within the budgets set, it had not 

The Department managed the procurement at a  
agreed in advance with Capgemini the detail of 
cost of £27.5 million, including £6.3 million for 
what would qualify as a ‘unique’ transition cost until 
staff and running costs, £9.5 million for advisers 
the transition had started. It considered it could not 
and £7.7 million for bidders to assist them to 
have anticipated all the elements to include at that 
demonstrate their IT capabilities and £3.1 million to 
stage. This resulted in both parties spending valuable 
provide infrastructural support to that exercise. This 
time during transition negotiating whether or not a 
compares favourably with the procurement costs on 
particular cost was unique. The Department also paid 
PFI contracts.
Capgemini a profit margin on the staff costs involved.

The contract includes service line thresholds so 
that if there is a significant change in demand for IT 
Maintaining service during transition
services beyond the thresholds, the Department can 
negotiate price changes. 
21  During the transition there were no major 
disruptions to services and the incumbent suppliers’ 

The transition 
performance remained steady. 

The main transition was completed according to 
19  While the contract will only achieve value for 
schedule in six months. Keeping ongoing projects on 
money in the longer-term if the new supplier delivers a 
track was a major part of the transition. 
good service and progresses IT projects as planned, it 
was important for the Department to manage the risks of 

There were nearly 100 of these projects valued at 
transition. These were that services would be disrupted, 
£439 million in development, including several 
individual project deadlines missed, the incoming supplier 
‘mission-critical’ projects with tight deadlines such 
(Capgemini) not ready to run the service and carry out 
as the Modernising PAYE Processes for Customers, 
business-critical projects and that the costs of transition 
the introduction of the Child Trust Fund, Reform of 
would be higher than expected. 
the Construction Industry Scheme, and Modernising 
Stamp Duty. 
The costs of transition

The transition was helped by the professional 
working relationship of EDS and Capgemini and 
20  The transition cost the Department £7.5 million, 
the collaborative partnership relationships that the 
including £37.6 million paid to the incoming supplier 
Department fostered. This was supported by the exit 
for its ‘unique’ transition costs and £5.7 million to EDS 
clauses the Department had negotiated in the previous 
and Accenture over and above normal running costs to 
contracts which bound EDS to levels of support, 
facilitate the transition. 
assistance and delivery during the transition. EDS also 

The payment of transition costs was justified because 
agreed to fund the £65 million pension shortfall of the 
it encouraged and maintained competition. These 
staff transferring from the previous contract.
costs would have been very much lower had the 

By June 2004 Capgemini had taken over 97 per cent 
existing suppliers continued to provide the IT service.
of third-party contracts used by EDS and around 
96 per cent of EDS staff, including 80 per cent of 
the key staff identified, and had filled many of the 
vacancies of EDS staff leaving at the end of  
the contract.
6
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

executive summary
National Insurance Recording System  

The cost of completing the migration in the deferred 
(NIRS2) transition
timescale was £9.9 million, of which Capgemini/
Fujitsu paid for £7.9 million and the Department 
22  The NIRS2 transition was run as a separate  
£2 million. The total costs to the Department to 
project from the main transition with a budget of  
complete re-platforming were £14.9 million. This 
£16.2 million and involved the transfer of IT data 
was within its original estimate of £16.2 million 
systems from Accenture. This proved more difficult 
so the Department decided that it was not 
than expected, took longer than planned and cost the 
worthwhile establishing all the causes of failure 
Department £3. million paid to Accenture to support 
and attribute them to any party, although it did not 
the transition and £3. million paid to Capgemini for 
accept liability for the costs of any consequential 
transition costs. Accenture were retained by Capgemini 
reworking. Although the delays did not affect service 
as a sub-contractor. 
delivery, the system was not fully operational until 
November 2005 and since then the system has 

Under ASPIRE, the Capgemini and Fujitsu 
consortium took over responsibility for the running 
performed at improved levels. 
of NIRS2 from Accenture in January 2005 which 
included the re-platforming of the IT system. 
Management of the contract

Delays occurred in re-platforming NIRS2 because: 
Capgemini’s transition plans proved to be ambitious 
23  An initial view of how the contract is performing 
given its level of expertise in the design and 
was assessed from the performance of the supplier 
operation of the system; the structure of the PFI 
in delivering IT services and progressing the main IT 
deal with Accenture meant that the degree of 
projects supporting the Department’s business and change 
collaboration between Accenture and the incoming 
programme, the cost of ASPIRE and the degree to which 
supplier was initially not as strong as in the main 
the Department is acting as an intelligent customer of  
transition, and Accenture’s workforce was less 
IT services.
willing to transfer to the new supplier.
Provision of IT services and delivery of  

The nature of the PFI contract with Accenture meant 
that the Department had to agree with Accenture 
IT projects
exit procedures to disclose key information during 
24  The new supplier has provided IT services from day 
due diligence to assist the incoming supplier and 
one of the contract but since transition there have been 
the Department had limited in-house knowledge 
some delays and cost increases. 
of the IT used in NIRS2. The Department for Work 
and Pensions also incurred £0.5 million staff and 

The performance of IT services is acceptable, 
IT costs for the NIRS2 transition. Accenture met its 
although there have been some isolated system 
obligations under the agreed exit provisions.
failures for which the supplier has paid £2.67 million 
in penalties in the first contract year.

Capgemini/Fujitsu encountered problems in its 
first attempt at providing the new IT hardware, 

Although the new supplier has delivered a number 
operating system and database to support NIRS2. The 
of IT system releases, there have been some delays 
Department requested changes to Capgemini’s plans. 
and cost increases to business-critical projects (for 
Capgemini retained Accenture as a sub-contractor 
example the Construction Industry Scheme, the 
under ASPIRE and rescheduled the work in phases 
Modernisation of PAYE Processes (MPPC), Better 
which was completed in September 2005.
Data for corporation tax, on-line services and the 
External Routing Interface Component for electronic 
returns by employers). The delays and cost increases 
are mainly due to the Department changing its 
requirements and due to the inclusion in project costs 
of overhead rates previously budgeted for centrally. 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
7

executive summary
ASPIRE Costs
Acting as an intelligent customer
25  The ASPIRE contract has cost more in the first year 
26  The increase in the cost of ASPIRE emphasises the 
than the Department originally planned because the 
importance of the Department being able to control 
Department had increased the volume of work that it 
costs and to ensure value for money from the additional 
required from ASPIRE. 
spending. This includes triggers to review the supplier’s 
profit margins to ensure that the Department gets a 


The Department estimated it would spend 
share of any additional efficiency savings from increased 
£383.8 million (excluding VAT) in the first year of 
levels of work.
the contract. This was based on the demand for IT 
services in 2002-03 which was used in the invitation 

The Department’s higher than expected demand for IT 
to tender. The expenditure in the first year from 
has arisen mainly from the project work involved in 
July 2004 to June 2005 was £539.3 million (and the 
developing and enhancing IT systems and significant 
Department forecasts expenditure in the second year 
changes to the Departmental infrastructure. 
to be around £800 million). 

The higher than expected demand for IT has 

The increase in spending on ASPIRE has been due 
generated a higher profit for Capgemini in the 
mainly to the 132 per cent rise in spending on 
first year, likely to be £53.9 million8 (10 per cent 
projects (an increase of £98 million) and consultancy 
profit margin) compared to the projected profit of 
(an increase of £27 million). The retention of 
£38 million (also with a 10 percent profit margin). 
Accenture to provide application development 
The target profit margin was based on 2002-03 
support for NIRS2 has cost £3.24 million in the 
levels of IT demand and is around 12.3 per cent 
first year of the contract and is estimated to cost 
which is within the range of PFI deals of between 
£8.04 million over three years. 
10 to 17 per cent. As the projected profit margin is 
lower than the target profit margin, it is unlikely that 

The Department considered that bidders might be 
any profit share will accrue to the Department for 
deterred by the prospect of taking on nearly 100 
the first year.
existing projects, valued at £439 million, with outputs 
and timetables they had not planned, so it paid the 

If this level of higher spending continues at the 
new supplier for ongoing projects on the terms of the 
same level over the lifetime of the contract, the final 
old contract. While this may have helped maintain 
cost of the ASPIRE contract could be in excess of 
competition by persuading bidders that a new supplier 
£6 billion rather than the originally projected  
would not be bound by the existing project delivery 
£3-4 billion. But the Department does not expect 
plans, it meant for the initial period of the contract, 
this level of internal demand for IT services to be 
the Department could not benefit from the delivery 
sustained. It considers its demand for IT services 
benefits of the new contract which pays on the basis of 
will decline because of its targets for reducing staff 
performance achieved rather than resources used.
levels by 12,500, an increase in the use of electronic 
services with a reduction in keyed input and 
printed outputs, proposals to rationalise IT systems, 
and its aim to reduce spending on IT to less than 
20 per cent of the Department’s budget. 

Based on provisional figures.
8
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

executive summary

The need to control costs is reinforced by the growth 

is seeking to reduce the ratio of staff it uses to 
in the Department’s demand for IT services under the 
manage the contract compared to the supplier’s staff 
previous contract which led to increased charges. 
from 30:70 to 20:80; and 
When the Department awarded the previous 
contract in 1994 it was valued at £1 billion (which 

is collecting information to evaluate the performance 
of the supplier such as: monitoring progress made 
excluded price indexation or growth). By 2000 the 
on major projects, evaluating performance against a 
Department estimated that it would cost £2 billion 
range of targets and reviewing financial statements 
taking account of price increases and demand for IT 
showing the actual costs and the supplier’s profit 
services and the final spending under the contract 
margin. However it recognises that this needs to be 
was £2.5 billion due to the increase in its demand 
improved to reflect the new contract. The Department 
for IT services. 
has taken 18 months to get an overall view of how 

As the Department’s volume of demand for 
the contract is performing and to put into effect the 
individual IT services increases beyond agreed 
arrangements for managing the contract. 
caps it will obtain discounts on unit price based on 
economies of scale. However price increases are 
Contract flexibility
also possible where the supplier has been unable  
to avoid extra costs. Some of the thresholds have 
28  With effect from 1 April 2006 the Department  
been exceeded in the first year and the Department 
brought those services previously provided to the 
has negotiated price changes with Capgemini  
former HM Customs and Excise by fujitsu under the  
which resulted in a minor price increase and three 
PfI contract into the ASPIRE contract. ASPIRE is now  
significant price reductions.
the main contract for the provision of IT services to  
HM Revenue and Customs. 

27  The Department is changing the way it manages 

When the former HM Customs and Excise 
the new IT contract which is more focused towards 
renegotiated its PFI contract with Fujitsu in 2003, 
service delivery and productivity. The Department: 
it considered that its IT infrastructure could be 

is reviewing the number and kind of performance 
connected to that of the Inland Revenue at no 
measures it uses to monitor the contract to identify 
significant additional cost. 
gaps and improvements and to align measures to 

The Department considers that in merging the PFI 
business targets and outcomes. There are over 500 
contract with Fujitsu into the ASPIRE contract the 
performance measures, of which some 200 are key 
changed contract should provide a lower cost of 
performance indicators and carry service credits  
delivery than having two separate contracts over the 
for underperformance; 
lifetime of the ASPIRE contract.

has recognised that its staff need a better 
understanding of the new contract and has provided 
training for staff on how the new contract operates; 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
9


ReCoMMendAtions
29  The specific recommendations for HM Revenue and 
e 
review the expected cost of ASPIRE over the 
Customs which the Department is putting into action are 
lifetime of the contract using sensitivity analysis 
that it should:
to take account of trends in the demand for IT 
services, price changes and the inclusion of the PfI 

a 
ensure it has effective governance and 
contract with fujitsu and monitor the efficiency 
performance management systems which provide 
savings delivered.
a clear view of the contractor’s overall performance 
and inform any negotiations on contract changes.
f 
ensure the Department has in place robust 
programme and project management 

b 
update and rationalise by early 2007 the ASPIRE 
arrangements so that it can extract the best 
contract Key Performance Indicators so that they 
supplier performance from the ASPIRE contract.
are better aligned to the business of the new 
Department, focus on the main areas of supplier 
performance and are output-orientated. 

Wider Recommendations
c 
extend the education programme during 2006 
g 
Other government departments should learn 
to ensure that all key staff in the Department’s 
the lessons from ASPIRE outlined in Part  of this 
business areas are trained in how to carry out 
report. To support this, the Office of Government 
output-based contract management.
Commerce (OGC), will be working with the National 
Audit Office and HM Revenue and Customs to 

review the priority of its existing projects so 
produce guidance on lessons learnt from the ASPIRE 
that they match the capacity of its own staff and 
exercise. Any guidance should cover:
IT suppliers to deliver them and make progress 
payments on all projects on the basis of outputs/

the need for departments to review existing 
outcomes achieved rather than resources used by  
contracts to ensure that they have the 
the supplier. 
necessary provisions to deal with the end of the 
contract and for managing a transition to a new 
supplier if the incumbent is not retained;

the contract arrangements for initial 
outsourcing deals that give the best prospect 
of achieving effective competition when the 
contract comes to an end; 

10
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES





executive summary

the use of incentives to encourage other 
h 
The Office of Government Commerce should take 
suppliers to compete including the 
the lead in coordinating a centralised process to 
circumstances in which contributions to 
review the number and timing of large government 
bidding and transitions costs might be made, 
IT contracts which are nearing the end of their 
and alternatives where they provide better 
term so that re-competitions can be scheduled in a 
value for money, for example:
way that stimulates effective competition for each. 
The process should involve representatives from 

solely disregarding transition costs in the 
departmental procurement and IT strategy teams 
evaluations of bids;
across government.

disregarding transition costs in the 
bid evaluation and paying a share of 
transition costs; and

disregarding transition costs in the bid 
evaluation and negotiating a capped 
budget for transition costs. 

If transition costs are paid they should be 
negotiated as part of the deal to maintain 
competitive tension and the contract 
should include a trigger which requires 
the supplier to repay some part of the 
transition costs where first year profits are 
higher than expected.

the options, use and cost-effectiveness of 
methods to test bidders’ capabilities when 
there is a well established incumbent supplier.

ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
11


part one
PARt one
The procurement 
12
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part one
The need for new IT contracts 
This part of the report examines the Department’s 
replacement of its existing £2.5 billion contract with 

1.1  In 2004-05 the Department needed to replace its 
EDS and £200 million contract with Accenture for 
IT contracts that support its business. It had two main 
the provision of IT services, why a new contract was 
IT suppliers – EDS providing technology services for tax 
needed and how the Department prepared for the new 
activities and the development of new systems under 
contract. It covers the steps the Department took to 
a £2.5 billion 10 year contract (‘Eagle’) due to end in 
achieve effective competition, and whether in doing so 
June 20049 and Accenture supporting National Insurance 
it followed relevant Office of Government Commerce 
operations through the National Insurance Recording System 
guidance and drew on the lessons learned from the 
(NIRS2) under a £200 million 10 year PFI contract due to 
previous contracts which ASPIRE (Acquiring Strategic 
end in March 200510 (Figure 2 overleaf). A new contract 
Partners for the Inland Revenue) replaced. It also looks 
would need to provide the IT flexibility for the Department 
at the criteria the Department used to assess the value 
to respond to recommendations from the O’Donnell 
for money of the bids and the procurement costs.
Review of Revenue Departments11 and the Gershon 
Efficiency Review12. The merger of the Inland Revenue and 
HM Customs and Excise in 2005 increased the need for IT 
to support the new Department’s change programme.

The spend under the Eagle contract was £2.517 billion.
10 
The spend under the NIRS 2 contract since April 1999 when the former Contributions Agency merged with the former Inland Revenue was £250 million.
11 
Financing Britain’s Future – Review of the Revenue Departments, Gus O’Donnell, March 2004.
12 
Releasing Resources to the Front Line – Independent Review of Public Sector Efficiency, Sir Peter Gershon, July 2004. 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
13

part one
2006
April 2006
Integration of 
PFI contract with 
 
Fujitsu into ASPIRE
 
tment 
 
contract continues until 
Final stage of CapGemini 
2014, with the possibility 
of extension until 2023
2005
ends
April 2005
 New 
Depar
 of HMRC
March 2005
NIRS2 Contract 
ts
 
y 2004
HMRC
2004
March 2004
July 2004
November 2003
preferred bidder
Januar
O’Donnell Review 
recommends new 
Contract signed
CapGemini chosen as 
EDS contract ends, 
Capgemini star
ts 
 
2003
Transition 
Three 
August 2003
August 2003
Customs signs 
renegotiated PFI 
responses 
received
preparation star
March 2003
contract with Fujitsu
July 2003
 
Two preferred 
bidders announced
2002
mation 
July 2003
Chancellor 
announces 
October 2001
Prior indicative 
y 2002
notice to market
June 2002
tlisted bidders 
O’Donnell Review
Shor
announced and draft 
stage begins
 
Februar
invitation to tender issued
OJEC issued and 

Request for infor
2001
y 2001
July 2001
 
Januar
ASPIRE begins 
Planning phase on 
PFI contract changes

2000
Customs begin preliminar
discussions with Fujitsu on 

 
1999

Fujitsu
Customs signs 
PFI contract with 
 
September 1999

ew 
ts
n

ASPIRE timeline
Planning for 
Contract
Making a Market
Competition
evaluation
transition
Capgemini star
 2






Wider events
Source: National Audit Office
1
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part one
Preparing for a new contract
market that the Department was effectively locked-in to 
the incumbent supplier because the cost of transition 
1.2  The Department’s lawyers advised that an extension 
would make the competition unwinnable for any other 
to the Eagle contract could be challenged by the 
supplier than the incumbent.
incumbents’ competitors. The contract contained an 
optional six month extension to provide contingency 
against any re-competition overrunning but, aside from 
Contracting options
this, the Department’s IT arrangements would end 
abruptly. European Union competition rules required the 
1.4   The Department considered eight options to replace 
Department to undertake an open competition. It therefore 
the existing contracts, taking account of the future needs 
had to manage certain risks by:
of the business, ranging from separate contracts split 
by service area to continuing with and developing the 

Choosing an appropriate option to replace the EDS 
strategic partnership approach it had pursued under the 
and NIRS2 contracts – the Department appraised 
Eagle contract (Figure 3).
eight options and concluded it should let a single 
contract (rather than, for example, a series of smaller 
contracts). The contract is based around a single lead 
The Department’s short-listed contracting options 
partner, responsible for service provision through 
permanent sub-contractors and co-partners.
option 
Cost of option   (saving)/extra 
   
(10 year net 
cost compared 

Ensuring genuine competition – to avoid the 
   
 present value)   to do-minimum 
impression that EDS and Accenture had an unfair 
   
(£m) 
 (£m)
advantage and encourage new suppliers to bid for 
the contract the Department adopted a high-profile 
1  Do-minimum (extension  
4,134 
n/a 
campaign to encourage major IT suppliers to bid for 
 
of current EDS and  
the contract. The IT industry needed persuading that 
 
NIRS2 contracts)
there would be a level playing field for new suppliers. 
2  Strategic partnership  
3,846 
(288) 
The Department addressed some of the perceived 
 
with co-partnering
barriers to competition by funding transition costs, 
3  Separate contracts split  
4,194 
60 
partly funding the costs of due diligence, providing 
 
by service areas
access to key business sites and allowing suppliers to 
4  Separate contracts with  
4,286 
152 
showcase innovation capabilities.
 
different suppliers

finalising a contract on time – the Department 
Source: National Audit Office analysis of HM Revenue and Customs data 
had built in contingency measures with the existing 
contract requiring EDS to maintain services up to the 
NOTES
point of expiry or termination, co-operate with the 
The Department also considered other options which it did not  
Department and any successor supplier to ensure 
financial y assess:
smooth continuation of services. It also went through 
option 5: strategic co-partnering and transfer of desktop assets – similar 
to Option 2 but including desktop assets and – more significantly – in the 
the Office of Government Commerce gateway 
accounting treatment afforded to the ASPIRE assets as a whole.
review process.
option 6: Package by business stream – would result in one large 
contract package covering the core tax systems, very much like Option 
1.3  The main challenge for the Department was to 
2, and a range of smaller packages covering business streams. It would 
be sub-optimal to Option 2.
achieve an effective competition. It was concerned 
option 7: including business process outsourcing – differs by including 
that potential competitors might perceive EDS to be a 
al  Inland Revenue business processes. This would have required a more 
strong incumbent that could not be easily displaced. 
extensive appraisal as the options only examined the future provision of  
IT services.
This could result in insufficient bidders to ensure that the 
option 8: extend to wider government – differs by extending from the  
new contract would fully provide for the Department’s 
Department to other government departments. This option was kept open 
IT needs.13 The Department also considered that not to 
by referring to the possibility in the initial advertisement placed in the  
Official Journal of the European Community; and including standard 
pay transition costs would send out a wider signal to the 
enabling clauses in the resulting contracts. 
13 
The risk of not getting sufficient competition with an incumbent supplier is also covered in the NAO Report on Awarding the new licence to run the National 
Lottery
, HC 803, 2001-02, in May 2002.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
15

part one
1.5  In 2003, the Treasury decided against using PFI for 
compensate for greater transition risk and their bids would 
IT projects, one reason being that the fast pace of change 
have to cover the costs of transition. The announcement 
in the IT sector made it difficult to define requirements 
that the costs of transition would not be included in the 
over a long-term contract.14 The Office of Government 
bid evaluation was an important factor in Capgemini’s 
Commerce subsequently issued guidance that projects 
decision to bid. The commitment to a change and 
focused on innovation would have a better chance of 
innovation programme was also important as it gave a 
success using multiple contracts with the contract price 
strong indication that ASPIRE was a new contract, not 
based on the resources used by the supplier; projects 
just a continuation of the previous contract. A formal 
with more stable technology would be more suited to 
notice was placed in the Official Journal of the European 
longer-term contracts with the contract price based on 
Union (OJEU) in February 2002 to which four bidders 
the performance of the supplier in producing successful 
responded. The Department short-listed three potential 
IT projects.15 The Department decided that the range, 
bidders for the next stage of procurement – RPS Alliance 
scale and complexity of its IT requirement could best be 
(EDS & Accenture – the incumbent suppliers), Capgemini 
provided by a strategic partnership with co-partnering. 
with Fujitsu, and Fusion Alliance (BT, Computer Sciences 
This option built on its existing single-supplier partnership 
Corporation, and Schlumberger Sema). 
approach under the Eagle contract with EDS, providing a 
single supplier with overall accountability for IT delivery. 
It also brought the additional flexibility and access to a 
Bid evaluation 
wider range of suppliers - ‘multi-sourcing’ - so that the 
1.8  The Department evaluated the three bids against 
Department could use whichever co-partner would be 
a range of criteria (Figure 4) including costs, client site 
best able to meet its IT requirement, recognising that no 
visits, and qualitative assessments to see how well the 
one supplier would have all the skills or the capacity to 
bidders performed against Departmental objectives such 
meet varying requirements. 
as working in partnership and managing the transition. 
Encouraging competition 
1.9  The new bidders were concerned that the Department 
was aware of EDS’s capabilities because it had worked 
1.6  The Committee of Public Accounts reports on the 
with them, while it had no way of assessing the capabilities 
Inland Revenue/EDS Strategic Partnership16 and the NIRS2 
of the other bidders. To help to level the playing field, the 
Contract Extension17 concluded that it could be difficult 
Department provided the bidders with an opportunity 
to create effective competition for a large contract with 
to demonstrate their capabilities, using Design and 
a strong incumbent supplier. The Department began to 
Implementation studies to test bidders’ capabilities. This also 
develop its strategy for dealing with the end of the Eagle 
helped its own business areas to get used to the new way of 
contract with EDS in 1998, six years before the contract 
working under the ASPIRE contract, with more emphasis on 
was due to end. It initially found little interest from other 
the Department getting the specifications right upfront. The 
IT contractors in bidding as they saw limited chance of 
studies cost the Department around £10.8 million, including 
success against a well established incumbent supplier. 
£3.1 million to support the work and a £7.7 million 
The Department’s senior management engaged with the 
contribution to the bidders’ costs. The output from these 
IT supplier industry to promote interest in bidding for the 
studies was incorporated into the qualitative evaluation of 
contract with the commitment that the competition would 
the bids, but HMRC also retained the intellectual property 
be open and fair and that all bidders would be operating 
rights from the studies in the proposals. Partial payment of 
on a ‘level playing field’. 
bid costs was also partly justified by the outputs which could 
be used by the business. The Department has not formally 
1.7  To demonstrate its commitment to and convince 
evaluated these benefits and has not directly utilised the 
bidders it was worth the investment in bidding, the 
outputs from these studies but working on the studies did 
Department offered to pay the transition costs that only a 
provide the opportunity for key departmental staff to gain 
new supplier would have to incur. Alternative suppliers 
experience in new working methods and to build specialist 
had expected that they would have to demonstrate 
supplier relationships. 
superior capability to the incumbents in order to 
14 
PFI: Meeting the investment challenge, HM Treasury, July 2003.
15 
Decision map for project strategy and procurement, Office of Government Commerce. 
16 
Inland Revenue/EDS Strategic Partnership: The Award of New Work (28th report 1999-2000).
17 
NIRS2 Contract Extension (38th report 2001-2002).
16
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part one
Evaluation criteria
evaluation Criteria
Qualitative Assessment
Commercial Appraisal
Financial Assessment
Service Delivery 
Main features of each bid
Bidders’ financial and cost models
 IT to support change and provide 
Bidders’ responses to financially 
Benefits and uncertainties
innovative solutions
sensitive Terms and Conditions
Charges, financial model and  
Partnership
Risk 
open-book accounting
Transition
Treatment of ASPIRE assets
Variability and robustness
Price comparison and affordability
Source: National Audit Office
1.10  The Department used financial models to evaluate 
1.11  We commissioned PricewaterhouseCoopers to 
the bids. It created an estimate of the likely costs as a 
examine the processes used to test bids against the Should 
benchmark - the Should Cost model – to compare the 
Cost model. This found that the Department’s financial 
bids and assess productivity gains from the new contract 
evaluation was robust and comprehensive, although the 
and for the Department to challenge the bidder’s financial 
Should Cost model could have been more flexible to 
models. The Should Cost model represented ‘best in 
enable improved value for money analysis. For example, 
market’ costs of meeting the existing IT needs, not taking 
by forecasting affordability over the whole ten year life 
account of potential performance improvements open to 
of the contract, rather than just the initial three years, 
a new supplier. The Should Cost model included some 
and to build in sensitivities, such as the ability to adjust 
efficiencies over the life of the contract, such as some 
for different discount, inflation or taxation rates over the 
productivity improvement but the bidders were more 
contract life. Sensitivity analysis could also look at the 
aggressive in their forecast of efficiencies. As part of 
effects of significant changes in the scale of work on 
the evaluation it carried out sensitivity analyses on the 
affordability and supplier’s profit margins. Given the size 
most significant service lines in the short-listed bidders’ 
of the contract, changes to these variables during the term 
financial models. 
of the contract could have significant financial impact. 
The Department also used a ‘Does Cost model’ to provide 
an affordability benchmark for the three year Public 
Expenditure cycle based on the costs for the contracted 
out service levels at the prevailing EDS and NIRS2 rates. 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
17

part one
1.12  The qualitative, financial and commercial 
The ASPIRE contract 
evaluations were combined to provide an assessment 
of the most ‘economically advantageous’ tender. On 
1.15  In January 2004 the Inland Revenue (now 
15 July 2003, the Department announced it would be 
HM Revenue and Customs) entered into a strategic 
taking forward the bids of Capgemini and RPS Alliance. It 
outsourcing contract with Capgemini Ernst & Young (now 
then carried out further assurance and negotiation; testing 
Capgemini). The contract known as ASPIRE (Acquiring 
proposed solutions, carrying out due diligence work to 
Strategic Partners for the Inland Revenue) came into 
address the risk of price changes once the contract had 
operation in July 2004, is estimated to be worth between 
been signed, and analysis of the information provided in 
£3 billion to £4 billion (excluding VAT and inflation) 
the bidders’ financial models.
over its ten year term and has an option to extend for 
up to eight more years. Changing suppliers sent out an 
1.13  The Department agreed to contribute up to 
important signal across government and the market that 
£3.4 million towards the costs of due diligence for the 
departments are not locked into incumbent suppliers, 
losing bidder in recognition that the quality of the due 
and should encourage competition for other second-
diligence conducted by the bidder was important to 
generation IT outsourcing contracts. 
the Department’s confidence in the bidder’s solution 
and that this would be a more onerous process for the 
1.16  Under the ASPIRE contract the supplier is paid on 
non-incumbents. This was to counter any concern that 
the basis of performance achieved (outputs) rather than 
an alternative supplier was being retained simply as a 
resources used (inputs). It also has incentives for improved 
lever for the Department to use in negotiations with the 
efficiency over the lifetime of the contract. The contract 
incumbent. The Department paid £0.9 million to the 
provides flexibility for the Department to decide the 
losing bidder (RPS) who did not have to perform as much 
most desirable point for re-competition. In the event of 
due diligence work as a new supplier. 
supplier failure, total claims are limited to the operational 
charge for the previous year (around £300 million) and for 
1.14  The final offer from Capgemini was £2,830 million 
projects, liability is limited to the greater of £50 million or 
and from RPS £2,798 million (Figure 5). Although 
150 per cent of the project costs at the point of failure. It 
Capgemini’s bid was marginally higher, the Department 
also includes exit clauses covering information provision 
concluded that it was a considerably better technical 
and staff transfer issues but these may need to be revisited 
offer and more likely to achieve the business objectives 
closer to the end of the contract to ensure they are up to 
of the Department. The Should Cost Model and the 
date with the Department’s needs. 
bids changed during the negotiations due to changes in 
the Department’s requirements, changes in contractual 
1.17  The Committee of Public Accounts’ report on 
volumes, additional third-party contracts and an increase 
successful partnership in Public Finance Initiative 
in the Department’s asset base. Capgemini’s bid had 
projects18 recommended mechanisms to ensure continued 
higher profit margins for project-related work than for 
value for money over the lifetime of the contract such as 
the operational services and project demand might grow 
benchmarking, open-book accounting, contract flexibility, 
given the Department’s programme of business change 
appropriate change procedures to reduce the risk of 
and innovation. The Department will update the Should 
contractors increasing profit margins and appropriate risk 
Cost Model annually to reflect the relevant contract 
sharing. ASPIRE includes these features and, compared 
changes and actual service volumes ordered in the year to 
to the contract it replaced, pays the supplier on the basis 
calculate the savings achieved. 
of performance rather than resources used. ASPIRE has a 
number of benefits (Figure 6). Project trials, governance 
arrangements, and open-book accounting should provide 
the Department with the necessary cost information to 
benchmark prices and identify cost variances and value  
for money.
18 
  Committee of Public Accounts: Managing the Relationship to secure a Successful Partnership in PFI Projects (42nd Report, 2001-02).
18
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part one
Financial evaluation of bids
Bidder 
initial bid 
Bid After negotiation 
Percentage difference between  
 
