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MoD's 'screw it up and you suffer' approach is the way to go
If there's £4bn on the line then a few penalty clauses are far from untoward...

By Andy McCue

Published: Friday 27 June 2003

When the Ministry of Defence revealed the bidders for its £4bn 10-year outsourcing contract this week, it reinforced the message of "risk mitigation" in order to avoid the pitfalls of previous government IT disasters.

The IT modernisation project, codenamed Defence Information Infrastructure (DII), will create a single standard platform for the MoD, which serves 157,000 desktop users around the world.

The overhaul will underpin a whole range of new systems as well as supporting defence personnel out in the field.

Captain Steve Brunton, assistant director of DII, said: "The battlespace starts in the business space. It will change the way we do business in the 21st century."

The MoD has studied examples of IT failures at home and abroad, in particular the UK courts Libra system and the US Navy's intranet programme.

Air Commodore David Rennison, director of the DII programme, said: "IT projects are risky. They have a patchy reputation in terms of what they have delivered. We are aiming to keep it simple and we are taking an incremental approach to help us mitigate and manage risks," he said.

As a result the 10-year deal will effectively be awarded to one main contractor in three-year 'sub-contracts' that will allow the MoD to step-in and change supplier if the whole thing goes bad.

Martin Atherton, analyst at Datamonitor, told silicon.com this emphasis on managing risk in the big outsourcing deals is now essential.

"This is a great example of the way the IT market has changed over the last 18 months. Huge risk aversion combined with the aim of extracting as much value for money as possible."

And while there are also incentives for good performance in the contract, the strict penalty clauses mean the winning bidder will not necessarily be laughing all the way to the bank.

Atherton said: "The rewards are good for the winning contractor, but increasingly in today's market, there is no room for mistakes. Screw it up and you suffer. Other bodies in charge of spending public money should take note. Any tax payer would feel the same."

The taxpayer may well end getting value for money from this contract but one pitfall could be that the MoD takes too much control and that the contract is not flexible enough, according to Atherton.

The MoD has at least succeeded in attracting four consortiums to bid for the contract led by usual industry suspects such as CSC, EDS and IBM.

IT services industry analysts Ovum Holway predicts the consortium model will become more common for major outsourcing deals as users look to spread risk and engage with contractors covering a broad range of skills.

Tola Sargeant, analyst at Ovum Holway, said: "As with any consortium project there will be risks however, and it will be interesting to see how well such large groups of diverse players manage to work together. It goes without saying that excellent project management skills will be fundamental to success."

One thing that is for certain is that with both the MoD and Inland Revenue going through the procurement process for billion-pound IT contracts the consortium model will come under close scrutiny, as will the government's reviews put in place in the last couple of years to try and prevent any more major IT failures.