Supplementary memorandum submitted by the Inland Revenue
Question 34: Figures for the reduction in costs to the taxpayer as a result of the productivity improvement on the part of Accenture?
Productivity arrangements have been in place since the extension to the contract was agreed. To date the productivity levels achieved have been agreed for the last three releases up to the release delivered in October 2001. Against the productivity level of seven and a half days per function point agreed in the contract extension the actual productivity over those three releases has exceeded the agreed level in each release and the actual average achieved across those releases has been calculated at three point four days per function point. The result of the productivity arrangements against the last three releases is a total saving to the Department for the period up to October 2001 of £9.6 million.
Question 108: The extent to which NIRS 2 is operational?
Note by witness. NIRS 2 has been considered to be fully operational in all its major elements since April 2000. Some relatively minor elements of functionality were not in place by that date because, for example, they were displaced in the release schedules by more pressing, new developments to the system, or doubts had arisen over the need for them because of changes in business requirements. But a mutual agreement, as in this case, between the Department and a supplier to vary the specification by including extra elements or deferring others is normal practice. The system itself is fully supporting business processes.
Question 142: Information about staff costs and productivity differentials?
Figure 7 of the NAO report reflects the results from the financial evaluation model used by Inland Revenue, separately excluding and including the necessary break costs. Each graph contains four elements which reflect:
(i) Accenture's proposal based on a productivity rate of seven and a half days per function point (FP);
(ii) industry average costs based on productivity rate of 11 and a half days per FP (the components for which were supplied by PA Consulting);
(iii) outsourcing contract costs based on 11 and a half days per FP (these were based on IR's experience of the current outsourcing contract with EDS); and
(iv) Accenture framework rates based on a productivity rate of seven and a half days per FP.
Inland Revenue's operational researchers estimated that a new supplier, lacking knowledge of a complex system such as NIRS 2, would achieve a productivity rate of 11 and a half days per function point. Accenture having developed and delivered the NIRS 2 system at a productivity rate of eight to 10 days per function point had confirmed that with the experience gained from that development they could improve productivity going forward to a level of seven and a half days per function point.
Whilst it is recognised that another supplier with Accenture's experience of developing the NIRS 2 system would similarly improve their productivity rates for further NIRS 2 development work, for the purposes of Inland Revenue's evaluation, any new supplier would effectively be starting from scratch and therefore for comparison purposes IR could only use the 11 and a half days productivity rate estimated by its operational researchers.
The results of the financial evaluation showed that when break costs were excluded, Accenture's proposal was costed at £100 million for a contract volume of 8,000 FP's over a four year period, the other three comparators were higher the nearest of which was the outsourcing costs which would have been £105 million. However, when the £44 million break costs (which had been independently validated by PA Consulting) are taken into account the total outlay for the outsourcing option would be £149 million.
Questions 204 and 205: Clarification of the penalty position under the NIRS2 contract?
There are two elements that constitute "penalties" under the NIRS2 contract. One aspect is in respect of any penalties for defaults contracted under the original agreementthese do not have any impact on the profit share arrangements. However, under the contract extension arrangements liquidated damages were introduced for circumstances where the supplier fails to deliver projects/enhancements to an agreed timetable. The liability for liquidated damages ends when the functionality has been accepted or at the expiry of three months from the intended date of acceptance, whichever is earlier. Should this occur, and we have had none to date, then liquidated damages are a cost to Accenture which would be included in the annual calculation of their actual gross margin for profit sharing purposes.