 
 
should Cost Model bid  
 
 
 
(£3.595bn) and Bid After 
 
£ billion 
£ billion 
negotiation from other bidders
Should Cost Model 
2.87 
3.595 
n/a
RPS (EDS/Accenture) 
2.4 
2.798 
22% lower
Capgemini and Fujitsu 
2.78 
2.83 
21% lower
Fusion Alliance 
2.77 
Bid not taken forward 
n/a
Source: National Audit Office analysis of HM Revenue and Customs data 
NOTES
1  The Should Cost model (SCM) was used as a proxy Public Sector Comparator and constructed based on industry research into prices, margins and  
productivities to create a 10-year target price for the contracted service volumes over the life of the ASPIRE contract. 
2  The Should Cost model and the bids changed during the negotiations due to the introduction of new requirements, changes in the contractual volumes,  
additional third party contracts and an increase in the Department’s asset base.
1.18  From July 2003, the Inland Revenue was aware 
Expected benefits from the ASPIRE contract 
of the possibility of a merger with HM Customs and 
Excise and during the negotiations with the two preferred 
n  Al  IT projects developed under the ASPIRE contract wil  have 
bidders selected in July 2003 included clauses to deal 
individual business cases agreed between the Department 
with machinery of government changes. The two former 
and Capgemini that wil  identify the potential savings and 
departments had very different IT strategies and contracts. 
benefits from implementation and milestones for successful 
project implementation. Capgemini are paid on the basis of 
During the ASPIRE procurement, the Inland Revenue 
implementing the projects to agreed milestones. 
instructed bidders to ignore the possible implications of the 
O’Donnell review, while independently both departments 
n  Capgemini to provide technology-enabled change to the 
Department to enable the expected benefits arising from the 
sought to ensure that their contracts had sufficient 
O’Donnell and Gershon reviews.
flexibility to deal with a possible merger. But throughout 
n
the development of the ASPIRE procurement strategy and 
  The Department is able to obtain an equal share of profits 
the suppliers make in excess of the contract target margin 
the negotiation, the Departments did not discuss with each 
through a ‘performance gain share’ mechanism.
other how their respective strategies and contracts could be 
aligned or combined in the event of merger. 
Source: National Audit Office analysis of HM Revenue & Customs data
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
19

part one
The Department’s management of 

Used professional advisers to provide expertise in 
the procurement process 
particular areas, although the emphasis was on using 
in-house expertise as much as possible so that there 
1.19  In managing the procurement, the Department:
would be sufficient knowledge, skills and continuity 
in the Department once the procurement and legal 

Built relationships with potential suppliers 
advisers were released. The total cost of advisers 
and maintained relations with the incumbent 
during the procurement process was just over 
supplier. The Department’s team had experience 
£9 million. The Department has drawn out lessons 
in procurement and knowledge of the business. It 
from its use of consultants, but has not evaluated the 
completed the task on time to ensure that the new 
consultants’ performance and quality of advice. 
contract would be operational in time for the end of 
the EDS contract. 
1.20  Although it is difficult to get precise benchmarks 
the procurement costs and timescale of ASPIRE compares 

followed existing guidance and good practice 
(Appendix 3).
 The Office of Government Commerce 
favourably with other contracts. The Department’s 
(OGC) Gateway 3 report on the stages up to 
business case for the procurement estimated total costs of 
the award of the contract concluded that the 
procurement at around £30 million but actual costs were 
ASPIRE project team had maintained an effective 
just over £27 million. Figure 7 shows the breakdown of 
competition which had been run to the highest 
ASPIRE procurement costs compared with budgeted costs 
standards and resulted in a sound evaluation. The 
and as a percentage of the total value of the deal.
OGC Gateway team also commented on how 
recommendations from its earlier review had 
1.21  In most PFI deals, industry benchmarks point 
been addressed. This indicated a willingness to 
towards a figure of around three per cent for procurement 
acknowledge and implement advice, good practice 
costs as a proportion of contract value. In comparison 
and lessons learnt during the project lifecycle, not 
procurement costs for ASPIRE represented less than one 
just in retrospective assessment. 
per cent of the expected value of ASPIRE which may in 
part reflect the scale of the contract. Including transition 

Drew on the lessons from the contracts which 
costs the total is some two per cent of the contract 
ASPIRE replaced (see Appendix 4), and took on 
value. HM Treasury’s report on PFI projects21 found that 
board recommendations from the Committee of 
procurement and bid costs can be high in relation to the 
Public Accounts’ reports on the IR/EDS strategic 
project’s capital value for small PFI schemes. 
partnership19 and the NIRS2 contract extension20 
such as dealing with potential barriers to 
competition and increasing contract flexibility.
19 
Inland Revenue/EDS Strategic Partnership: The Award of New Work (28th report 1999-2000).
20 
NIRS2 Contract extension (38th Report 2001-02).
21 
HM Treasury ‘PFI: Meeting the Investment Challenge’ July 2003
20
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part one
Procurement costs
Procurement cost 
Budget 
Actual spend 
Percentage overspend or 
Actual spend as a 
 
(£m)  
(£m) 
(underspend) against budget 
percentage of the  
 
 
 
 
value of AsPiRe (£4 billion)
Advisers 
10.1 
9.5 
(6) 
0.2
Design and implementation studies  
3.3 
3.1 
(6) 
0.08 
running costs
Departmental staff costs 
4.3 
5.7 
33 
0.1
Due diligence 
3.4 
0.9 
(74) 
0.02
Contribution to bidders’ Design &  
7.7 
7.7 
– 
0.2 
Implementation studies and Invitation  
to Tender response costs
Other operating costs 
0.8 
0.6 
(25) 
0.02
total 
29.6 
27.5 
(7) 
0.7
Source: National Audit Office Analysis of Department’s procurement costs
1.22  The Committee of Public Accounts in its report on 
1.23  Faster procurements have the advantage of reducing 
the redevelopment of West Middlesex Hospital22 was 
procurement costs. From publishing the OJEU notice to 
concerned about costs exceeding budgets, recommending 
signing the contract the ASPIRE procurement process 
that departments learn from previous procurements and 
took 21 months, compared with a typical procurement 
ensure that sensible budgets are set and adhered to. The 
timetable for IT systems within the NHS of about three 
Committee also commented on the high cost of advisers 
years, and 18 months to two years for a single major PFI 
and encouraged departments to drive down advisers’ costs. 
project. But recent procurements such as projects within 
On health procurements, PFI advisers’ costs have averaged 
the NHS National Programme for IT have been completed 
3.7 per cent, ranging between one and eight per cent. In 
within a year.
comparison, advisers’ costs on ASPIRE were less than half a 
per cent of the original deal value. 
 
22 
The PFI contract for the redevelopment of West Middlesex University Hospital – 19th PAC Report 2002/03 HC155.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
21


part two
PARt tWo
The transition
22
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part two
2.2  During the main transfer period which ran from 
This part of the report examines how the Department 
January to July 2004:
managed the risks in changing supplier during 

the incumbent (EDS) had to maintain the 
the period up to the start of the new contract; 
Department’s IT while assisting the incoming 
and whether services were maintained during the 
supplier (Capgemini);
transition period and IT projects progressed. It looks 
at the timescale of the transition and how much 


the incoming supplier had to learn the business  
the transition cost. It also considers how well the 
and get ready to run IT service from the start of the 
transition of NIRS2 was managed. 
new contract; and

the Department had to manage the relationships 
Managing the risks in  
between the suppliers (Figure 8 overleaf), for 
example, to ensure that there was sufficient 
changing supplier
accommodation during the transition for Capgemini 
to work alongside EDS.
2.1  The change from one supplier to another was 
the first of this scale in the public sector23 and posed 
2.3  The smooth transition was helped by the cooperation 
significant risks to maintaining the Department’s services 
of EDS and the positive working relationship between 
(Appendix 5). During the procurement phase the 
EDS and Capgemini. The Department carefully developed 
Department concluded that there were no ‘critical’ risks in 
working relationships with EDS and Accenture and built 
retaining EDS, but if Capgemini were selected a number 
similar partnerships with Capgemini and Fujitsu over 
of risks would need to be managed. The Department’s 
the course of the competition. It was supported by exit 
evaluation of the Capgemini bid concluded that it had 
clauses in the Eagle contract which the Department had 
well developed plans to manage the risks. 
negotiated in 2002, binding EDS to provide a certain level 
of support and information to any incoming supplier and 
formed the basis for sensible arrangements between the 
parties. EDS also wanted to maintain its reputation and 
exit on good terms. 
23 
The Driver and Vehicle Licensing Agency changed IT suppliers following open competition in 2002, but its new contract is on a much smaller scale than ASPIRE.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
23

part two
Roles of the incumbents, incoming suppliers and the Department during the transition 
Party 
Key roles 
incumbent suppliers 
n   To deliver ongoing IT service and project development according to contractual service levels
(EDS and Accenture) 
 
and agreed plans up to the end of 30 June 2004
 
n  To fulfil all exit and termination responsibilities 
incoming suppliers 
n   To plan and execute transition activities on time to provide contracted live service levels from the
(Capgemini/Fujitsu) 
 
start of the new contract from 1 July 2004

n  To transfer staff from the incumbents

n  To transfer or replace 3rd party contracts used by the incumbents

n  To minimise the costs of transition 
department  
n  To facilitate relationships between the incumbents and incoming suppliers

n  To provide necessary accommodation and facilities for the incoming suppliers 

n  To enforce exit clauses agreed with the incumbents 

n  To monitor agreed service levels and project development against agreed plans 

n  To identify key incumbent staff to ensure they were available to the new contract

n  To manage the costs of transition 
Source: National Audit Office
The transition timescale

securing the transfer of designated key staff. The 
Department and Capgemini identified 280 key 
2.4  The main transition from EDS to Capgemini was 
staff, of which 224 (80 per cent) transferred. The 
completed within the expected time frame of six months. 
loss of key staff was a major risk, but its effect was 
Key activities included: 
reduced by the various exit clauses negotiated by 
the Department. For example, there was provision 

securing high levels of staff transfer from the 
incumbents
 so that when the new supplier started 
for some EDS staff that did not transfer to remain 
to run live service it would be using staff with a 
available to support Capgemini for a year after the 
detailed knowledge and understanding of how the 
end of the EDS contract, although the Department 
IT supports the Department’s business activities. 
only utilised this resource for three months. 
Of the 2,928 EDS staff in post, around 96 per cent 
Capgemini also filled potential vacancies of staff that 
(2,811) transferred to Capgemini by June 2004, 
would be leaving at the end of the EDS contract and 
under Transfer of Undertaking and Protection 
work-shadowed areas where key staff were likely 
of Employment (TUPE) conditions. Capgemini 
to leave. From the start of transition, staff were only 
achieved this by running the staff transfer as a 
permitted to leave EDS business with the Department 
stand-alone project, putting on road shows, and 
when Capgemini confirmed that they had adequate 
offering incentives such as comparable employment 
cover in place.
conditions and pensions. Also EDS helped by 

the transfer of third-party contracts used by EDS 
communicating with its staff about transfer issues 
to deliver and support IT services. Under the 
and agreeing to fund the £65 million pension 
original contract, EDS had sub-contracted much 
shortfall of staff transferring. 
of its work to third-parties, so their loss could have 
had a significant impact on service delivery. During 
the transition, 226 such sub-contractors were being 
used by EDS. Capgemini and EDS working with 
third party suppliers successfully transferred 219 
(97 per cent) of these, with the remainder either 
replaced or no longer required.
2
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part two
Transition costs 
2.6  The Committee of Public Accounts in its report  
on “Delivering better value for money from the PFI” 
2.5  EDS estimated its transition costs would be 
(HC 764) in June 2003 recognised that imposing excessive 
£4.4 million if it had won the new larger contract, mainly 
costs on bidders is likely to result in higher charges in 
comprising additional staff costs. By choosing Capgemini 
the longer run and might deter firms from bidding. The 
the Department incurred £37.6 million in Unique Transition 
C&AG’s report on “London Underground PPP: were 
Costs paid to Capgemini and around £5.3 million in exit 
they good deals” (HC 645) in June 2004 recognised that 
costs to EDS and Accenture (Figure 9). Unique Transition 
in some cases departments may not be able to develop 
Costs were those costs identified by the supplier and 
sufficient competition without reimbursing bid costs. 
agreed with the Department which would not have been 
It also concluded that, after conceding the principle of 
incurred had the existing suppliers continued to provide all 
reimbursing the losing bidders, departments should take 
or part of the IT (they covered the need: to encourage the 
care to control the extent of reimbursement. 
EDS workforce to transfer to ensure continuity of service; 
to relocate services from EDS web-hosting premises to 
2.7  Capgemini’s first estimate of Unique Transition Costs 
Fujitsu; to review work in progress to identify the cost to 
of £75 million was provided whilst it was in contract 
complete and the IT solution; and to replatform NIRS2 and 
negotiations with the Department in October 2003. After 
relocate from Accenture to Fujitsu sites). They included a 
awarding the contract, the Department estimated that it 
profit margin to the new supplier of 15.5 per cent (which 
would have to pay transition costs of around £40 million 
was a discount on the normal gross profit margin before 
(Figure 10 overleaf). The estimate was set at around 
overheads). The Department had agreed to fund such costs 
10 to 15 per cent of the new contract’s first year value 
as a way of stimulating competition during the early stages 
and the Department achieved outturn at the lower end 
of the procurement process.
of this range (Figure 10). As the details of the transition 
became clearer from Capgemini’s plans, the Department 
agreed to increase the budget to £52 million. However, 
Transition costs
the Department and Capgemini did not agree the detail 
of what would qualify as a unique transition cost until 
Category  
Amount 
the transition had started. Although individual unique 
 
