12 June 2007 | Antony Barton
Government departments will need to show there is no other way to achieve cost-effective competition if they are to pay substantial bidders' costs, according to the chairman of the Committee of Public Accounts.
Edward Leigh MP made his comments during the launch of a report on IT service supply to the former Inland Revenue. The findings reveal nearly £52 million was paid to meet bidders' costs when the department tendered a contract that began in July 2004.
The department, now merged with HM Customs & Excise to form HM Revenue & Customs (HMRC), thought potential competitors might believe the current IT supplier would be difficult to displace. To encourage competition, the department contributed £8.6 million towards bidders' costs, and accepted further costs in IT support to allow bidders to demonstrate their capabilities. It also agreed to pay transition costs to any new supplier and exclude these from the bid evaluation.
Capgemini's successful bid was £2.8 billion for a 10-year contract - £32 million more than RPS (EDS and Accenture). HMRC said the bid was more suited to its future IT needs.
The report says the department could have been shrewder in its negotiations for the project. The costs of transition were agreed after the contract was awarded and included a profit margin for the successful bidder.
Leigh said the department should have foreseen that its demand for IT services could vary and realised how this might affect its contractor's prices and profit margins. He added: "If profit margins carry on at the current level, then Capgemini could make £1.1 billion on the contract, nearly four times the amount originally envisaged."
He concluded there would need to be benchmarking in future to ensure the prices reflect the volume of work carried out.