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HM Revenue & Customs Case Study: Infrastructure Outsourcing

Like other government departments, HM Revenue & Customs (HMRC) began a major e-business programme in 2002 in order to meet the targets set by government’s modernisation agenda. The infrastructure PFI contract with Fujitsu was formulated before the e-government initiatives were in place so it did not reflect the demands of the e-business programme. The entier team played a key role in designing the programme and driving the enabling procurement activities.

The business challenge

HMRC was based out of 300+ locations across the UK and abroad. HMRC employed 25,000 staff in Tax Collection and Law Enforcement covering diverse activities from intelligence gathering to large-scale revenue collection.

The original PFI contract with Fujitsu was formulated in September 1999 as a traditional 10 year outsource of infrastructure services to all HMRC locations after 3 year tender process. The contract was awarded before the e-Government and Electronic Service Delivery initiatives were in place and so did not reflect the demands of the e-business programme. In addition, the infrastructure was owned and run by Fujitsu and HMRC were solely reliant on Fujitsu to provide the required enhancement to the infrastructure.

The original contract separated business applications from infrastructure. By doing so, it created artificial boundaries and encouraged ‘over the wall’ behaviour, which did not work and led to a blame culture. In addition, neither party understood appropriateness of risk transfer/sharing and the best way of managing the transfer/sharing of risk.

The successful delivery of HMRC’ e-business programme was dependent on three key changes to the PFI contract with Fujitsu Services:

1. Delivery of infrastructure enhancements in support of e-business Programme
2. Rationalisation of existing infrastructures to reduce the complexity and rising cost of the existing infrastructure
3. Delivery of new and enhanced services in support of the overall programme

The total programme of work with IT related changes had a very sharp focus on delivery and so it was vital that HMRC had the right capabilities in place to enable them to succeed. Building these capabilities in a sustainable fashion required a significant transformation for the whole Department. Achieving this transformation in a timescale that supported the benefits realisation profile meant transforming the Infrastructure Services Agreement (ISA) in-line with the other aspects of the transformation.

The contract review took place around the time that HM Treasury and OGC were reviewing the future of IT PFI contracts and consequently there were serious concerns at ministerial level about negotiating a major PFI contract at the time of this announcement.

Our approach

A senior team from HMRC involving two board members and the chairman of HMRC led the engagement and negotiations with Treasury officials and agreed the timetable and steps required to get ministerial approval. entier team of technical consultants, project/programme managers and directors played a key role in throughout the procurement activities including :

1. Agreeing a comprehensive set of technical requirements with Fujitsu
2. Developing contingency options for planned and unplanned withdrawal of supplier
3. Considering a number of options to determine which one would provide the most suitable way forward for the Department. The options ranged from ‘doing nothing ‘ to ‘exit from current contract and re-procurement’. A detailed business case was developed which evaluated all the options with full costs and benefit analysis and recommended the way forward
4. Setting up a core commercial negotiation team to drive the negotiations and develop/agree the contract schedules. The core team were supported by internal and external team of legal, finance and technical experts.
5. Initiating an independent technical and commercial due diligence of the proposal by Fujitsu

Delivering results

In August 2003, HMRC received ministerial approval for renewal of PFI contract with Fujitsu worth in the region of £1bn. The contract allowed both partied to achieve significant results in record time:

1. Integrated teams/services that required closer working/relationship in order to look like one service organisation in the eyes of the customer – this led to improved customer experience
2. Created HMRC owned and Fujitsu owned capability units with close integration – using common tools & processes, on-going review of capability during transition to new capabilities - this led to improved customer experience
3. Developed seamless interfaces between HMRC and Fujitsu teams which provided increased speed of delivery and improved quality – led to delivery of significant infrastructure improvements in support of e-business programme in record time
4. Created partnership working at all levels from strategic alignment to operational alignment which helped to build a clear recognition of scale of change (people, processes, systems and culture), risks and best way to mitigate these, better cost control and better forward