Two recent court judgements have gone against the UK government, costing the taxpayer hundreds of millions of pounds / Euros. These cases demonstrate the difficulty of terminating major IT contracts before the due termination date – even if the buyer’s perspective is that the supplier is not performing and the programme is behind schedule.
The dispute was over the IT programme for immigration control, called “e-borders”. It all dates back to the last Labour government, and Raytheon won the contract in 2007, but when the new coalition government came to power in 2010, they decided that e-borders was well behind schedule and could not be saved. So they quickly stopped the programme, and cancelled the contract, claiming Raytheon had not met the agreed plan and was a year behind in terms of deliverables.
That is fine, said Raytheon. But you owe us a lot of money for loss of profit, costs incurred to date and so on. No we don’t, you failed to deliver, said the Home Office. After lengthy negotiations, the matter went to arbitration. And the court has awarded Raytheon £224 million, including damages and interest payments. From the BBC report:
“In its ruling, the arbitration tribunal did not pass judgement on whether Raytheon had failed to meet its contractual obligations – but it criticised UKBA officials for failing to properly brief the home secretary on whether the company had an arguable case to hold on to the deal. The full ruling has not been made public, but the tribunal said the Home Office should make the following payments to Raytheon:
- £50m in damages for ending the contract
- £126m for assets the company delivered prior to being sacked, such as IT systems
- £10m to settle complaints relating to changes to the original contract
- £38m in interest payments”
This follows the Fujitsu case a few weeks ago, which related to the huge health service national IT programme (again, started under the last government).Fujitsu won the contract – to digitise patient records in the South of England – in 2002 but it was terminated in 2008, after disputes over changes, including a new system for electronically displaying and storing X-rays. The Cabinet Office tried to broker an agreement after the 2010 election but failed, and it went to arbitration.The Times reported:
“Industry sources say that Fujitsu is likely to be awarded about £400 million in compensation in addition to £250 million already paid when the scheme, called the NHS National Programme for IT, began to falter. The government will also have to foot Fujitsu’s legal bill of nearly £50 million, in addition to its own legal costs of £31.5 million”.
So what can public procurement people learn from these cases? We would suggest four points.
- In complex IT programmes, it is very difficult to prove supplier non-performance. Almost always, the number of changes and other variables almost inevitably mean that a supplier will have many reasons outside their control (or excuses if you want to be cynical) to explain why things went wrong.
- To maximise the chances of success, and protect yourself if things do go wrong, look to have very good definition of scope and deliverables for the supplier, track changes and variations carefully, document every discussion and phone call. Put in place well-structured performance management processes to keep on top of performance from day one.
- There is a suggestion in the Raytheon case here that officials (civil servants) did not properly brief the Minister on the case for terminating the contract. Was that the officials fault – or their legal advice? In any case, remember that lawyers will give you advice to the best of their ability, but it is not always correct. In both these cases, we assume the government thought they would “win” the arbitration. They did not.
- Suppliers are increasingly prepared to fight battles in the courts, not surprising when large amounts of money are at stake. The argument that “they won’t because they don’t want to upset the government” does not seem to be applying in many cases now.
The UK government does seem particularly prone to large IT programme disasters. Do they happen in other European countries? Please let us know if you have your own local examples!