Examination of Witnesses (Questions 500
- 519)
WEDNESDAY 19 APRIL 2006
SIR DAVID
VARNEY, MR
PAUL GRAY,
MR STUART
HARTLIB, MR
STEVE LAMEY
AND MR
RICHARD SUMMERSGILL
Q500 Mr Todd: To what extent have
you managed to convey that to your political masters?
Sir David Varney: I thought the
answer which the Paymaster General gave when you asked her a question
about what my advice had been was absolutely spot on. My advice
is not couched in quite such black and white terms as my colleague.
Advice is about the risks which are run by doing things as against
the benefits.
Q501 Mr Todd: That is presumably
the criteria on which you have selected your release strategy,
which is risks/benefits?
Sir David Varney: Yes, and also
because the statement which the Paymaster General made in May
actually set out the agenda, and that was a product of a good
discussion about the resilience of the system.
Mr Gray: The timetable for the
changes which were announced in the Pre-Budget Report, as you
will have seen from the release strategy, is consistent with the
timetable for rolling out those additional bits of functionality
to support those policy changes in the release strategy.
Q502 Mr Todd: What must be an obvious
point, but perhaps has not been made absolutely clear, is that
the announcements in the Pre-Budget Report have therefore dictated
delay in fixing various other items which have been of concern
to people in the general operation of the system? That must be
true?
Sir David Varney: I am not sure
it is delay, but there is always a choice and there is so much
you can do. We had, I think, a very good discussion with the Ombudsman
about the technical problems of delay, of creating a pause, and
she accepted that this was not a lightly entered into judgment.
Q503 Mr Todd: Are you familiar with
the Pensions Service's approach to dealing with fixes in its systems,
which has a solution centre which is set up to examine problems
and produce co-working partnerships of different groups within
the Pensions Service to produce solutions? Is that something which
has been shared with you?
Mr Lamey: Yes, I work very closely
with my equivalent in the DWP and we use the accelerated solution
events to bring the developers and the business staff all together
in one place.
Q504 Mr Todd: That does not necessarily
make it easier to fix the thing in system terms, but it is in
working practice terms?
Mr Lamey: I think it helps clarify
what is absolutely required, and I think that helps the system
people to then define it.
Q505 Mr Todd: So you do use that
approach?
Mr Lamey: Yes. Just to clarify,
we are not limited in our releases just to PBR requirements; there
are many other technical updates and there are many other configurations.
Q506 Mr Todd: No, I am trying to
put it in black and white terms because it is just simpler to
understand that way. Turning to the relationship with EDS, there
has been discussion of the confidentiality agreement which was
signed and from the press coverage it does not seem that it was
entirely adhered to by someone, because there has been a reasonable
amount of informed speculation as to the contents of the agreement
and the relationship to future contracts. Do you want to set out
what you can on this matter, bearing in mind that some of it appears
to now be in the public domain?
Sir David Varney: Yes. I find
myself in an extraordinarily and exquisitely difficult position.
I gave evidence in private to the Public Accounts Committee in
some considerable detail. They also intimated to me that they
were thinking of publishing that evidence and our legal advisers
wrote to them to raise two legal concerns, one of which was the
exposure of the details of EDS's contract book. The second was
about the nature of the settlement with EDS, which is that we
get £71,250,000 over a period of time. We have got about
£47 million of that so far. If we do not get all that money—
Q507 Mr Todd: Sorry, is that £47
million in cash?
Sir David Varney: Cash or cash
equivalent.
Q508 Mr Todd: Cash or delivery of
works?
Sir David Varney: No, not works,
but can I just say the net effect on our resource account is as
if it was cash, but it is not cash.
Q509 Mr Todd: So you are talking
about software, or kit, or whatever?
