HMRC to save £200m per year by scrapping Aspire outsourcing deal

HM Revenue & Customs (HMRC) expects to save more than £200m a year by abandoning its Aspire IT outsourcing contract when it expires in June 2017.

Aspire is one of the biggest IT outsourcing deals ever signed by the UK government, costing on average £813m per year over the past 10 years, according to the National Audit Office (NAO). By the time the deal ends in June 2017, prime contractor Capgemini will have received £10.4bn of taxpayers’ money.

HMRC is planning for the end of the contract, and expects to publish its business case in Spring 2015, according to HMRC permanent secretary Lin Homer, speaking at a meeting of the House of Commons Public Accounts Committee (PAC) this week.

But Mark Dearnley, HMRC’s chief digital and information officer, told MPs on the committee that significant cost savings are expected by replacing the single-supplier outsourcing model of Aspire.

“We think that by the time we have done the entire transition and looked at the run rate for IT within HMRC, the total cost base will have come down more than 25%,” he said.

“The business case is going through the internal governance processes at the moment. We then go through a phase of external validation of it, which is just beginning, and we expect to have it ready for Christmas.

"We expect to be talking publicly about it early in the New Year - in the spring. We need to do that to give not only contractual certainty but also certainty to the thousands of people involved in this, so they know what will happen over the next few years and do not feel concerned for their own careers.”

Dearnley said much of the anticipated costs savings will come as a result of moving work to the cloud.

“One of the challenges we have is a large number of servers across a number of datacentres. The average utilisation of that compute power is 6.7%. There are two reasons why that is low and then why it is not acceptable,” he said.

“It will be lower than normal for a business such as ours because we have big peaks – the self-assessment peak in January and the tax credits one in July.

"You have to size everything for the peak. It is also more complicated in our environment because of the security requirements and because things are segregated between different environments so things cannot move between. Therefore, you tend to have lower utilisation, but 6.7% is very low. As Lin Homer said, we should be aiming somewhere between 30% to 40% for our environment,” he added.

“This one statistic is the fundamental argument for moving to the cloud. By moving away from proprietary, dedicated infrastructure to a virtualised environment in the cloud, we will start to transform the cost base of running technology in HMRC.

"Also, if we can get it so that we can use multiple clouds across that, it will help us with our reliability, because if one goes wrong, the other one will be able to pick up the load.”

HMRC intends to follow Cabinet Office guidelines that mandate IT contracts, which says they must remain below a lifetime value of £100m. This will potentially mean signing multiple deals with several suppliers to replace Aspire. As part of the department’s digital strategy, it is already recruiting digital experts to bring more IT skills back in-house.

The committee raised concerns about the transition from Aspire to the new arrangements and the risks that presents for the £500bn of tax collected each year through Aspire.

“You are doing a massive thing here,” said PAC chair Margaret Hodge. “I cannot believe there is not a risk that we will lose money out of the £500bn we currently collect through the Aspire contract during that transition. I think you have got to have a figure in there for risk.”

About 4,000 people work on the Aspire contract, mostly at Capgemini and sub-contractor Fujitsu – although there are about 350 other subcontractors that work on the project. Homer pointed to recent successful projects and denied that HMRC has no experience of making such a transition.

“We will definitely have a risk register and look at that… The RTI [real-time information] contract was something we did together; and that has advanced our collection of tax by bringing more money in-year than the previous system did,” she said.

Dearnley added that HMRC was already handling a greater proportion of tax income in-house. “There are two elements to both what we do on a day-to-day basis, and also what we are doing to start bringing control of the projects in-house,” he said.

“First, on a day-to-day basis, 34% of all tax is brought in by systems that civil servants already run, and that is about to go up to 40% of the in-sourcing of Chief [Customs Handling of Import and Export Freight] at the end of this year. So we do have a significant number of people - there are 300 of them - who are very experienced in running high-reliability platforms.”

In July, the National Audit Office warned HMRC it was taking too long to prepare for the end of the Aspire contract in June 2017. The NAO pointed to serious risks to HMRC’s business if it fails to replace the deal in line with government reforms that mandate moving away from large IT outsourcing arrangements.

The move away from Aspire will also need to take place alongside implementation of the department’s digital strategy. Under that plan, HMRC intends to develop digital services to improve how taxpayers and businesses engage with the department, including personalised digital tax accounts, by 2018.

UPDATE - 30 October 2014: 

In a follow-up meeting on 29 October, the PAC also talked to government chief technology officer Liam Maxwell, who said that the "red line" that prevents extensions of existing contracts is "pragmatic". He said that if the Cabinet Office felt that HMRC needed to do more work on its business case for replacing Aspire, and that would cause a risk of missing the June 2017 deadline, they could recommend a short-term extension of the deal.  

But Maxwell also stressed his confidence that the preferred approach of multiple, smaller contracts will work for HMRC, and said that he is "accountable" should that fail.