The European Services Strategy Unit (ESSU)has published a report detailing cost overruns, delays and terminations in 105 outsourced public sector ICT projects. This should come as no surprise to to anyone but the most myopic Government minister. Here are a few excerpts from the report:
The Research report identifies 105 outsourced public sector ICT contracts in central
government, NHS, local authorities, public bodies and agencies with significant cost overruns, delays and terminations.
• Total value of contracts is £29.5 billion.
• Cost overruns totaled £9.0 billion.
• 57% of contracts experienced cost overruns.
• The average percentage cost overrun is 30.5%.
• 33% of contracts suffered major delays.
• 30% of contracts were terminated.
• 12.5% of Strategic Service Delivery Partnerships have failed.
Quite an indictment. But there is more:
Cost increases are usually those directly related to payments made to the private contractor
and rarely identify the wide range of additional costs borne by the client. These could include:
• Additional client staff engaged to manage a contract;
• Additional systems and staffing for monitoring of the contract;
• Engaging technical consultants to advise the authority of contract problems;
• Carrying out audit reviews of projects;• Lost income from delays in service delivery and overpayment of benefits/credits.
• Additional procurement costs in re-negotiating contracts or retendering if a contractor
withdraws or a contract is terminated;• Additional work required as a result of technical problems.
• Transition costs when contracts are terminated
• Additional costs, for example, an additional £318m was added to the cost of the £150m Project Connect to fund the provision of Local Area Networks within each GP practice (Hansard, 26 January 2004, col 185W).
• The loss of planned efficiency savings often results in cuts being targeted elsewhere
I have emphasised a number of the points which from my reading are nothing to do with the contractor and everything to do with sloppy governance. If you are letting a high value contract then you should budget contract management right from the start. I saw this in the mobile world a few years ago when operators thought they could rely on suppliers to build a network without any supervision. Wishful thinking at very high levels of organisations.
But here we have the real culprit (my emphasis):
“The government too must accept criticism. It was naïve to believe or announce that the only costs of the project were those related to its procurement. Training and implementation has cost much more than the initial procurement costs in every IT system I have ever been associated with. The timescales imposed on this project, as ever, were initially for political expediency rather than having any relationship to common sense.”
Richard Holway, Computer Weekly, 24 October 2006.
The report s 30 pages long and provides details of each and every significant problem if you are interested.
But what is really scary about this report is that it doesn't give one example of good practice, either in-sourced or outsourced, but what's the betting it will be used as a big stick to criticise outsourcing and private companies.