Lightening the load

With less than a month to go before the Office of Government Commerce (OGC) and the IT trade body Intellect decide on contract guidelines for public sector IT, the two organisations are still reluctant to reveal what changes might be in store.

The OGC has invited Intellect to submit its concerns about new model contracts for public-sector IT at next month's meeting of the Senior IT Forum, the talking shop at which the two bodies discuss improvements in government IT.

The submission will be made about five months after the OGC introduced new-model contracts for public-sector IT projects despite industry opposition (CRN, 25 October 2004). Resellers and integrators disliked the contracts, as they put more responsibility for failure of public-sector IT projects onto suppliers. The OGC has now agreed to re-think the contract details.

Last week John Kenyon, deputy director of contract innovation at the OGC, could not comment when asked what had reopened the door for compromise. In December, Kenyon defended the contracts and their controversial shunting of risk onto suppliers. "The principle of this guidance is that risk should be allocated to the party best able to manage it. This is not a one-size-fits-all set of conditions," he said.

The outcome of the contract dispute will have wide-reaching consequences for the channel. Successful implementations of future government IT projects may also hinge on a satisfactory resolution.

Resellers or suppliers might think the best outcome of the Senior IT Forum discussions would be more lenient terms and conditions than the ones being disputed. But some industry players have suggested that the OGC's stringent contract terms might be the best way to ensure the success of government IT projects, citing the Libra contract. This is the disastrous Magistrate Courts system that has been in the making for 15 years, after numerous false starts with different suppliers.

The abysmal track record of public-sector IT has become an important political issue, and suppliers can no more afford repeated IT disasters than the government. Public-sector organisations such as the OGC have a vested interest in ensuring that IT implementations go according to plan. Yet various experts support the industry's view that the OGC's terms heap more project risk on IT suppliers than is either warranted or wise. No one doubts that suppliers should be held to account for the systems they deliver; the question is to what degree.

Tom Abram, managing director of Mantix, a consultancy that provides business change and risk management support to the public sector, said risk in IT projects "lies more appropriately with the customer", and that most problems arise from a difficulty managing the business process change.

"It's important to recognise that things that are badged as IT projects in government are usually 80 per cent business change and 20 per cent IT," he said.

This was the conclusion five years ago of the McCartney report Successful IT: Modernising Government in Action. This mature view of IT reveals the responsibility that rests with customers for ensuring that their IT implementations go according to plan.

When customers fail to deliver, it may seem that the supplier is not doing its job properly. But Steven Wares, head of technology underwriting at Hiscox, said: "What we often see is clients not fulfilling their objectives, and that has a knock-on effect on suppliers not being able to fulfil theirs."

The last time the government tried to shift more risk onto IT suppliers was when it tried to deal with them under the Private Finance Initiative (PFI). The idea was to outsource risk to suppliers, but PFI was ruled out for IT projects after some embarrassing mistakes.

The Treasury study that supported the government's ban of PFI in IT concluded: "The high level of integration of IT infrastructure into the other business systems of the procurer makes it difficult to delineate clearly areas of responsibility to the client and the contractor, and so makes an appropriate sharing of risk more difficult to discern and enforce."

A government review of the Libra PFI project found that the Lord Chancellor's department, which commissioned the work, had tried to pass too much risk onto Fujitsu, the supplier, at too low a price. Fujitsu was criticised for failing to deliver - though it is redeeming itself as part of the ongoing development effort - but most of the blame was placed on the government's poor project management skills.

Ian Watmore, the head of e-government, recognised this when he took his post last year and declared that better public-sector management skills were needed to avoid further IT disasters. It is hoped Watmore's skills drive will have more impact than the skills programme the OGC launched in 2003, which has been poorly attended.

The government's honesty in recent years about its own role in its IT mishaps, as embodied in the OGC, is encouraging. But that still leaves the question of risk. The OGC's new model contracts were, in part, designed to fill the gap left by the loss of PFI in government IT. Suppliers carrying more risk appears to have remained a key theme.

There is also a trend in the private sector for contracts to be more onerous for suppliers. But, according to Dr Chris Sauer, a fellow at Templeton College, Oxford, this is more likely to be a consequence of the weak position the industry found itself in after the dotcom crash.

Suppliers are in an even weaker negotiating position with government, which is spending unprecedented amounts on IT. One of the ways the OGC has sought to capitalise on this position is by imposing greater liability on suppliers.

Under the new terms customers can also withhold payment until the system goes live, and can make use of numerous hair-trigger termination clauses if they are not happy with what is delivered. All this will mean that suppliers will either have to raise their prices or concede a hit to the bottom line.