(£ million) 
transition cost payments were generally well controlled, 
Unique Transition Costs to Capgemini/Fujitsu  
37.6
valuable resources and time were taken up during 
transition negotiating whether a cost was unique or not. 
Transition support costs to EDS/Accenture 
5.3
Capgemini submitted its financial estimates for unique 
Departmental staff and running costs 
1.3
transition costs, which were scrutinised by the Department 
Consultancy advice and support 
2.4
before it provided guidance on which items would 
not qualify and which were likely to qualify, subject to 
Department for Work and Pensions and IT  
0.5 
detailed examination of the elements of expenditure. 
support costs for NIRS 2 transition
Retained staff costs for EDS 
0.4
2.8  The actual first year profit for ASPIRE is likely to be 
total costs of transition 
47.5
£53.924 million, compared to a target margin expectation 
of £38 million, both of which represent a 10 per cent 
Source: National Audit Of ice analysis of HM Revenue and Customs data
profit margin. The absolute increase is due to an increase 
in the Department’s demand for IT and the target margin 
NOTES
percentage of 12.3 per cent is not likely to be achieved. 
The £3.4 mil ion of UTCs paid to Capgemini/Fujitsu for NIRS2 transition is 
If the target profit margin had been exceeded, the 
included in the £37.6 mil ion. 
Department would expect a 50 per cent share in the 
The Accenture transition support costs of £3.4 mil ion are included in the 
£5.3 mil ion.
excess profits. 
24 
Based on provisional figures.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
25

part two
January 2004, all the parties concentrated on negotiating a 
10 Unique Transition Costs – outturn against estimates 
contract, and very little time was left to plan the transition, 
(£ millions)
especially as the same personnel were involved in 
both. The transition plan from Capgemini was delivered 
Category  
estimated in  
outturn 
outturn as a 
incrementally as monthly plans for each of the first three 
 
business case  
 
percentage of the 
 
after award  
 
estimated contract 
months. The monthly activities included discovery tasks 
 
of the contract 
 
spend in the    
that influenced and clarified the task list for the following 
 
 
 
first year 
month. The complete detailed plan taking the project 
 
(£ million) 
(£ million) 
(£384 million) 
through the live implementation date and beyond was 
Capgemini  
32.5 
37.6 
9.8 
not available until March 2004. EDS as the incumbent 
transition costs
supplier considers that the delay in producing a more 
EDS/Accenture  
12.0 
5.7 
1.5 
detailed transition plan made it more difficult to plan its 
transition and 
likely resource allocation in advance. The Department 
support costs
had used the period from the start of August 2003 to 
total 
44.52 
43.3 
11.3
the contract award in December 2003 to develop and 
test transition plans. There were no major disruptions in 
Source: National Audit Of ice analysis of HM Revenue and Customs data
services, and the incumbent’s performance remained steady 
during the transition period. The Department paid EDS 
NOTES
around £2.3 million over and above normal running costs 
1  In preparing for the transfer, the Department also incurred £14 mil ion 
for the rights to use NIRS2 after the termination of the contract although 
to provide the necessary support for the transition.
the intel ectual property rights remained with Accenture. This represented a 
closing payment as part of the 1995 PFI contract.
2.11  Changing suppliers also increased the risk 
2  Subsequently increased to £52 mil ion by the Department to reflect 
that ongoing projects and IT development would be 
Capgemini’s transition plans.
delayed and project costs would increase. The Office of 
Government Commerce advises that departments should 
The transition’s impact on services
have a stable business environment during transition and 
the early stages of a contract. An independent review 
2.9  EDS were responsible for maintaining IT service 
of the Department’s transition planning arrangements 
delivery during the transition period. In this period, 
recommended the implementation of a ‘safety zone’ around 
the chances of disruptions were greater than normal 
the transition to avoid high volumes of change and reduce 
because additional demands were made on EDS to 
the pressures on the outgoing and incoming suppliers.  
support Capgemini and fulfil exit clauses. EDS had to 
At the time of the transition the Department had nearly  
maintain service levels for 250 IT systems to support 
100 projects valued at £439 million in development, 
the Department’s business, for upgrading systems and 
including several ‘business-critical’ projects with tight 
for progressing project development work according to 
legislative deadlines. Additional demands for IT projects 
agreed plans. For example, during the transition period the 
associated with the creation of the new HM Revenue 
Department’s IT systems issued 8 million income tax self 
and Customs Department also emerged at this time. 
assessment statements and 870,000 corporation tax notices 
Because many of the ongoing projects were time-critical, 
to file, processed 9.7 million annual tax codings reviews. It 
the Department decided that development work should 
was also necessary to complete around 80 IT upgrades. 
continue during transition and scheduled IT releases 
should be delivered according to plan. During transition, 
2.10  Because of the perceived risks to service delivery, in 
EDS delivered scheduled IT releases and worked with 
October 2003 the Department commissioned Gartner, an 
Capgemini to develop project plans. The ASPIRE contract 
IT consultancy firm, to review its internal arrangements for 
provides for an extension of up to eight years which  
the transition. The report identified as a key risk the lack of 
gives the Department some flexibility to time any 
an agreed transition plan between the incumbent and new 
re-competition when there is less ongoing project 
suppliers. Until the contract with Capgemini was signed in 
development work underway.
26
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part two
The transition of NIRS2
2.13  Capgemini/Fujitsu encountered problems with NIRS2 
re-platforming and the Department requested changes. 
2.12  Under ASPIRE, the Capgemini and Fujitsu 
Capgemini retained Accenture as a sub-contractor under 
consortium took over responsibility for the running of 
ASPIRE and rescheduled the work in phases which 
NIRS2 from Accenture in January 2005. The transfer of 
were completed in September 2005 at a further cost of 
NIRS2 was run as a separate project to the main transition 
£2 million. The cost of completing the migration in the 
with a budget of £16.2 million. The Department paid 
deferred timescale was £9.9 million. Capgemini/Fujitsu has 
Capgemini £3.4 million in unique transition costs and 
paid £7.9 million and the Department £2 million. Although 
Accenture £3.4 million for support during the transition 
the delays did not affect service delivery, the system was 
(Figure 11). However the transfer of NIRS2 IT data systems 
implemented at the end of August 2005 but was not fully 
from Accenture to Fujitsu proved to be more difficult 
operational until November 2005. The NIRS2 service was 
than expected and the previous contract with Accenture 
maintained successfully throughout the transition process.
had to be extended (Appendix 8). The Committee of 
Public Accounts’ report on “NIRS2 Contract extension” 
2.14  The transfer of NIRS2 was more difficult than the main 
(38th Report 2001-02) highlighted the challenge that 
transition because:
the Revenue would face in 2004, especially in terms of 
learning and set up costs for these large and complex 

The nature of the terms of the existing PFI contract 
systems in a deal likely to be worth over £4 billion. 
with Accenture meant that the Department had to 
The Committee considered that the methodologies the 
agree a set of exit procedures with Accenture and 
Department used to estimate and benchmark proposals 
therefore was able to disclose key information about 
would need to be rigorous.
the system to assist the incoming supplier during  
due diligence. 

Capgemini’s transition plans proved ambitious given 
11 Total costs to the Department of re-platforming NIRS2
its level of expertise in the design and operation of 
the system.
 
Actual costs 

Initially the degree of collaboration between the 
 
(£ million)
incumbent and the incoming supplier was not as 
Capgemini transition costs  
3.4
strong as in the main transition but Accenture did 
Accenture support costs 
3.4
meet its obligations under the agreed exit provisions.
Costs incurred by the Department for  

The nature of the PFI agreement meant that the 
Work and Pensions 
0.5
Department had limited in-house knowledge of the 
transition costs1 
7.3
IT used in NIRS2.
Capgemini contract costs for NIRS2 
7.6

Accenture’s workforce was less willing to transfer to 
total2 
14.9
the new supplier. 
Source: National Audit Of ice
2.15  The Department has taken steps in ASPIRE to avoid 
similar problems occurring in future re-competitions, for 
NOTES
example by including measures that will allow for more 
1  Includes the £2 million paid by the Department for the delay in 
re-platforming NIRS2.
extensive sharing of information with bidders during  
2  The Department’s forecast of the cost of transferring NIRS2 was 
due diligence. 
£16.2 mil ion. In preparing for the transfer, the Department also incurred 
£14 mil ion for the rights to use NIRS2 after the termination of the contract 
although the intel ectual property rights remained with Accenture. This 
represented a closing payment as part of the 1995 PFI contract.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
27


part three
PARt tHRee
Management of the contract 
28
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part three
(Figure 12 overleaf) but they did not relate to major 
This part of the report considers the initial 
business disruptions. The Department’s new governance 
performance of the supplier from the start of the 
arrangements to manage the partnership include: 
contract and what the Department is doing to manage 
operational meetings; a monthly commercial issues forum; 
the contract. It examines the level of service the new 
and a Joint Partnership meeting that considers contract 
supplier has provided from day one of the contract, 
changes, performance trends and relationship issues. 
the delivery of the Department’s main IT projects 
since transition and the cost and flexibility of the 
ASPIRE contract to deal with change.

The delivery of business-critical 
projects
Initial performance
3.3  It was important for the Department to establish 
what work had been completed, the stage the project 
3.1  The risks that need to be managed in embarking on 
had reached and that it resolved any outstanding issues 
a new contract with a new supplier (Appendix 5) include 
regarding payment. The Department could then establish 
ensuring that the new supplier will be able to deliver 
what work the new supplier needs to do to complete 
services from day one, maintaining ongoing project progress 
the project and ensure that it only pays the new supplier 
to time and cost, controlling costs for new work and 
for new work. The Department, in conjunction with the 
ensuring that the expected benefits of ASPIRE are realised.
new supplier, undertook a health-check at the start of the 
contract to assess the risks to business-critical projects 
3.2  The partnership between the Department and 
and specify how ongoing projects would be delivered to 
Capgemini has provided IT services from day one of the 
agreed cost, time and delivery outputs. They found that 
contract, maintaining service continuity in performance 
different standards were being applied across different 
during transition. There are over 500 performance 
projects, for example eight different change processes 
measures, of which some 200 are key performance 
were in operation. Some projects had incomplete 
indicators (KPIs) and carry service credits. Performance 
information and they considered that there had been some 
indicators cover different aspects of delivery ranging from 
under-investment in IT under the previous contract. Some 
running live service, to achieving productivity targets and 
systems needed updating and some projects had been 
delivering business-critical projects. Since the transition 
held back by the Department until the end of transition.  
ASPIRE’s performance on delivering IT services overall 
As a result, in the post-transition period there was a need 
has met or exceeded target levels. However there have 
to revisit milestones and delivery timescales. All these 
been eight IT system failures which led to £2.67 million 
factors added risk to the early stages of the new contract. 
in terms of service credits in the first contract year 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
29

part three
Capgemini’s performance against HM Revenue and Customs Performance Indicators 
12
ASPIRE Key Performance Indicators (KPIs)
Number of measures
250
Total KPIs
200
150
100
50
KPIs failed
0
Q3 2004
Q4 2004
Q1 2005
Q2 2005
Q3 2005
Q4 2005
Q1 2006
Quarter 
ASPIRE Performance Indicators (PIs)
Number of measures
600
Total fails 
Total measures
500
400
300
200
100
0
Jul Aug  Sep  Oct  Nov Dec Jan Feb Mar Apr May
Jun
Jul Aug Sep Oct Nov Dec Jan Feb Mar
2004 
2005 
2006 
Month
Source: National Audit Office analysis of HM Revenue and Customs ASPIRE performance data 
3.4  Since ASPIRE began the supplier has successfully 
changes. But there have been some delays and cost 
delivered a number of major IT software releases 
increases on business-critical projects, which have on 
for business-critical projects aimed at introducing 
the whole been caused by the Department changing its 
efficiency improvement, better data, service quality and 
requirements (Figure 13)
management information and responding to legislative 
30
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part three
13 Progress on business-critical projects under ASPIRE
Project 
timescales 
Project Budget as 
spend to  
Progress 
 
 
at March 2006 
March 2006 
 
(£million)
(£million)
Construction  
Implementation  
 
123.4
 
72.9
Implementation delayed from April 2006 
Industry Scheme
of release 3  
to April 2007 to allow industry and IT 
(first live release) 
 
 
suppliers to prepare for changes and for 
 
April 2007. 
 
 
HM Revenue and Customs to build industry 
 
Release 4 by 
 
 
confidence in the system. HMRC and 
 
31/10/07, Release 
 
 
ASPIRE planning to complete majority of IT 
 
5 by 05/04/08.
 
 
development by August 2006. Budget now 
 
 
 
reflects cost of deferral and latest ASPIRE 
 
 
 
 
cost estimates.
 
 
 
 
On-line services
2000/01 
 
697.3
 
368
Some projects have been rescheduled due 
– 2007/08
to specialist IT resource constraints.
 
 
 
 
 
 
 
The ‘On-line services’ programme has 
 
 
 
 
ceased to exist since April 2006 as it has 
 
 
 
 
been amalgamated into the Customer 
Contact Transformation Programme.
External Routing 
Phase 1 staged 
 
205
 
170
Phase 1 implemented.
Interface Component 
release from April 
 
 
EOY06 – Releases 1 and 2 implemented. 
(ERIC) and 
2005 - Jan 2006. 
 
 
Release 3 on schedule for delivery on  
Modernisation of 
EOY06 –  
 
 
3 July 2006.
PAYE processes: 
MPPC1, EOY06 and 
April-July 2006
 
 
Phase 2 - Releases 0 and 1.0 implemented. 
MPPC 2
 
 
MPPC2 –  
Subsequent releases on schedule.
 
