Monday, January 30, 2006

Why New Labour Doesnt Get IT
Why New Labour Doesnt Get IT
Jan 30, 11:47 AM

UNCORK the champagne: the British Government spends 20% more on information technology (IT) than its European neighbours. Its IT spend accounts for around 1.2% of gross domestic product. That might seem a good reason for celebration but, unfortunately, it is not a large part of the Pounds 14bn a year spent by the UK government on IT vanishes into cyberspace, with taxpayers left holding the bill.

Who says so? The governments own Public Accounts Committee (PAC). Its most recent report, published in December 2005, warned of the risk of Pounds 10bn (E14.6bn, $17.7bn) of public money going to waste on IT services no-one wants and no-one may use. The government record in IT provides plenty of evidence for concern.

Consider the following. Last week an IT fiasco in the governments Rural Payments Agency meant that Englands 120,000 farmers are likely to get only part of their new subsidy payments next month. Farming minister Lord Bach admitted there had been continuing problems with the IT system chosen by the Department for the Environment, Food & Rural Affairs (DEFRA). A select committee said it was deeply unimpressed by the failure. Payments to Accenture, the company given the job of writing the software, have doubled from Pounds 18m to Pounds 37m.

The likely cost of the governments controversial plans to introduce a digital identity cards scheme is likely to be Pounds 19.2bn, against its own estimate of Pounds 5.8bn.

Internal government e-mails recently leaked to the media claimed that the governments Pounds 6.2bn investment in National Health Service IT is in danger of being derailed because of delays in developing Choose and Book, the electronic appoinment booking system that underpins much of the broader NHS IT strategy.

A computer programme has overpaid around Pounds 2bn of UK tax credits (most of which will never be recovered). The IT contractor responsible, the US firm EDS, was then awarded a new Pounds 4bn defence contract by the government. The Treasury has spent 30 times more than its original estimate of Pounds 2.3m on computers to cope with pension changes, sending the total bill to date soaring to Pounds 68m.

And there is more. What is going wrong? First, government departments have failed to yet fully grasp, as business has done, that making an investment in IT has to be justified by financial returns within one year. Few government departments, if any, have such a discipline in place.

Second, there has been little accountability on the part of different government departments. Although this is changing, the situation is still far from satisfactory.

Ian Watmore, the man who was charged with changing all this when appointed Head of eGovernment in September 2004, accepts the criticism: He was promoted to head of the Prime Ministers Delivery Unit just before Christmas, where he says he will continue to oversee government IT strategy. In principle, Watmore agrees that business best practices have to be adopted by government with regard to IT in order to avoid future waste.

The way I believe the UK can get more from its IT is to bring the management of all the many public IT projects now running more in line with the kind of practices used in commercial organisations, said Watmore.

One key area is the proportion of the Pounds 14bn spent on new IT projects and that used to prop up older, less-efficient IT, known as legacy systems. According to Watmore, best business practice is seen as having a 60/40 split between legacy and new systems.

Across UK government IT Watmore reports that the split averages 70/30. He reckons that bringing IT spending in line with best business practice could free up an additional Pounds 1.4bn a year for new IT projects.

In his role as head of eGovernment, Watmore tried to introduce a degree of individual accountability by chairing regular meetings with IT heads of the various government departments. I called regular meetings in order to ensure expensive systems are not duplicated across the country, said Watmore. Sine his promotion,Watmores successor as Head of eGovernent has yet to been named, so even this limited degree of accountability is currently missing.

There is an alarming and rapidly growing body of evidence that much of this cash is wasted or spent in ways that are of dubious merit. The catalogue of errors ranges from IT malfunctions such as the software flaw that resulted in overpaying of Pounds 2bn of tax credits, to the commissioning of vast national IT projects that have little or no proven merit, such as the 100 or so major IT projects under way across various government departments aimed at allowing the public to access government services via the internet.

Alarm bells should have started ringing in Downing Street two years ago when giant US-based IT contractor EDS botched the introduction of Chancellor Gordon Browns flagship tax credits system.

A faulty computer program overpaid the staggering sum of Pounds 2bn in 2003/04, the first year of operation. EDS recently agreed to pay Pounds 71.25m to the government in compensation, but that is a tiny proportion of the money lost. It is still unclear as to how much of the lost billions if any will ever be recovered.

EDS is reported to have said the mistake occurred when an under- tested software went live. Despite this fiasco, EDS headed a consortium that last year landed another huge contract from the UK government. Far from being blacklisted from future tenders for having cost taxpayers dearly, EDS went on to win a highly lucrative 10-year defence contract, worth around $4bn over its lifetime.

Despite the earlier fiasco with the tax credits system, the government again chose EDS and rejected the tender made by the other consortium headed by Britains telecoms giant BT, which has successfully mutated into a global IT and communications contractor for large organisations.

EDS and Fujitsu [a member of the EDS consortium] are both strong suppliers to the MOD. But EDS has had problems with its multi- billion dollar outsourcing contract with the US Navy, which has been marred by delays and technical difficulties. EDS appears to have convinced the MOD that it has learned lessons from this contract, said Georgina OToole , a senior analyst at City-based research company Ovum.

Even today there are still ongoing IT problems with the tax credit system. In December, Whitehall unintentionally revealed details of a massive online security breakdown in the tax credit payments system. Up to 13,000 Job Centre staff had personal details, such as names, national insurance numbers and dates of birth, compromised by criminals making fraudulent claims for tax credits.

