Dexter Whitfield in his article discusses the recent report released by the European Services Strategy Unit on public sector ICT projects and makes some constructive recommendations on how this trend of extra costs and delays could be reversed.
The scale of cost overruns, delays and terminations in outsourced public sector ICT contracts has been documented for the first time. The ESSU has identified 105 ICT contracts in central government, NHS, local authorities, public bodies and agencies with a £29.5billion contract value. 57% of contracts experienced cost overruns totaling £9.0 billion, 33% of contracts suffered major delays, 30% of contracts were terminated and 12.5% of Strategic Service Delivery Partnerships have failed.
EDS headed the list of contractors with 13 contracts which had cost overruns, delays and terminations followed by Liberata (8), Fujitsu and IBM (6 each), Accenture, Atos Origin, Capita, ITNET (now Serco) and Siemens (5 each) and BT (4).
Contract values do not include the cost of project planning, Business Case preparation or the cost of the procurement process. They also exclude the cost of management and technical, financial and legal consultants, which can run into millions of pounds.
The full public costs are masked because a wide range of additional costs borne by the client are rarely identified. These include additional contract management and monitoring staff, engaging technical consultants to advise the authority of contract problems, lost income from delays in service delivery and overpayment of benefits/credits and additional procurement costs in re-negotiating contracts or retendering. The loss of planned efficiency savings often results in spending cuts being targeted elsewhere.
Why ICT projects have gone wrong
The House of Commons Public Accounts Committee, the National Audit Office (NAO) and other organisations have tried to explain why there have been so many cost overruns, delays and contract terminations. In 2003 the NAO concluded there was a lack of adequate senior management and ministerial ownership and leadership, effective stakeholder engagement and inadequate resources and skills for project management. The NAO also identified a lack of understanding of and contact with the supply industry, too little attention paid to a developmental approach and evaluation driven by price rather than long-term value for money.
These are valid conclusions but they rarely identify the root of the problem because they focus almost exclusively on the procurement process. Five wider issues must be addressed.
Firstly, many projects are over-ambitious, complex and difficult. Long-term or delayed projects are often overtaken by new technology, changes in legislation and public policy.
Secondly, options appraisal is often flawed because senior management is committed to a particular approach and other viable options are ignored or marginalised.
Thirdly, the private sector frequently believes its own spin about ‘world class’ services and thus overstates its ability to deliver. It also often under-estimates the complexity of public service provision.
Fourthly, clients or ‘commissioners’ are often under-resourced. A lack of understanding of service/user needs is mirrored in specifications, which in turn, is reflected in inadequate bids, followed by less than comprehensive bid evaluation and ultimately limited monitoring of the contract, thus creating a vicious circle. But contract termination may be more costly politically and financially than performance failures, so many contracts continue to operate.
Finally, the procurement process is a high-risk strategy, heavily influenced by market forces in respect to who bids, the level of competition and private sector strategies to increase market share. Inadequate bids or loss leaders may result in tight margins and cost reduction strategies with negative consequences for the quality of services and jobs.
Private contractors are often ‘protected’ due to reluctance of government departments and agencies to name the service provider. For example, Audit Commission inspection reports rarely name private contractors and focus on the local authority or public body’s client responsibilities. Written Answers to Parliamentary Questions will not name the contractor unless specifically required to do so.
Sometimes the full extent of contract failures are concealed by ‘cooperation’ between client and contractor. Neither want adverse publicity about service or contract performance because of the potential political and commercial consequences.
What should be done
The government’s commitment to commissioning and contestability does not address any of the fundamental causes and will only make matters worse for ICT projects in the next decade, particularly in shared services projects. The remedies do not lie in tinkering with the procurement process but with root and branch change in the modernisation of public services.
- In place of ‘wider and deeper’ private sector involvement in public services promised by Gordon Brown, the government must have a radical rethink of the public services transformation strategy. Outsourcing, the creation of contestable markets and the obsession with one-stop-shop contact centres should be downgraded with priority given to funding and integrating core frontline services.
- Options appraisal must be revamped with a requirement to examine all options (including in-house delivery combined with best-in-class external support) using comprehensive social, economic, health and sustainable development impact assessment.
- Building in-house capacity must be prioritized. Too many public sector managers rush to use management consultants who predictably encourage outsourcing, yet their evidence and conclusions are rarely subjected to rigorous assessment. Consultants should only be used with a skills/knowledge transfer agreement.
- More effective Scrutiny at key stages which must have the resources to provide an effective challenge in the decision making process. Gateway reviews too narrowly focused on procedural implementation of the original decision.
- Procurement must be democratised. Whilst public and private commercial confidentiality must be safeguarded, service user, staff and trade union involvement should be a prerequisite.
- A developmental and incremental approach is likely be more desirable, effective and economical. Public interest and reducing inequalities should replace the discredited ‘what works’ ideology.
Dexter Whitfield, Director, European Services Strategy Unit and Adjunct Associate Professor, Australian Institute for Social Research, University of Adelaide.