 
April 2007 
 
Better data for CT
Various releases to 
 
66.7
 
30.11
One release (2b) has been deferred for 
April 2007
four months, two other releases have been 
 
 
 
delivered on time and two others deferred 
 
 
 
 
from November 2006 to April 2007 to 
 
 
 
 
ease pressure on online service resources.
 
 
 
 
Modernising  
Project closed  
 
113
 
105.7
Delivery of IT could not be achieved 
Stamp Duty
31 Dec 2005
by December 2003 timetable, so the 
 
 
Department phased the release of the IT 
 
 
 
 
between July 2004 and February 2005, 
 
 
 
 
with contingency arrangements in the event 
 
 
 
 
of potential IT problems. The full e-channel 
 
 
 
 
element was deferred until July 2005 due to 
 
 
 
 
a shortage of web solutions resources.
 
 
 
 
Child Trust Fund  
Various releases to 
 
163.2
 
69.52
Child Trust Fund delivered to time cost and 
and Child Benefit 
April 2006
quality. Development of the Child Benefit 2 
system replacement
system at February 2006 was suspended 
pending a business review of cost/benefit 
analysis and alternative technical options.
Source: National Audit Office analysis of HMRC project costs
NOTES
1  Spend to date figure to May 2006.
2  Figures are provided up to November 2005 as the project stopped being classified as business-critical in December 2005.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
31

part three
Cost of ASPIRE
3.7  There was a risk that when the Department transferred 
from one supplier to another it could affect planned 
3.5  The cost of the contract in the first year has been 
progress on projects. The new contractor’s team was likely 
more than the Department originally planned. Shortly 
to take time to get up to speed on projects in progress. It 
after the contract was awarded in December 2003 the 
might have been unrealistic to expect the new supplier 
Department estimated a spend of £384 million (excluding 
to sign up to the productivity regime that controls the 
VAT) in the first year of the contract based on 2002-03 
development projects when they had not been involved 
volume of IT demand which was used in the invitation 
fully from the start in initial estimates through design 
to tender. Actual spend in the first year from July 2004 to 
element and authorisation. The Department decided that 
June 2005 was £539 million (excluding VAT). The Office 
all the ASPIRE terms would be phased in incrementally 
of Government Commerce Gateway 4 Review (readiness 
for software projects underway. It considered that bidders 
for service) in June 2004 expressed concerns over the 
might be deterred by the prospect of taking on nearly 100 
requirements and timescales of ‘work in progress’ projects. 
existing projects, valued at £439 million, with outputs and 
It noted that costs had risen due to increased volumes of 
timetables they had not planned. It decided to pay the new 
service requirements and recommended that these costs 
supplier for ongoing projects on the terms of the old contract 
be clarified and refined. 
which stipulates payment on the basis of resources used but 
using the costs agreed under the new contract. Capgemini’s 
3.6  The main reason for the increase in the cost of 
staff cost rates appear higher than those under the previous 
the contract in the first year has been a 132 per cent 
contract because they include overheads that were charged 
rise in the Department’s spending on projects, covering 
separately under the previous contract. While this may have 
systems development and enhancement (an increase of 
helped maintain competition by persuading bidders that a 
£98 million) and a 117 per cent increase in consultancy 
new supplier would not be bound by the existing project 
(an increase of £27 million) (Figure 14). This has been 
delivery plans, it meant that the Department were delayed 
due mainly to unexpected work involved in the New 
in achieving some of the delivery assurance benefits of the 
Tax Credits Programme, Modernising PAYE Processes 
new contract, which stipulates payment on the basis of 
for Customers, the introduction of the Child Trust 
performance achieved rather than resources used. 
Fund, Reform of the Construction Industry Scheme, 
Modernising Stamp Duty and significant changes to the 
3.8  The need to control costs is reinforced by the 
Departmental infrastructure, which was not planned 
increase in the costs of the previous contract due to an 
when the Department awarded the contract. There has 
increase in the Department’s demand for IT services. When 
also been increased demand for some IT services, and the 
the Department awarded the ‘Eagle’ contract in 1994 to 
retention of Accenture to provide application development 
EDS it was valued at £1 billion (which excluded price 
support to NIRS2 will add an extra £8.04 million to 
indexation or growth), by 2000 the Department estimated 
costs in the first three years of the contract. This has 
that it would cost £2 billion and the final spend under 
generated a profit for Capgemini which is likely to be 
the contract was £2.5 billion; on the whole this can be 
£53.9 million25 compared to a target margin expectation 
attributed to the Department’s increased demand for IT. 
of £38 million; however both represent the same profit 
This new contract has thresholds on the demand for IT 
margin of 10 per cent. But Capgemini does not expect to 
services to trigger some reappraisal of the supplier’s charge 
achieve the target profit margin of around 12.3 per cent 
rates. As the Department’s volume of work increases it 
so it is unlikely that any profit share will accrue to the 
expects to obtain discounts on unit price and consequently 
Department for the first year.
a reduced price based on economies of scale. However 
this can result in price increases where the supplier has 
been unable to avoid extra costs. Some of the thresholds 
have been exceeded in the first year and the Department 
has negotiated some price changes with Capgemini which 
resulted in a minor price increase and three significant 
price reductions. 
25 
 Based on provisional figures.
32
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part three
14 Cost increases on ASPIRE during the first year of the contract
service/Project 
Forecast charges  
Actual charges 
increase (decrease)  
Percentage 
 
(£ million) 
(£ million) 
of actual compared 
increase 
 
 
 
to forecast 
(decrease) 
 
 
 
(£ million) 
Service Lines 
 
 
 
Operational Service Charges 
266.3 
298.0 
31.7 
12
Service Credits (penalties) 
(1.3) 
(2.7) 
(1.4) 
108
Project Lines 
 
 
 
Business Applications Development  
74.0 
172.0 
98.0 
132 
and enhancement projects
Integration 
16.0 
11.0 
(5.0) 
(31)
Desktop Applications 
6.0 
11.0 
5.0 
83
Rate based services (consultancy) 
23.0 
50.0 
27.0 
117
total 
384.0 
539.3 
155.3 
40
Source: National Audit Office analysis of HMRC forecast and actual spend of ASPIRE
3.9 The Department’s financial model for ASPIRE forecasts 
3.10  Comparisons of the profit margin on ASPIRE with 
spend to decrease slowly but remain broadly flat over the 
other contracts are not straightforward. There are few 
contract term. If the first year spending on the contract, 
good up to date comparators to use, especially as the 
particularly IT projects, continues at the same level over 
approach to IT solutions changed in 2003 when the 
the lifetime of the contract, the final cost of the ASPIRE 
Treasury decided against using PFI for IT projects. But 
contract could be in excess of £6 billion rather than the 
the comparators below suggest that the percentage profit 
originally projected £3 billion to £4 billion. This does not 
margin in ASPIRE is within the range of other contracts. 
take account of any impact of the merger of the PFI Fujitsu 
Capgemini’s target profit margin ranges from 5.6 per cent 
contract. This raises the question how the Department 
to 27.2 per cent across the services it provides but its 
will fund the additional spending on IT under the new 
average profit margin under ASPIRE is 12.3 per cent 
contract. The additional funding agreed on the project 
(Figure 15 overleaf). The four project lines are higher 
budgets is either funded by Treasury ring-fenced funds or 
than the average and the main software development 
additional allocations at the start of 2004-05 or in year. 
line is 14 per cent. This compares to 16.9 per cent 
Allocations are approved by the Department’s Executive 
the Department used in the Should Cost Model and 
or Operating Committees. The Department expects that 
the actual margins on the previous contract with EDS 
this level of demand for IT services will not be sustained 
which ranged from 13.5 per cent to 26.5 per cent. A 
because it considers the demand for IT services will 
PricewaterhouseCoopers study on PFI rates of return since 
decline because of its targets for reducing staff levels 
199726 covered over 60 schemes and illustrated the range 
by 12,500, an increase in the use of electronic services 
of rates of return, depending on the size and complexity 
replacing printing, and its aim to reduce spending on IT 
of the project and the allocation of risk. The study showed 
to less than 20 per cent of the Department’s budget. The 
a decline in nominal rates of return from 13.5 per cent to 
Department forecasts expenditure in the second year of 
10 per cent by 2001, the projects covering areas such as 
the contract to be around £800 million but it does not 
health, education and transport but excluding IT projects. 
have an estimate of the likely total cost of ASPIRE as it 
The NHS National Programme for IT contains target profit 
considers it is difficult to predict the level of IT demand, 
margins between seven and 19 per cent, depending on 
price changes and changes to the Department’s activities 
negotiations with each individual contractor for particular 
over the lifetime of the contract. 
contracts. Other PFI deals tend to have higher margins. 
26 
 HM Treasury PFI: Meeting the Investment Challenge, July 2003 Annex C – PricewaterhouseCoopers Rate of Return Study.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
33

part three
Acting as an intelligent customer
15 Comparison of the profit margin on ASPIRE with 
other contracts
3.11  Relations with the new supplier have been helped by 
having a separate HM Revenue and Customs commercial 
 
 
Profit margin
management team to oversee the commercial aspects 
of the contract, leaving the Department’s service line 
ASPIRE range of profit margins 
  
5.6–27.2%
managers and supplier teams to concentrate on meeting 
ASPIRE average profit margin 
 
12.3%
business needs. Continuity has been helped by high 
ASPIRE IT project development profit margin 
14%
rates of staff transfer from EDS to Capgemini. The ASPIRE 
Department’s Should Cost Model profit margin 
16.9%
contract identified the key supplier people to remain 
on ASPIRE for a period after the contract started. In 
contrast to the fifteen Departmental staff involved in the 
Project 
Contractor 
Profit Margin
procurement stage only one remained in post soon after 
the award of the new contract as the Department set up 
EAGLE (previous contract) 
EDS  
13.5–26.5%
a new contract management team. The Department has 
PFI (ISA) contract with  
Fujitsu 
12.97% 
some 1,950 information management staff including 
former HM Customs  
those working in the areas of technical solutions, 
and Excise
project support, risk assurance and business solutions.
PFI hospitals1 
Various 
18-23% on 
The Department is seeking to reduce the ratio of its own 
 
 
initial projects,  
information management staff compared to the supplier 
 
 
12-17% on more 
team from 30:70 to nearer 20:80, to over time reduce the 
 
 
recent projects
Department’s total Information Management workforce 
NHS National  
Various 
7-19% target 
(including civil servants, contractors and supplier staff) 
Programme for IT2
from 6.3 per cent to no greater than five per cent of the 
PFI various schemes3 
Various 
10 -13.5%
Department’s total workforce and to reduce expenditure 
from 24 per cent to less than 18 per cent of the 
Source: National Audit Office analysis of contract profit margins
Department’s running costs. These targets can however be 
NOTES
significantly affected by changes to the legislative agenda.
1  Department of Health released figures February 2005 – pre-tax 
nominal projected rates of return for contractors on PFI Hospitals.
3.12  Capgemini has introduced mechanisms to  
2  Pre-tax rates of return from the NHS National Programme for  
support the successful delivery of the Department’s  
IT contract.
IT needs including:
3  “PFI: Meeting the Investment Challenge” – PWC study on PFI rates 
of return since 1997 which covered 64 PFI schemes and illustrated the 

Bringing together managers from the Department 
range of rates of return, depending on the size and complexity of the 
and from the suppliers to collaborate and share  
project and the allocation of risk. The projects covered areas such as 
health, education and transport but excluded IT projects.
ideas on IT solutions known as Accelerated  
4  The annual profit margin on the NIRS2 contract since it was amended 
Solution Environments. 
in 2000 ranged from 25.9% to 39.7%. This was a significantly smaller 
contract than EAGLE or ISA.

Working with the Department to start to reduce 
the number of IT data centres and identify process 
efficiencies in creating business cases supporting  
IT investments.

Developing a system to choose subcontractors that 
match the Department’s needs 

Involving the Department in discussions with third 
party suppliers such as BT. 
3
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part three
Evaluation of supplier and  
Apart from the caps and collars on service lines 
contract performance 
which allow the Department to review the prices for 
IT service demand volumes, the supplier can only 
3.13  The Department is changing the way it manages the IT 
change price in response to a change of requirement 
contract with the new supplier as the new contract is more 
and the Department can only change price if 
focused towards service delivery and productivity. But the 
benchmarking with other suppliers’ prices suggests 
Department has taken 18 months to get an overall view of 
the price no longer represents value for money. The 
how the contract is performing and to put into effect the full 
Department has translated contract changes in the 
arrangements for managing the contract, which include:
first year of the contract to show the impact on the 
original price (using the Should Cost Model) which 

Service line managers working with Capgemini 
shows the cost of the contract is £4.1 billion with 
to forecast demand and review supplier service 
provision for inflation based on 2002-03 volumes.
levels against the range of performance indicators 
and targets. It has taken around nine months to get 

Benchmarking. The Department is monitoring the 
effective bottom-up forecasting from Capgemini staff 
supplier’s margins on services and consultancy/
(previously EDS), more used to input-based pricing. 
project related work. The Department has a 
In the first year the Department’s estimated service 
performance gain share mechanism which starts 
activity limits in the contract have been breached.
with an open book audit. This audit was completed 
in April 2006 but some work has continued to 

Performance measurement. The previous targets 
determine the profit for the first year of the contract. 
under the Eagle contract have been adopted 
This work is ongoing at end May 2006 and there is 
and increased for actual performance achieved. 
at that date no accrued profit share as Capgemini 
Following the integration of the former Customs ISA 
has not made its target profit margin. As part of 
contract, the Department is reviewing the number of 
the overall negotiations to integrate the PFI Fujitsu 
performance measures it has to identify gaps as part 
contract with the ASPIRE contract, the Department 
of a wider service improvement programme with a 
has agreed an initial benchmarking programme 
view to implement them by April 2007. Until then 
to begin in July 2006. The aim is to benchmark 
the Department assesses the contractor’s performance 
all of the services within the contract on a rolling 
through progress on pilot trial projects, performance 
basis throughout the remaining life of the contract. 
against targets, live service running, financial 
Outside that plan there is provision to benchmark 
statements showing actual costs and profit margins 
any new service or any element on an ad hoc basis. 
and progress on major projects. The Department has 
For example, it has contracted an independent 
also agreed in principle with Capgemini and Fujitsu 
company to benchmark server prices and has used 
to establish baselines to support new measures 
the results to challenge the supplier’s proposal. With 
of performance on end-to-end live services to the 
the change of supplier and contract (from input 
desktops for incorporation from April 2007.
to output-based pricing) it has taken until January 

Proposals for new work. For the period July 2004 to 
2006, about 18 months into the new contract, for 
March 2006, 188 new work proposals were presented 
the performance of the new supplier to bed down. 
by the Department’s business areas. The Department 
The Department had originally intended to produce 
defines its business requirements and the supplier 
an annual value for money report in November 2005 
provides a proposal to meet those requirements with 
but now intends to produce a financial scorecard 
trials and quality testing before becoming operational. 
and a customer service assessment reporting 
The supplier pays rebates/penalties where delivery 
mechanism in late 2006 to assess the supplier’s 
is delayed. The Department pays the supplier for 
overall performance. The Department’s comparison 
meeting success criteria for interim milestones and 
of the first year’s costs with the Should Cost Model 
only pays the final element of the supplier’s profit 
(updated for contract changes), showed that ASPIRE 
margin after six months of successful live running.
cost £71.8 million less than the Should Cost Model.