Revenue & Customs was forced to close its website temporarily for tax credit applicants on 1 December after discovering that false applications had been made. It was at first thought that only 1,500 job-centre staff might have had their personal details stolen, but it was swiftly acknowledged that the problem was far larger than initially believed.

According to the PAC, the big IT disasters, such as the tax credit payments, are only the tip of a massive iceberg of IT overspend and waste. Its report made it clear that the governments IT strategy has been a costly disaster. Its report accuses government departments of squandering billions of pounds on waste and mismanagement, but the report reserved its severest criticism for public sector IT projects.

As well as presenting detailed criticism of specific projects, the PAC highlighted a major risk of Pounds 10bn of public money going to waste on IT projects nobody wants.

In its rush to make Prime Minister Tony Blairs dream of a broadband Britain a reality, the government is supplying the UK with a complicated network of internet-based IT systems. The idea behind it is to allow British citizens to use the internet to access every level of government, although there is little evidence of any demand for such a service, as the PAC highlighted in its December report: There is also the risk that departments provide services online but the public do not use them because they see no benefit in doing so. Should this happen the significant investment in e-government would be wasted, it said.

But even this huge IT spend is a fraction of the IT spend by the Department of Education, the Department of Defence, the legal system and Britains emergency services, where there is mounting evidence that government departments are spending far more than needed in ways which will not benefit the public as they should.

The Committee catalogued other examples of IT mismanagement going back years. One is the LIBRA project, designed to provide new IT systems for Magistrates Courts. The contract for the project was renegotiated twice, each time with computing giant ICL asking for more money. As a result of the first re-negotiation, a revised contract for 14.5 years at a price of Pounds 319m was agreed in May 2000.

Within 10 months, ICL informed the government it was in financial difficulties even at the price negotiated a year before so the government reached an agreement for ICL to deliver only the infrastructure at a cost of Pounds 232m over 8.5 years. The total cost of the project was subsequently estimated at Pounds 390m for just 8.5 years of service.

Other cost overruns include the implementation of the National Probation Information Systems Strategy (NPSISS), which came in at Pounds 118m, an estimated 70% at constant prices above the expenditure forecast in the original business case.

The government is also accused of failing to implement many of the recommendations made in a previous PAC report published in June 2000. Despite being accepted by government five years ago, the PAC recommendations have yet to be fully implemented. In particular, there has been limited progress in collecting and publishing systematic information on the development of government web traffic, the take-up of electronic services by the public and the condition of government websites and crucially in developing a methodology for justifying expenditure on web provision.

Departments need to consider how information technology can be used to streamline current ways of working, reduce time-consuming procedures and improve productivity, The PAC said. Simply converting conventional processes to internet-based applications will not realise the significant improvements in efficiency that IT improvements can make possible.

While many of the projects highlighted in the PAC report may appear to be insignificant when compared with some of the headline- grabbing billion pound-plus contracts, they are just as crucial. Because of the way that IT systems are woven together within government departments, the failure of one system can have a dramatic knock-on effect giving rise to a blame culture.

For instance leaked e-mails were alleged to show that Richard Granger, director general for IT at the National health Service (NHS), had blamed a senior civil servant in the Department of Health for potentially derailing a Pounds 6.2bn programme by interfering with the execution of a new booking system.

When approached by The Business, Granger refused to comment on allegations that he blamed senior civil servants in the Department of Health for delays in the Choose-and-Book electronic booking project that could threaten the whole Connecting for Health programme. Only around 20,000 people are estimated to have so far made use of the booking service, against a target of 250,000.

The data shows that NHS spending on IT has increased dramatically. Three years ago 1.8% of the total NHS budget was spent on centralised IT. Now around 2.8%, some Pounds 700m a year, is spent on centralised IT.

Granger says the proportion of the NHS budget spent on centralised IT is still less than the proportion of cash spent by many commercial organisations.

But he also admits to having uncovered wasteful purchasing procedures when he took over his post. He quoted the example of cash being spent on PACS, a system designed to provide computerised X- ray images. Unlike film X-rays, these can be viewed in 3D and sent between medical staff at the touch of a button. But this type of technology does not come cheap and the entire project, designed to run over 10 years, will cost the NHS around Pounds 800m.

Granger says when he took over the project, equipment for the scheme was being provided by a cosy group of suppliers who all knew each others prices. He added: We have managed to break that level of margin.

The UK government is now bent on introducing IT in areas where the potential for mistakes costing billions of pounds is even greater.

One recent example is its controversial plan to introduce biometric passports and national identity cards. The London School of Economics (LSE) predicts that the cost of a national ID scheme could be as high as Pounds 19.2bn, a figure the government refutes. The LSE report, The Identity Project: An Assessment Of The UK Identity Cards Bill And Its Implications, estimates the potential cost at more than triple the governments Pounds 5.8bn estimate, a figure supported by a report from international consultancy firm KPMG. The figure includes the physical manufacture and distribution of the cards as well as the IT.

Not surprisingly, the national ID card scheme received a severe mauling recently in the House of Lords, which voted 237 votes to 156 in favour of an amendment that would force a detailed breakdown of costs to be made public. MPs would then vote on this again once the cost breakdowns were known.

But this amendment is being opposed by government, which argues that a breakdown of costs must be kept secret in order to get the best deal from contractors. Apart from the implications for privacy, what is really worrying their Lordships is the potential for massive cost overruns on this scheme. Given the governments track record on IT to date they have good grounds for being alarmed.

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