Select Committee on Work and Pensions Minutes of Evidence

Annex A



  The majority of IS/IT services are procured through the DWP ACCORD IS/IT Framework Agreement. This agreement was reached after a full and open procurement competition following an advert in the European Journal and sets out broad terms and conditions under which future contracts, known as Business Allocations, shall be awarded. The agreement allows DWP to award certain IT related business to a small number of service providers without the need to continually re-compete in the market place.

  As a result of the agreement the Affinity consortium (led by EDS with IBM, PriceWaterhouseCoopers and AT Kearney) were awarded "Preferred Supplier" status for the development of IS/IT services.

  The Child Support Reforms, CSR, business allocation was the first such allocation awarded under the ACCORD framework for the design of a new IT system.


1.   General

  Detailed negotiations regarding the CSR Business Allocation took place over several months culminating in signature on 8 August 2000. Throughout this process the DWP had professional legal and financial advice and guidance. The allocation is fully compliant with Treasury guidelines and as a result Affinity recover the cost of the development, subsequent operational costs and a reasonable return on investment via a series of periodic payment based on performance. The CSR Business Allocation also took account of recommendations made by a McCartney (now called Gateway) Review.

2.   Legal Protection for the DWP

2.1  Payment on Delivery

  The allocation maintains a key principle of Public Finance Initiatives in that the DWP will not pay any monies to EDS for the operation of the system until such time as the system meets agreed criteria and is considered "Live".

  As the DWP has yet to make any payments to Affinity this adversely affects their financial position. At this point in time EDS would have expected to have recovered some of the costs of IT development by way of monthly payments for the use of the new system after it had been implemented. This has not happened and no payments have been made to them.

2.2  Assurance Points

  The business allocation contains a number of assurance points through which we formally measure progress. Failure to meet the criteria associated with these requires EDS to develop and deliver an acceptable recovery plan. Failure to do so could ultimately result in the DWP terminating the contract. EDS has presented a re-plan that is being impacted against other business activities required to implement the reforms.

2.3  Partial Delivery

  The CSR business allocation also allows the Department to agree to the implementation of a reduced set of functionality (or part of the system) ahead of the delivery of the full system. This was added as a contingency measure in case development of particular aspects of the IT service proved problematic. Had it been involved the level of monthly payment for the use of the "live" system would have been reduced on a pro rata basis.

2.4  Liquidated Damages

  Liquidated Damages (LDs) are a pre-estimate of loss that the Department may claim if there is a delay in the delivery of the IT system and the ensuring provision of services.

  There are three business events triggers for the payment of LDs in the CSR BA, these are:

    —  delay to "A" day;

    —  delay to Migration; and

    —  delay to conversion.

  The level of LDs for each business event was calculated by the Department prior to the contract negotiations and limited to the direct costs for the delay. They include the costs of employing project staff for longer, re-training and re-deployment of operational staff. They cannot, for legal reasons, include the value of lost benefits.

  The LDs are payable for a period of 13 weeks from the start of the delay after which the Department are entitled to terminate the contract should we wish to do so.

2.5  Payment/Performance Regime

  As mentioned earlier EDS receives payment only after the system has gone live and then on a monthly basis thereafter. Even then payment is subject to a rigorous set of service levels related to how well the system performs I live operations. If these performance targets are not met for any reason then the amount due is reduced depending on the extent of failure. In extreme cases the payment can be reduced by 70 per cent.

  Continued failure to meet agreed service levels can result in termination if the Department wishes.

2.6  Formal Acceptance

  Under current planning assumptions formal acceptance of the system takes place a full 18 months after the "Go Live" date. This measure is required because until the system holds and processes existing cases alongside the new we are not able to confirm that the system can cope. During this extended period we are able to terminate for poor performance under better terms to the Department than would be the case after the system had been formally accepted.

2.7  Application of these Protections

  Currently the Department and EDS remain confident a that the new IT will be available to support introduction of the reforms. Detailed planning and impact analyses are taking place.

Vince Gaskill

Programme Director

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Prepared 1 July 2002