Procedures for dealing with change. The 

Education and guidance for staff on how to obtain 
Department is using a financial model to manage 
IT services from the supplier, explaining roles, 
changes in the contract which shows the effect on 
responsibilities and timescales under the new contract. 
price and therefore on payments to the supplier. 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
35

part three
Renegotiating ASPIRE to take on the 
3.16  The Department’s preferred option was to use the 
former HM Customs and Excise’s  
ASPIRE contract as the main contract for the provision of 
IT services to HMRC rather than put the two contracts out 
PFI IT contract 
for re-competition. When the former HM Customs and 
Excise renegotiated its PFI contract with Fujitsu in 2003, 
3.14  The former HM Customs and Excise and the Inland 
it considered that its IT infrastructure could be connected 
Revenue had different IT strategies and their respective 
to that of the Inland Revenue at no significant additional 
IT contracts did not reflect the likelihood of merger in 
cost.28 The Treasury required that any revised contract 
2005. By then, the former Inland Revenue had the ASPIRE 
provides a better price and a lower cost of delivery than 
contract delivering its IT requirement and the former 
having two separate contracts over the full contract-term. 
HM Customs and Excise had signed a revised contract (ISA) 
A ‘Memorandum of Understanding’ between the 
with Fujitsu in 2003 to provide IT infrastructure services. 
Department, Capgemini and Fujitsu in April 2005 set out a 
The services delivered by the contracts are fundamentally 
collaborative approach to merging the contracts, including 
different – ASPIRE provides IT services including IT 
the setting-up of a working group to develop a detailed 
infrastructure and applications development whereas the 
time and resource plan and contains a commitment from 
PFI contract provides IT infrastructure - but HM Revenue 
the two suppliers to ensure that value for money criteria 
and Customs believes that the ASPIRE contract will 
are met.
be flexible enough to deal with the merger of the two 
Departments, and this now needs to be proved in practice.
3.17  The Office of Government and Commerce Gateway 
Review 2 in April 2005 reviewed an early business 
3.15  The O’Donnell review27 in March 2004 found that 
case for merging the two contracts, to ensure that the 
while there had been some communication between 
procurement strategy was robust and appropriate and that 
the departments, there had not been joint consideration 
the project plan was realistic. It recommended clearer 
of the best solution for the provision of IT. HM Revenue 
lines of accountability, better contingency planning to 
and Customs has new IT requirements which were not 
deal with the possible delay in agreeing a new contract 
envisaged when the separate ASPIRE and ISA contracts 
from January 2006 and improved project management. 
were entered into. HM Revenue and Customs needs to 
It also recommended that the negotiations for the 
integrate its operating environments to realise the benefits 
new enlarged contract should include an assessment 
of the merger. For example the desktop environments of 
of supplier strengths and weaknesses to ensure the 
the two former departments had significantly different 
achievement of value for money. Gateway Review 3 took 
software and applications. The Department’s Strategic 
place in November 2005 and assessed the recommended 
Integrated Desktop Environment (STRIDE) project aims 
investment decision and the business case. Gateway 
to provide this single operating environment enabling 
Review 4 in February 2006 took place ahead of contract 
all services, information and applications to be available 
award and considered that the Department had achieved 
across the Department. This project is driven by the 
a good commercial deal in the circumstances. It found 
need to move both former Departments’ operating 
that the Department needed to complete the work to 
environments off Microsoft NT4 platforms onto Microsoft 
reset the service levels under the changed contract, 
XP platforms as the former will no longer be supported 
implement better contract management arrangements 
by Microsoft from December 2006. STRIDE began in 
and ensure that benefits of the contract integration are 
December 2004 and has estimated development and 
realised. In particular the Review considered that one 
implementation costs of about £170 million. 
27 
Financing Britain’s Future Review of the Revenue Departments, Gus O’Donnell March 2004.
28 
C&AG’s report Transforming the performance of HM Customs and Excise through electronic service delivery, HC 1267, 2002-03) November 2003 para 2.23.
36
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part three
weakness identified at the previous Gateway Review was 
still present, that there was a lack of skills and a proven 
approach to IT programme/project management and risk 
management and that therefore the Department could 
improve its management of its IT contracts. In response 
the Department is reviewing its contract management 
approach so that it is more proactive in extracting the best 
supplier performance from the ASPIRE contract. The OGC 
Gateway 5 review took place in May 2006 to evaluate 
whether ASPIRE is delivering the benefits identified in 
the original business case and how well the contract is 
responding to changing circumstances.
3.18  Having merged the two contracts the Department 
will need to manage certain risks:

that the merged contract delivers the benefits from 
the earlier investment in the PFI contract, and that it 
can track the benefits of the changed contract.29 

ensuring effective competition when the new 
combined contract comes to an end. The combined 
contract will make the ASPIRE contract even 
larger than originally envisaged which makes the 
re-competition and the ASPIRE exit clauses in ten 
years time even more important. The size of the 
contract may be a barrier to effective competition. 

Having reliable performance management data for 
the changed ASPIRE contract. 

Ensuring that the Department has in place robust 
contract and IT project management arrangements. 
This should address the areas for improvement 
identified by successive Gateway Reviews to extract 
the best value for money from the ASPIRE contract. 
29 
Committee of Public Accounts 24th Report 2003-04 ,June 2004, Transforming the performance of HM Customs and Excise through electronic service delivery.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
37


part four
PARt FouR
Lessons from ASPIRE 
38
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part four
4.2 Departments will need to establish and manage 
This part of the report summarises the main lessons 
good relationships between bidders, incumbent 
from ASPIRE. It draws together the various strands 
suppliers and the new supplier. This is important to 
of good practice that the report has identified from 
ensure effective competition, a smooth transfer of 
the procurement, transition and early performance 
knowledge and people from the incumbent to the new 
of the contract.
supplier and that value for money is achieved. Adopting 
this good practice should result in financial savings 
from better contracts, reduced transition costs and 
4.1 Across government there are a large number of 
reduced risk of service disruption. The following five 
major outsourcing contracts.30 As these contracts reach 
sections seek to draw out the main issues from ASPIRE 
the end of their first-term, departments are likely to 
and identify best practice that has been largely used 
face similar competition and transition issues to those 
by the Department. These have been developed with 
encountered by HM Revenue and Customs on ASPIRE. 
the Department and will be further developed by NAO 
We have identified good practice that has arisen out of 
and the Office of Government Commerce to provide 
the Department’s experience of ASPIRE that should help 
guidance to departments facing a similar situation. The 
other government departments in re-competing their 
main lessons and good practice cover: 
IT contracts and in managing any transition to a new 
partner (Appendix 6).

Preparing for the end of existing contracts

Aligning the new contract to business needs

Creating competition 

Managing the transition

Maintaining service delivery during the transition 
30 
HM Treasury’s PFI signed project list notes there are around 540 Private Finance Initiative (PFI) contracts with a total capital value of almost £40 billion.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
39

part four
1  Preparing for the end of  
2  Aligning the new contract to 
existing contracts
business needs
a 
ASPIRE provides some important lessons about 
a 
Departments need to be aware of the possibility  
making a market and deciding on the most 
of likely future machinery of government changes 
appropriate commercial strategies to provide 
and include in the contracts sufficient flexibility  
sufficient incentives to encourage suppliers to 
to deal with change. This may involve some  
bid when there appears to be a strong incumbent 
horizon scanning.
supplier, on progressing on-going IT projects and the 
b 
Review existing contracts to draw lessons and 
importance of maintaining good working relations 
reflect these in the new contract together with 
between incoming and outgoing suppliers.
latest guidance, for example on mechanisms to 
b 
Start the work early to lay the ground for any 
assess value for money and incentives, continuous 
transfer after competition, for example; train staff so 
improvement and efficiency, and profit sharing and 
that they are prepared to manage the new contract; 
allowance for use of specialist subcontractors.
develop an appropriate set of indicators to measure 
 c 
Contracts for the provision of major IT systems 
the supplier’s performance; review the performance 
should ensure that systems are kept up-to-date, 
of the existing contracts including the provision for 
which should be easier to transfer from one 
the transfer of pensions obligations; undertake a 
supplier to another. Deciding to change suppliers 
stock take of existing systems to establish whether 
and upgrade major IT systems at the same time 
any major upgrades are needed; review existing 
may appear to provide the Department with 
contracts to ensure they have robust termination 
a better value than renegotiating an upgrade 
clauses and terms which allow disclosure of 
with the existing supplier in a non-competitive 
information, to enable any new incoming supplier 
environment. However, it does increase the risk of 
to undertake due diligence work. The contract terms 
delay, additional costs or system failure as the new 
should also be clear on intellectual property rights 
supplier will not be in as strong a position as the 
of existing systems. 
existing supplier to achieve the upgrade. Therefore 
c 
Effective competition, professional procurement 
it is important that the Department reviews plans of 
and contract flexibility increase the chance that the 
any incoming supplier to ensure they are feasible. 
contract meets the Department’s IT requirements. 
It must also ensure the contract has provisions to 
d
recover any additional costs caused by the failure of 
 
To avoid IT project delays it is also important not to 
the new supplier to deliver.
have too many ongoing business-crucial IT projects 
underway which a new supplier may have to take 
d 
When changing suppliers, it is crucial to secure 
over. A new supplier’s capacity may be stretched 
the co-operation between the incumbent and 
if there is a significant amount of work to progress 
the new supplier. An incumbent who has bid for 
with deadlines for completion early in the life of the 
the new contract unsuccessfully may not wish to 
new contract.
assist the transfer to the new supplier, even where 
departments have built up good relationships 
with suppliers during the course of a partnership. 
Therefore they must have effective exit clauses 
which bind the incumbent to cooperate during the 
transition period to mitigate the risks to  
service delivery. 
0
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part four
3  Creating competition 
d 
In these circumstances, to achieve an effective 
competition, departments may need to consider 
a 
The best way to get value for money is to secure 
offering incentives to encourage non-incumbent 
and maintain competition during the procurement. 
suppliers to bid or introduce other measures into 
But in bidding for a major IT contract a supplier is 
the procurement process which will help to level 
likely to incur substantial costs and therefore will 
the playing field. These incentives might include: 
carefully weigh up the prospects of winning the 
contract and the opportunity costs of bidding.

adjusting the evaluation of bids to allow non-
incumbents to display their IT capabilities;
b 
It is the usual practice when purchasing goods 
and services for the bidders to meet their own 

disregarding transition costs in the evaluations 
costs and to pay the costs involved in taking 
of bids;
over the position from the previous supplier. It 

disregarding transition costs in the bid 
is not usual practice for the purchaser to create 
evaluation and negotiating a fixed or capped 
the competition by contributing to firms’ costs 
budget for transition costs to maintain 
of bidding, paying the winners’ costs in taking 
competitive tension; and
over from the existing supplier, discounting the 
transition costs for the purposes of comparing 

disregarding transition costs in the bid 
bids and paying the incumbent supplier to effect 
evaluation and paying a share of these costs.
the transfer. The payment of such costs is not 
e 
All these measures will incur additional costs for 
unknown, and the Committee of Public Accounts 
departments. Departments must decide therefore 
outlined the circumstances in which this could be 
whether any, and if so which, of these will be 
advantageous namely to avoid such costs being 
sufficient to induce the market to bid. Departments 
incorporated, with a mark up, in higher charges, 
should test the market before committing themselves 
and to encourage bids.31
to funding costs; suppliers may be willing to bid even 
c 
There needs to be a clear justification for using 
without financial incentives. Any such incentives 
incentives to encourage competition. The market 
must have a strong link with improving value for 
may consider that bidding against a strong 
money and must be tightly controlled.
incumbent is not worthwhile as there would not 
f 
Having obtained bids, departments need to 
be an equal starting position. The bid costs of new 
undertake sensitivity analysis to forecast the likely 
bidders may be higher than for an incumbent which 
range of final contract costs. Such analysis should 
has already developed a good understanding of 
be used to assess the likely profit margins and profit 
the Department’s business. In addition, for second 
levels of potential suppliers over the lifetime of the 
generation outsourcing, there will be additional 
contract and whether the Department is getting 
costs incurred by non-incumbents in taking over 
value for money from the deal.
existing products and services. Therefore potential 
bidders may be deterred from bidding against a 
well-established incumbent. This emphasises the 
importance of having a dialogue with the market 
to establish the barriers to bidding and how these 
might be overcome.
31 
  Committee of Public Accounts Report, London Underground Public Private Partnerships, HC 446, March 2005.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
1

part four
4  Managing the transition
5  Maintaining service delivery 
a 
Now that the public sector has demonstrated it is 
during the transition 
not locked in to retaining incumbent suppliers for 
a 
There is a risk that ongoing projects will suffer 
this size of contract, the amount of transition costs 
delays and cost increases when changing supplier 
departments pay should reduce and such payments 
– particularly if the new supplier has to work 
would not be appropriate in all future contracts 
with plans agreed between the department and 
involving an incumbent supplier. If departments 
previous supplier. Departments and suppliers 
decide to pay transition costs to incoming suppliers, 
should therefore take the opportunity to undertake 
it is important that departments retain control over 
a health-check of ongoing projects and may need to 
the amount they pay and maintain some degree 
re-evaluate project plans. Departments should also 
of competitive tension. They need to have a clear 
get an early view of a new supplier’s performance 
estimate of likely costs and transparent criteria for 
(and changes in costs for existing projects), so that 
assessing and paying them in a system that is not 
any issues which would affect service delivery or 
overly burdensome to administer. For example:
costs can be addressed.

