The UK government has insisted it will be “unashamedly militant” in enforcing a much-touted £100 million ($164 million) cap on IT contracts with suppliers, after a decade of bloated, failing projects that have angered British tax payers. But IT industry experts have told Forbes that the government’s announcement, made in recent weeks, still leaves a significant loophole that may make it hard to enforce.
Under new plans, it will not generally be possible to sign IT contracts of over £100 million. But in a crucial loophole the government has said that it will permit large agreements in “exceptional circumstances”.
Deals will be able to exceed the new limits if there is a “strong case” or “a matter of national security”, Georgina O’Toole, a director at analyst house TechMarketView, tells Forbes. The cap was initially announced in 2012, and “since then we have seen a number of IT contracts exceed that limit, for example, Lockheed Martin’s £135 million Service Integration & Management (SIAM) contract with the Ministry of Justice”, O’Toole says. However, she notes that so far these larger contracts have been the exception rather than the rule.
Other experts agree on a potential risk in the new rules. Asked whether the cap would really mean the end of problematic large IT contracts, Nishant Shah, a senior analyst at Ovum, says, “most likely not”.
While the rules would mean fewer large contracts overall, he says, “as with any red lines, they are only as effective as the teeth they contain and the degree to which the policy-making entities can catalyse a longer term cultural shift”.
Shah says it “remains to be seen” whether the government will prevent problems when departments “ inevitably pitch large IT contracts within the exceptional cases category”.
Massimiliano Claps, a research director at IDC Government Insights, describes the government’s announcement as somewhat “political”. He explains: “Just as indication that some political effect is in place here, this threshold was announced before but the government still awarded large contracts.”
He highlights two new shared services centers, which “have a large IT component” and are worth “much more than £100 million”, last seven years and have a three year optional extension ready and waiting.
Crucially, in spite of a promised cap, there has been little clarity over how the government will exit problematic projects that end up costing much more than the original cost – save for the government’s overseeing Major Projects Authority assessing the problem and potentially taking action. Severe examples of overrun projects include the UK’s National Programme for IT, a health record digitisation disaster in which predicted costs ballooned from the budgeted £2.3 billion to a stunning £12.7 billion. The chaos ultimately resulted in the cancellation of the project, and legal wrangles continue over whether the suppliers or the government were ultimately to blame.
A new contract structure
Experts say that a new structure for IT contracts may help prevent some problems, if work is monitored carefully and the government makes the most of its increasing preference for Agile development.
O’Toole says a “tower-based structure” has become popular, in which different tranches of work are awarded to different suppliers. This can reduce the risk and enable more flexibility, as well as allowing easier exit points.
But she warns of a potential problem: “The question mark has to be over whether the government will be successful in knitting these various contracts together.”
There is also skills issue. “The government cannot match the salaries of the best program managers in the private sector,” she notes, presenting a potential strategic problem.
All of the experts say that budget shortfalls are forcing the government to become a more ‘intelligent customer’. Shah at Ovum explains: “Mandates around increased SME presence in the procurement process show that the UK government understands the role that technology lock-in plays in cost overruns, with an attendant need to diversify the supplier base.”
But he adds that a question remains: the government’s ability “to translate memos and strategies into true reform”.
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