A shared services scheme at the Department for Transport (DfT) that was meant to save £57 million, is set to make losses of £80 million instead.
A report by the National Audit Office, called 'Shared Services in the Department for Transport and its agencies', said the government had been “unrealistic” when it hoped the service centre would be operational only a year after the business case was approved in 2005.
It had also badly managed key contractor IBM and needed to improve the terms and conditions of their framework agreement. Rather than putting the project out to tender, the government had extended its existing work with IBM.
At current estimates, the project will have cost £120 million instead of £55 million, and will result in a net loss of £80 million, after only £40 million gross savings are generated by 2015.
The report found that there would need to be “substantial improvements” in the service centre’s productivity if the £57 million savings targets were to be met. Even if the DfT achieved cost savings of £50 million per year, the programme would take until at least 2012 to break even, the NAO said.
Changes to initial cost estimates, inadequate contract management and poor initial implementation meant that the programme was not achieving value for money, the report said.
The DfT had struggled to agree common business processes, and software testing was inadequate, leading to an “unstable system” being introduced. There were so many problems with the system, the report said, that error messages were appearing in German and simple software-based HR processes were not working correctly.
The scheme was run by an IBM-led team, under an existing contract with the DfT.
The NAO said that the government had failed to properly manage IBM, and had not properly specified its needs for the project. The government had also missed the opportunity to buy work at “bulk day rates” from IBM, and a lack of checks and controls meant overpayments had to be recouped.
IBM has been paid £54 million for the project so far, out of a total of £72 million spent on contractors. The NAO advised the DfT to renegotiate carefully its framework agreement with IBM, “so that the department receives best value for money”.
IBM declined to comment on the situation, citing client confidentiality.
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