Estimates of transition costs should include 
b 
Departments should develop and test contingency 
those costs incurred by the incoming supplier 
plans to ensure service delivery and project 
in preparing to run the new contract; those 
progress can be maintained in case part or all of the 
of outgoing suppliers and the department’s 
transfer is delayed. When considering the length of 
staff costs. During the procurement stage, 
the transfer, departments need to strike a balance 
departments need to have a clear estimate 
between incurring additional transfer costs and the 
of transition costs. There should be no 
risk that the transfer might not be fully completed.
presumption by a bidder that any extra 
transition costs incurred by any incoming 
c 
A high level of staff transfer is important in 
supplier will be fully or partially repaid.
maintaining project momentum. However changing 
IT suppliers and contracts will involve new 

Before any new contract is signed, 
relationships and new ways of working. During 
departments and suppliers must be clear 
the transition period, departments will need to 
about what will be payable under transition 
make additional effort to manage the relationships 
costs and there should be a transparent system 
between the incoming and outgoing suppliers. 
for assessing and paying them. To make the 
Departments will also need to agree with the 
system easier to administer, transition costs 
incoming supplier revised project risks, costs, 
should be linked to the achievement of 
timescales and deliverables.
transition milestones.

Departments should also question whether it is 
reasonable for incoming suppliers to receive a 
profit margin on reimbursed transition costs but 
realise that denying the margin can affect the 
quality of the expertise applied to the account.
2
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

part four
d 
While there are advantages in keeping existing 
projects under the terms and conditions of the 
previous contract, departments should closely 
monitor costs charged by the new supplier to 
ensure that value for money is not put at risk. 
Departments should review cost implications 
arising from changes or delays which are the 
responsibility of the supplier to ensure additional 
costs incurred are not transferred to other parts of 
the contract. 
e 
To manage the risks of changing suppliers, 
departments need strong governance arrangements 
and good management information to keep the 
supplier on course for delivery, or to enable them 
to make an informed decision to move milestones 
and plans. Departments should also require 
suppliers to:

use software products and third party 
suppliers that are tried and tested;

plan for an incremental phased delivery of 
new IT projects or major changes to existing 
systems rather than a big bang solution;

allow sufficient time for testing of new IT 
systems before they are launched; and

provide a mechanism to enable the 
incumbent and new suppliers to share plans 
and information during transition.
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
3

appendix one
APPendix one
Study scope and methodology
The study objective was to assess HM Revenue and 
Analysis of the effects of ASPIRE  
Customs performance in three stages of ASPIRE: the 
procurement, the transition and the first year of the 
on service delivery and 
new contract and to draw wider lessons for government 
business-critical projects 
department and agencies facing similar situations. We 
used an issue analysis approach to design the scope of the 
5 
We reviewed key HM Revenue and Customs IT 
examination and the nature of the evidence required. 
projects to explore the impact of ASPIRE on service 
delivery and draw out the lessons learned from managing 
IT projects when there is a change of supplier. The projects 
Semi-structured interviews and 
were selected because the change of supplier happened 
fieldwork visits 
during the course of the project and HM Revenue and 
Customs consider them as ‘business-critical’. For each 
1 
We interviewed staff in HM Revenue and Customs 
example we reviewed key documents and interviewed 
with responsibility for the procurement, transition and 
project managers and directors of the individual projects. 
contract management stages of ASPIRE as well as other 
stakeholders, including the Office of Government 
Commerce and Partnerships UK.  
Comparisons with other transitions  
6 
We commissioned PricewaterhouseCoopers to 
2 
We also interviewed the private sector firms 
draw out lessons from organisations that have faced 
involved in ASPIRE including the original suppliers (EDS 
major supplier transitions similar to ASPIRE. The 
and Accenture), and the winning bidders (Capgemini 
organisations covered included those from the public 
and Fujitsu) to get their perspectives on the ASPIRE 
and private sectors, both in the UK and overseas. The 
procurement, transition and contract management stages. 
examples highlighted some common features, such as the 
importance of effective communication with staff who are 
Documentary review 
available for transfer to any new supplier, which we used 
to assess the Department’s and suppliers’ approach to, and 
3 
We reviewed a range of documentary evidence  
performance during, the transition.  
from ASPIRE to analyse and establish the basis for key 
decisions taken by HM Revenue and Customs. We 
analysed the Department’s financial and management 
Financial model review 
information on the costs of procurement and the transition 
7 
We commissioned PricewaterhouseCoopers 
and the first year of the contract and the suppliers’ 
to undertake work on the financial model used by 
performance against key performance indicators. 
HM Revenue and Customs in ASPIRE to assess whether 
the processes used by the Department to test the financial 
Comparators
models during the procurement stage were robust and 
whether the Department were using the models to manage 
4 
We compared procurement costs and profit margins 
the contract changes effectively. This involved interviews 
with other contracts. We also analysed the Office of 
with key staff involved in financial evaluation, examination 
Government Commerce Gateway Reviews undertaken on 
and review of documentation from the model reviews and 
ASPIRE and evaluated advice and documentation issued 
the events and costs that triggered the changes.
by other government departments including HM Treasury 
and the Office of Government Commerce.

ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

appendix two
APPendix tWo
Recommendations from the Committee of Public Accounts
The Committee of Public Accounts has in the past made a number of recommendations covering HM Revenue and 
Customs IT contracts.   
PAC Report
PAC Recommendations
Has this been applied in AsPiRe?
Inland Revenue/EDS 
The Department should keep its IT strategy up to date  The Department revised its IT strategy in April 2005. 
Strategic Partnership: The 
and ensure the supplier’s technical solutions conform  The new strategy aims to rationalise current IT 
award of New Work  
to this wherever possible. 
infrastructure and put in place industry standard 
(28th report 1999-2000)
processes and solutions. 
The Department should impose tighter control when  There is an established process for new work 
developing applications with the contractor to ensure  involving setting requirements, the supplier’s 
that objectivity is not lost in assessing proposals and  proposal, the business case, approval and then pilot 
controlling costs. 
trials. The project must run successfully for 6 months 
before payments are released.
The Department should apply the lessons from post 
Since the start of the ASPIRE contract, major IT 
implementation reviews of new IT developments  
releases have been made in October 2004, 
and projects. 
April 2005, October 2005 and April 2006. 
 
After each release, ASPIRE carried out a post 
 
implementation review and the findings were 
 
provided as input to the following release. A process 
 
has been put in place to capture lessons learned and 
to share them more widely.
The Department should ensure that it establishes 
The Department has worked with the OGC to share 
close links with the Office of Government Commerce  good practice from ASPIRE. The OGC has included 
(OGC) to share experiences. 
ASPIRE as a case study in the latest version of its 
procurement guidance.  
The Department should extend benchmarking work 
Ad-hoc benchmarking and market-testing is 
to assess the competitiveness of supplier charges to 
underway under ASPIRE. A comprehensive two-year 
cover more of the contract costs on a regular basis.  rolling benchmarking programme is expected to 
begin in July 2006.
The Department should reconsider the value 
Under ASPIRE, procurement discount sharing 
for money it obtains through the equal split of 
arrangements are in place. The contract states that 
procurement discount savings made by EDS  
any procurement by the supplier above £50,000 will 
buying power. 
be benchmarked against a third-party price. Using 
 
this benchmark, the Department wil  retain 80% of 
 
the difference between the actual cost to the supplier 
 
and the third-party comparator price where the 
 
supplier has purchased items below the third-party 
comparator price and 50% where the supplier has 
purchased items above the third-party price. 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
5

appendix two
PAC Report continued
PAC Recommendations continued
Has this been applied in AsPiRe? continued
The Department should monitor the delivery on other 
As part of the evaluation, the Department 
contracts held by the supplier, to identify potential 
obtained references for each bidder from 
risks which might affect services provided under  
other organisations. 
the partnership.
The Department should reassess the risk of 
Of fifteen Departmental staf  involved in the 
unplanned departures from its contract  
procurement stage, only one remained in 
 
management team and sharpen succession planning 
place for the contract management as the 
 
for specialists. 
Department suf ered key departures soon after 
 
 
the award of the new contract, including that 
 
of the Senior Responsible Owner. 
 
 
In view of the importance of securing an open 
The Department achieved competition by 
 
competition, the Department will need to ensure that 
encouraging the industry to bid for the 
 
proposals for new systems do not unduly limit its 
contract, through the use of incentives such as 
 
future choice of strategic partner.
paying unique transition costs and excluding 
these from the bidder evaluation. 
 
 
 
 
NIRS2 Contract Extension  
The barriers to competition when the Department’s 
(38th Report 2001-02) 
contracts come to an end may be too great. In the 
 
 
absence of competition the Department will need to 
 
ensure that the methodologies used to estimate and 
benchmark bid proposals are rigorous.
 
The Department should explore how to build 
HM Revenue and Customs believes that 
 
additional flexibility into future contracts, for example 
the ASPIRE contract is flexible enough to 
 
to cope with legislative changes. 
deal with major change, but this needs to 
 
 
be proved in practice, particularly with the 
 
 
merger of the PFI contract held by the former 
HM Customs and Excise with ASPIRE.
 
 
 
Managing the Relationship 
Staff continuity between the procurement and the 
Of fifteen Departmental staff involved in the 
to secure a Successful 
subsequent management of the contract is desirable. 
procurement stage, only one remained in 
Partnership in PFI projects  
Where this is not possible, there should be a gradual 
place for the contract management as the 
(42nd Report 2001-02) 
hand-over between the staff who negotiated the deal 
Department suffered key departures soon 
 
and those who will be responsible for post-contract 
after the award of the new contract, including 
management to ensure continuity.
that of the Senior Responsible Owner.
 
Departments should ensure that mechanisms are in 
The Department has some controls in place to 
 
place to provide continued value for money over the 
assess value for money of the contract and is 
lifetime of a deal.
developing others.
 
 
 
Transforming the 
The cost of the PFI contract with Fujitsu has  
The Department will need to ensure that in 
performance of 
increased from £500 million to £929 million. 
merging the PFI contract into ASPIRE, the 
HM Customs and  
Retendering the contract would have given 
expected benefits from the investment of 
Excise through electronic 
better assurance on the value for money of the 
£929 million in the PFI contract amended in 
service delivery
revised contract, but would also have put at risk 
2003 are fully realised. 
the expected benefits of the e-programme. The 
Department should complete a full business case for 
the e-programme, supported by sensitivity analyses 
of benefits and costs. It should specify the benefits, 
and formulate plans for realising them. 
6
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

appendix three
APPendix tHRee
Office of Government Commerce guidance for 
re-competitions 
When drafting the original contract
n  TUPE (Transfer of Undertakings (Protection of Employment)) clauses should be included in all contracts  
for services.
n  Provisions for full sharing of any information that might give the incumbent contractor an advantage.  
Such information is to be provided in time to be included in any invitation to tender.
n  The contractor should keep up to date the inventory of equipment passed to them at the outset of the contract, 
and there should be an up front agreement on who wil  own which pieces of equipment at contract termination. 
n  The level of servicing of any equipment should also be specified.
n  Ownership and transfer of IT equipment and other tangible property, software and data should be  
made clear. 
eighteen months to four years before contract end 
n  Negotiate with the incumbent contractor to insert missing provisions, as listed above.
n  Determine the strategy for the new contract, so it reflects future business needs. For example, consider 
changing the scope; all outsourcing options; risk allocation; flexibility; and partnership.
only consider extending the existing contract when 
n  There was scope within the original advertisement in the OJEU for a possible extension. 
n  The existing supplier is performing well and is well placed to deliver business needs.
n  The supplier is not over-dependant on the department.
n  The market remains competitive. If there are few suppliers in a market place and an existing  
large contract is extended, competitiveness may be reduced.
if it is decided to go to competition
n  Actively publicise intentions and manage the market’s expectations to establish the conditions for a  
robust competition.
n  Try to secure the incumbent supplier’s interest in the re-competition to maximise competition and incentivise it 
to maintain performance levels until the expiry of the contract.
Create a level playing field against a strong incumbent 
n  Encourage all potential suppliers to believe the contract is winnable and are incentivised to bid. This 
may include senior staff actively promoting the openness of the competition; providing bidders with full 
information on all aspects of the work; funding transition costs and disregarding the risk of transition in the 
evaluation criteria; allowing payment for a de-risking as ‘proof of concept’ stage; providing access to all sites 
and allowing bidders to comment on the requirement specification.
if the contract is being tendered in the middle of a major it project
n  Negotiate an agreement for payment of additional sums to retain the incumbent’s key staff for a set period to 
help with knowledge transfer.
n  Avoid placing significant new demands on the incumbent just before the transition.
 
Source: Office of Government Commerce Successful Delivery Toolkit 

ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
7

appendix four
APPendix FouR
Lessons learnt from the EDS ‘Eagle’ contract and the 
Accenture NIRS2 contract
The Department identified a number of lessons from 
outsourcing its IT services to EDS and the PFI contract for 
NIRS2 with Accenture.
Lesson
Has this been applied to Aspire?
Effective contract management should ensure that the contract 
The Department has invested time to adapt its procedures to cope with 
is operated properly and obligations are adhered to but must 
the change from an input to an output based project. The Department 
also provide a framework for handling issues which arise 
has recognised that its staff need a better understanding of the new 
outside the contract, or which require changes. 
contract and has initiated an education process for all staff to learn 
 
how to get the best out of ASPIRE. A separate Contract Management 
Team provides a source of expertise for the business. 
FuLLy APPLied
It is unlikely that a single supplier will hold all the skills to meet 
The concept of a strategic partnership with co-partnering was 
the Department’s requirements so contracts should encourage 
identified early on as the best solution to meet the Department’s 
and institutionalise co-partnering with the ‘lead supplier’. 
requirements. It provides a single supplier with overall responsibility 
 
and accountability for IT integration and gives the Department access 
 
to a range of suppliers and new technology so it is not locked into one 
or two large suppliers.
FuLLy APPLied
Effective performance measurement needs base lining of 
A performance measurement system is in place, providing information 
current service levels. Service levels need to refer to desired 
on the supplier’s performance against targets and target margins. 
business outcomes and should be based on outputs rather  
However these measures were rolled over from the previous contract 
than inputs. 
and may not all be relevant under ASPIRE. A service improvement 
 
programme is underway which aims to improve the performance 
measures for monitoring the contract.
PARtiALLy APPLied 
The contract term should be long enough to establish the 
The ASPIRE contract is for ten years with the option for an additional 
benefits of the relationship and should retain some flexibility 
eight. This should help to avoid the cliff-edge scenario under the 
beyond the minimum term of the contract to help manage the 
previous contract as it provides flexibility for the Department to decide 
timing of the following competition.
the most desirable point for re-competition.  
FuLLy APPLied
Risks should be allocated to the partner best able to  
The contract was designed to allocate risk on an appropriate basis 
manage them, but given the pace of change in IT, flexibility  
and provide flexibility to bring in specialist sub-contractors.
is also important.
FuLLy APPLied
Fixed price agreements should be made (where appropriate) 
ASPIRE aims to incentivise the supplier by paying on the basis of 
to incentivise supplier performance. 
outputs rather than inputs and includes discounts for increased 
 
volume but additional funding for lower volumes. The contract makes 
 
payments on the successful completion of the milestones and contains 
penalties for delayed delivery.
PARtiALLy APPLied
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ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

appendix four
Lesson continued
Has this been applied to Aspire? continued
The contract should ensure that there are incentives for the 
The ASPIRE contract contains clauses whereby the savings obtained 
supplier to get the best price when purchasing capital assets 
by the supplier would be shared between the supplier and the 
and that the Department should share any savings made. 
Department. The contract states that any procurement by the supplier 
 
above £50,000 will be benchmarked against a third-party price. 
 