Sir David Varney: Whatever. Can
I just not go there, because these are the details of the settlement,
but our lawyers wrote to the PAC in these terms: the first is
that the publication could jeopardise or seriously impair a potential
legal action by HMRC against EDS in the future. Under the settlement
agreement, HMRC retains the right to pursue its claims against
EDS in the event of non-payment by EDS. This means that HMRC's
claims, together with the legal advice underpinning that, remain
of vital importance to HMRC until such time as EDS has met all
of its ongoing payment obligations. Any public disclosure of the
details of HMRC's claims, of HMRC's and its lawyers' confidential
and privileged assessment of the strength of the claims, could
jeopardise or seriously impair HMRC's ability to pursue its claims
against EDS through the courts. Of course, HMRC has noted this
concern is temporary and only remains for as long as enforcement
against EDS may be required. Thereafter, HMRC has no concerns
about the publication of this information. I have seen the various
publications this morning of what various people are alleged to
have said. My view is that this is a very good settlement for
HMRC and is the highest settlement which has been achieved in
an IT contract. It has features in it which have been the subject
of debate with the PAC in closed session. I think what we have
done is an encouragement to us to act in a much more commercial
way and what we have done is we have had a commercial set of negotiations.
Those negotiations were hard. EDS would not move unless we entered
into an arrangement for some part of the payment which was deferred.
I took the view, and I still take the view, and I discussed that
with the NAO and with the Treasury and we took independent legal
advice, that the public purse was better protected by a higher
settlement rather than a lower one, and I think we have got a
good settlement.
Q510 Mr Todd: Okay. So just to be
explicit, £47 million has been received to date in goods
or cash?
Sir David Varney: Yes.
Q511 Mr Todd: The balance then is
presumably related to this possible future workload which EDS
may win in competitive tenders, is that correct?
Sir David Varney: That is what
is said in the public reports. I am being very careful. I am under
a legal obligation and I do not want to end up—
Q512 Mr Todd: So the figure of £30
million, which I think is quoted in some of the public reports,
is incorrect because that would not be equivalent to the sum that
is the balance?
Sir David Varney: Can I put it
another way? Nothing we have done is meant to influence in any
way any decision about anybody in government to procure services
from EDS. If I do not get the money from EDS through the mechanism
we have set up, I will pursue them through the courts unless my
ability to do so is undermined.
Q513 Mr Todd: Let us just try to
be fairly specific about this, as far as you seem to be able to.
The implication of this is that if EDS do not win works which
would allow them to deliver you the balance of the payment then
you will take them to court for the balance through your original
assessment of your likelihood of winning a court case?
Sir David Varney: We will go back.
The problem we were faced with is the cost of a court case is
estimated at £20 million and it would take two years. There
is a limitation in the contract with EDS about their responsibility
for events; they are capped. Nobody signs an uncapped contract
for providing services, everyone puts a cap in them. What we have
done is to produce a set of negotiations. The order book which
we inspected, many, many times covered the amount of money. I
would be extraordinarily disappointed if EDS did not honour this
obligation to pay the remaining amount of money.
Q514 Mr Todd: Through existing order
book commitments, not new contracts?
Sir David Varney: No, we looked
at their order book for new contracts.
Q515 Jim Cousins: You have just said
they referred to their order book for new contracts. Are those
contracts which actually exist, or contracts which are still under
negotiation?
Sir David Varney: Contracts they
hope to win.
Q516 Jim Cousins: Contracts they
hope to win, presumably not just with HMRC?
Sir David Varney: I do not think
HMRC would figure very significantly in their list of expected
clients.
Q517 Jim Cousins: Not just for the
Treasury then?
Sir David Varney: They are bidding
for a variety of contracts. Most of their business in the UK is
in the public sector, either central government or local government.
Q518 Jim Cousins: Does the order
book you referred to then refer to contracts which are not just
within the realms of government? It might also include local government?
Sir David Varney: I have not been
through them in detail—
Q519 Jim Cousins: The Health Service?
Sir David Varney: — but
I would expect them to consist of what EDS's view was and what
its future revenue is. The point I would make is that this was
many times covered and the question was, we could have settled
for a lower sum of money and been certain or we took this mechanism
against the threat that we did not reach a full and final settlement.
There will only be full and final settlement with EDS when we
are paid the £71,250,000.
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