Skip navigation | Accessibility and accesskey details | Sitemap

National Audit Office Press Notice

The Contributions Agency: The Contract to Develop and Operate the Replacement National Insurance Recording System

Report by the Comptroller and Auditor General
HC 12 1997/98
29 May 1997
ISBN: 0102607982
Price: £8.15

Sir John Bourn, head of the National Audit Office, told Parliament today that the Private Finance Initiative* contract to develop and operate the replacement National Insurance Recording system represents strikingly good value for money provided the service contracted for is delivered.

In May 1995, the Contributions Agency signed a contract with Andersen Consulting to develop a replacement for the existing National Insurance Recording system (NIRS1) by February 1997 and operate it for seven years from that date. Under the contract, the replacement system, known as NIRS2, would also be enhanced over the period February 1997 to April 1999 to provide additional services to the Agency. The successful development of the new system is critical to provide the necessary support for new pensions provisions which came into effect in April 1997.

Following some difficulty during project development, the implementation of the replacement system is now being phased over the period February 1997 to April 1998, at the suggestion of Andersen Consulting, to reduce the risks associated with implementation all at one time as originally planned.

The contract was the first major Information Technology contract awarded under the Private Finance Initiative. Andersen Consulting will receive no payment in respect of NIRS2 until the system is operating satisfactorily, currently contracted to be from April 1998, when they are to be paid on the basis of usage. The cost of the system to the Agency is likely to be about £134 million (at April 1995 prices).

The National Audit Office found that:

• the contract provides for all the Agency’s objectives for this project to be achieved. Substantial transfer of risk from the Agency to the private sector has taken place although the non-financial risk of delayed delivery - the impact of delay on planned pension reforms - remains with the Agency. Competitive pressure to win the contract was maintained at a high level to a very late stage in the procurement process and the contract was awarded within one month of best and final offers being received from the three short-listed bidders. The financial evaluation of the final bids showed that the price of Andersen Consulting’s offer was significantly cheaper than those of the other bidders.
• the procurement was well-managed. The contract was signed within nine months of the announcement of the competition in the Official Journal of the European Communities in August 1994. The Agency attracted interest from 34 international companies of which eight succeeded in pre-qualifying for the competition. The short-listing process produced three credible bidders each of whom made acceptable proposals. These proposals were evaluated against pre-determined criteria by an evaluation panel which included appropriate external advisers appointed by competition.
• the Contributions Agency have developed contingency plans to cover the delay to the replacement of NIRS1. Ministers were advised of the possibility of delay to the project with consequences for the implementation of the proposed pension reforms but the Agency considered they had sufficient contingency margin to manage the risk. This will allow them to support the new pensions legislation between April 1997 and April 1998. Beyond that date the scope for further contingency is very limited.
• the phased replacement of the existing system results in estimated additional costs to the Agency of £3.8 million, of which up to £3.1 million will be met by Andersen Consulting. In addition, there are potential estimated lost savings for the Contributions Agency and the Benefits Agency of up to £4 million and £2 million respectively.
• the contract provides for financial remedies in the event of failure by Andersen Consulting to deliver by the due dates. There are also provisions for financial remedies for poor performance during the operational phase of the contract. The Agency are also entitled to receive a complete set of back-up software and documentation necessary to enable them to continue to provide the service.

Notes for Editors

*The Private Finance Initiative was announced by the Chancellor of the Exchequer in his 1992 Autumn Statement. He said that it had the objective of finding new ways of mobilising the private sector to meet needs which have traditionally been met only by the public sector. It is intended to improve the value for money of public sector projects by encouraging the development of closer relationships between the public and private sectors through the transfer of risk and responsibility, and to enable the public sector to benefit from private sector skills and innovation in the delivery and procurement of services.

The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office employing some 750 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Press Notice 27/97
All enquiries to NAO Press Office:
Tel: + 44 (0) 20 7798 7400