Using this benchmark, the Department will retain 80% of the difference 
 
between the actual cost to the supplier and the third-party comparator 
 
price where the supplier has purchased items below the third-party 
 
comparator price and 50% where the supplier has purchased items 
above the third-party price.
FuLLy APPLied
For contracts where outputs may be usefully applied across 
The ownership of intellectual property rights was maintained by the 
other Departments, the ownership of the intellectual property 
Department as part of the ASPIRE contract. This is the same as for the 
rights should be retained by the Department. 
old contract with EDS, but different from the NIRS2 PFI contract with 
 
Accenture, where the Department had to buy the rights to use from 
Accenture at the end of the contract.
FuLLy APPLied
The end of the contracts should be planned at the outset to 
The Department negotiated amendments with suppliers to the previous 
ensure that if there is a change of supplier the incumbent 
contracts before their end. Under ASPIRE exit arrangements are 
supplier will be bound to provide appropriate levels of support 
stronger, but may need re-negotiating over the course of the contract.  
and assistance to any new supplier.
FuLLy APPLied
The Department needs to maintain its own pool of IT staff 
The Department has enough IT expertise to check and evaluate the 
to act as an ‘intelligent customer’; to be able to check and 
supplier’s proposals. It is however seeking to reduce the ratio of its 
evaluate supplier proposals and act as an intermediary 
IT staff to the supplier team from 30:70 to nearer 20:80 to reduce 
between the Department’s business groups and the supplier.
running costs.
FuLLy APPLied 
Relationships between Department and supplier should be 
The ability to act as a partner was a key criteria of the bid evaluation, 
treated as a partnership. The principles of this rest on joint 
and partly because of the high level of staff transfer from the old to 
responsibility and understanding. For example, continuity 
new supplier, sound relationships have been formed.   
of staff across the procurement, transition and contract 
management stages helps to build relationships and trust.
The contract itself stipulated the names of certain key supplier 
management personnel to remain on ASPIRE for a length of the 
time after the contract started. However continuity on both sides is 
important. Of fifteen Departmental staff involved in the procurement 
stage, only one remained in place for the contract management as the 
Department suffered key departures soon after the award of the new 
contract, including that of the Senior Responsible Owner. 
PARtiALLy APPLied 
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
9

appendix five
APPendix Five
The risks of transition and the early stages of ASPIRE 
Main risks in the transition phase and the Department’s response
Main risks
the department’s response
Escalation of transition costs 
n  The Department set a budget of 10-15 per cent of the contract’s first year value 
 
(around £50 million) for unique transition costs (those costs identified by the 
 
supplier and agreed with the Department which would not have been incurred 
had the existing suppliers continued to provide all or part of the IT).
n  Costs were generally well controlled and came in around budget, although the 
Department and the new supplier did not agree what would qualify as a unique 
 
transition cost until the transition had started, so valuable resources were taken up 
 
during transition negotiating whether a cost was unique or not.
 
Lack of or ineffective co-operation between 
n  The cooperation of the incumbent suppliers and the positive working relationship 
exiting supplier, new supplier and Department 
that was developed by the Department through day-to-day collaboration in the 
during the changeover 
existing Eagle and NIRS2 contracts and in running the procurement. Exit clauses 
 
the Department negotiated with EDS in 2002 provided a certain level of support 
 
and information to any incoming supplier. In addition the outgoing suppliers 
wanted to exit on good terms. 
Ongoing service delivery would be disrupted 
n  The transition was generally well managed by the Department, with no major 
by the transition and key projects spanning the 
disruptions to services.
transition would be disrupted or delayed 
n  During transition, the incumbent suppliers delivered scheduled IT releases and 
worked with the incoming suppliers to develop project plans. The incoming 
suppliers reviewed IT project progress to date and estimated the time and cost 
needed to complete the projects. 
 
 
n  The high volume of change projects during transition put a strain on both 
 
Departmental and supplier capacity during the early stages of the new contract.
 
 
Not successfully completing the transition on time  n  The transition period al owed the incoming supplier sufficient time to prepare to run 
so the new supplier was not in a position to run 
IT service from the start of the new contract. To achieve this, it acquired sufficient 
the new contract from day one
knowledge and understanding of HM Revenue and Customs’ business and IT 
environment, either through work-shadowing existing staff or through arranging 
staff transfer, and ensured that most existing sub-contractors were retained.
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appendix five
Risks at the beginning of a new contract with a new supplier
Main risks
the department’s response
Cost escalation without compensating increases 
n  The Department has mechanisms to control costs and deliver benefits. It intends to 
in benefits
carry out an overall assessment of supplier performance in late 2006.
 
Not gaining a sufficient share of the benefits and  n  ASPIRE contains agreed governance processes to identify the Department’s share 
profits the contractor obtains from the strategic 
of benefits realised from innovation, identifying savings and benefits generated.
partnership over the course of the contract 
n  The contract transfers performance risk to the supplier for operational  
services, and incremental payments for software development are based on 
successful delivery. 
The Supplier and Department not having  
n  Needs may change for new skills and technology. Effective management 
the capacity, resource and skills to manage 
of sub-contractors and co-partners can alleviate this risk. Under Capgemini 
and deliver the IT requirements of a larger  
plans, the Department will be involved in the monitoring and management of 
single contract
sub-contractor performance. 
Opportunities for innovation not realised 
n  Requirements may change over the term of the contract, particularly with 
 
regards to the recent merger with HM Customs & Excise. The contract allows the 
 
Department to require the supplier to engage particular ‘co-partners’ where new 
 
skills or technologies are needed, benchmarking suggests the marketplace may 
 
offer an economic advantage or where volume increases or peaks of resource 
requirement cannot be supplied by the Supplier’s internal resources
n  Technology-enabled change and innovation was a key part of the evaluation of 
the bids. 
 
Insufficient management of sub-contractor 
n  The Department has a copy of the sub-contract and the supplier has confirmed 
performance
that there is a full flow down of terms and conditions.
Early break of contract  
n  The Department has built contingency measures into the contract, requiring the 
 
supplier to deliver services up to the point of expiry or termination, co-operate 
 
with the Department and any successor supplier to ensure smooth continuation of 
services, and make provisions for the assignment of rights relating to the project.
n  The contract also contains clauses on asset treatment and staff treatment.
Supplier failure 
n  The contract includes a guarantee that Capgemini’s parent company would 
 
intervene in case of supplier failure. Total claims are limited and related to 
operational and project charges.
The merger with Customs and its separate IT 
n  The two contracts have not yet been merged. Negotiations are ongoing. The 
contract with Fujitsu may lead to cost escalation, 
Department has selected a preferred option to bring together the two contracts.
delays to critical projects and delays in benefits 
coming on stream
Source: National Audit Office
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
51

appendix six
APPendix six
Lessons from ASPIRE 


Managing relationships throughout the process
Review the balance between in-house 
Encourage collaboration between  
Establish and build relationships with 
and supplier IT support to ensure 
the incumbent and new suppliers 
potential and incumbent suppliers
business efficiency
during transition
Being prepared for the end of the 
Aligning the contract to  
Creating competition
existing contract
business needs
n  Review performance of existing 
n  Review contract and supplier 
n  Listen and develop a strategy  
contract/contractor
performance to draw lessons for 
to respond to the market to  
the new contact
foster competition
n  Stocktake existing IT systems/
assets/contracts and prioritise  
n  Include up-to-date mechanisms to 
n  Demonstrate the 'Unique Selling 
costs and benefits of upgrading  
assess value for money
Point' of your competition
IT systems
n  Allow for contract review at fixed 
n  Consider incentives to level playing 
n  Implement a safety zone to avoid 
points and have flexibility around 
field and encourage competition
having too many IT projects/
re-let date
business change programmes 
n  Minimise the burden on bidders 
ongoing at the end of the contract
n  Ensure the contract is flexible 
and ensure timescales are  
enough to deal with business and 
adhered to
n  Scan the horizon to identify 
machinery of government changes
implications of potential machinery 
n  Evaluate using a range of  
of government changes
n  Ensure the contract allows for use 
criteria that relect business and 
of sub-contractors
financial needs
n  Review existing contracts to  
ensure they have robust  
n  Underpin productivity incentives 
n  Maintain competitive pressure 
termination clauses
and profit sharing in line with open 
during negotiations
book and use financial models for 
n  Fully evaluate contract  
the competition that are baselined 
replacement options
in the contract
n  Clear commercial strategies with 
n  Consider the principles of risk and 
external stakeholders
reward sharing
Source: National Audit Office
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ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

appendix six


Ensure a visible process so employees 
Engage with business areas and 
can decide if they want to transfer or 
prepare staff for the transition  
remain with the incumbent
and the new contract
Managing the transition
Maintaining service delivery
n  Develop an integrated transition 
n  Compile an inventory of projects 
plan specifying milestones, 
and examine their status and 
deliverables and responsibilities as 
earned value
early as possible
n  Careful y manage the risks to loss of 
n  Develop and test contingency plans
service when transferring IT systems
n  Ensure that the length of transition 
n  Maintain staff continuity by  
is fit for purpose
getting high levels of staff transfer 
and backfill any vacancies  
n  Manage the transfer of third-party 
during transition
contracts, including having a 
strategy for those due for renewal 
n  Healthcheck ongoing projects with 
during transition and replacing 
the new supplier and re-evaluate 
those that don't transfer
plans if necessary
n  Estimate and control the costs  
n  Balance the needs of the  
of transition
new supplier with those of the 
incumbent and protect the 
n  Provide additional space for the 
live service
incoming supplier during transition
n  Ensure all new terms of reference 
apply to transferred projects
n  Get an early view of the new 
suppliers performance
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES
53

appendix seven
APPendix seven
Diagram of the interrelation of the main parties in ASPIRE 


during AsPiRe procurement oct 2001 - Jan 2004
Capgemini and 
Other Bidders
EDS and Accenture
EDS
Accenture
Fujitsu
IT Service Delivery 
Bidding for the ASPIRE contract
(Under Eagle 
NIRS2
Contract)
Inland Revenue
service delivery Phase of AsPiRe following the creation of HM Revenue and Customs in April 2005
Fujitsu
HM Customs  
Customs IT Service Delivery (ISA)
and Excise
HM Revenue and 
Customs
Inland Revenue
IR IT Service Delivery (ASPIRE)
Capgemini (supported by Fujitsu, 
Accenture and other subcontractors)
5
ASPIRE – THE RE-COMPETITION Of OUTSOURCED IT SERvICES

appendix eight
APPendix eiGHt
The NIRS2 transition
Background 
technology with a limited shelf-life and was running 
out of support products. The Department considered 
The Inland Revenue had a ten year PFI contract with 
that there would be limited risk in deferring the re-
Accenture from 1995 for the provision of the National 
platforming to enable it to get better value for money 
Insurance Recording System (NIRS2). The NIRS2 system 
and some creative proposals by including it in the 
holds over 70 million National Insurance records, 
ASPIRE competition. Each bidder had different plans 
processes 50 million end-of-year employee returns, 
to re-platform NIRS2. The Department was initially 
feeds data to other tax systems, supports the accuracy of 
surprised that Capgemini proposed a “big bang” approach 
National Insurance data, and calculates rebates to the 
(Accenture, the incumbent supplier, proposed a phased 
pensions industry (around £3 billion a year). 
approach). Changing contractor required the movement 
of NIRS2 systems from equipment that was hosted by 
The Committee of Public Accounts’ report on the 
Accenture to Fujitsu to enable the new suppliers to take 
“Contract to Develop and Update the Replacement 
over the day-to-day operation of the system. The migration 
National Insurance Recording System” (46th Report 
of NIRS2 represented a significant challenge due to 
1997-98) highlighted concerns about delays in 
the system’s complexity and the need to update both 
implementing the system, which was large and complex, 
hardware and system software. The original timetable was 
and that the low winning bid may have signalled that the 
for the migration to take place over the Christmas 2004 
bidder did not appreciate the complexity of the project. 
period to minimise the impact on customers. 
The Committee recommended that the Department should 
ensure it fully understood the impact of any delay on 
its business; have contingency plans including fallback 
The re-platforming was delayed 
positions in place; and contracts which provided adequate 
compensation in the event of delays. 
Capgemini and Fujitsu encountered major problems in the 
system build which delayed the project’s progress and 
The Committee of Public Accounts’ report on 
testing programme. Because of these problems, the 
“NIRS2 Contract extension” (38th Report 2001-02) 
Department and suppliers made a joint decision in 
highlighted that the contract extension the Inland 
November 2004 to postpone the re-platforming. Following 
Revenue had negotiated with Accenture was generous 
negotiations with Accenture, the existing equipment used 
for a non-competitive contract as the contractor had 
by Accenture, which until then had been unavailable, was 
outperformed its productivity target by a wide margin. This 
used, allowing a phased approach to the re-platforming 
raised questions about how rigorous the original estimates 
during the May, July and August 2005 bank holiday 
and benchmarking were. The Committee also considered 
weekends. Accenture, the previous contractor since 1995, 
that the Inland Revenue would face a challenge in 2004 
has been retained as a subcontractor under ASPIRE for the 
as the barriers to competition may be too great in terms 
duration of the ASPIRE contract. The cost of completing 
of learning and costs for such a large and complex 
the migration in the deferred timescale was £9.9 million. 
system. It also highlighted the benefits of incentivisation 
Capgemini has paid £7.9 million and the Department  
of performance, transparency, minimising the risk of 
£2 million. The Department did not accept liability but 
disputes, replicating lessons learnt on earlier projects and 
considered it was not worthwhile to establish all the 
sensible allocation of risks.
causes of failure and attribute them to any party, as the 
additional costs were within its original estimate of 
£16.2 million for re-platforming. Although the delays did 
Upgrading NIRS2 
not affect service delivery, the system was implemented at 
the end of August 2005 but was not fully operational until 
The NIRS2 system needed to be re-platformed (which 
November 2005, and since then the system has performed 
involved providing new hardware, operating system 
at improved levels.
and database to support NIRS2) as it was based on old 
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55