HMRC coy on Aspire profit sharing terms

HM Revenue and Customs has said it expects the profit margins on its newly extended Aspire IT outsourcing contract with Capgemini to reduce over time.

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HM Revenue and Customs has said it expects the profit margins on its newly extended Aspire IT outsourcing contract with Capgemini to reduce over time.

But the government agency would not say whether controversial profit sharing clauses had been amended to ensure that more of Capgemini’s expected £1.1bn profit on the contract was returned to the public purse.

HMRC announced the restructuring and extension of the Aspire contract as part of moves to reduce IT running costs by 10% by 2010-11, a saving of about £100m year.

The agency originally signed the 10-year contract with Capgemini in 2003 on the basis of the IT service’s firm’s £2.83bn bid.

But a report from the Commons public accounts committee in June criticised the tripling of the estimated cost of the deal to £8.5bn.

The MPs also hit out at the scale of the profits Capgemini was set to reap from the deal. The committee found that profits could hit £1.1bn as the volume of work included in the contract increases.

But HMRC was unable to claw back the money because profit margins – at around 10 to 13% – were “below the thresholds which trigger the profit sharing agreement” included in the Aspire contract, the MPs reported.

HMRC refused to say whether the profit sharing provisions had been renegotiated as part of the restructuring of the Aspire deal. “The exact details are commercial in confidence,” a spokesperson said.

He added: “Should the supplier make profits over and above those considered reasonable, the department receives a share of the excess through a profit gain share mechanism. We will continue to monitor supplier performance and we expect margins to reduce over the lifetime of the contract.”

The restructured contract will now run to 2017 in a three-year extension to the original deal, which allowed for an extension of up to eight years.

The Aspire contract was first drawn up by the Inland Revenue to replace its contracts with EDS for IT services and with Accenture for the huge National Insurance Recording System (NIRS2).

Capgemini is unlikely to be worrying too much about its Apire profit margins, however, after announcing today that it will exceed its 7% operating margin target this year.

The firm said it expects to break the 7% barrier for 2007 after making a 5.6% margin in 2006. Like-for-like revenues are on course to grow by 9%, its chief executive Paul Hermelin said.

Capgemini also confirmed it is targeting a 2008 operating margin of 8.5%, reflecting a “very solid” market.

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