31 March 2000
In an assessment of the flagship contract for information technology, the NAO found that pressure to deliver new tax systems has led to a closer partnership between EDS and the Revenue.
But staff shortages, particularly among project managers and technical experts, have left the Revenue 'vulnerable', while its failure to rotate managers could lead to a loss of objectivity and an over-familiarity with EDS staff.
The NAO warns that if the situation continues, the Revenue risks losing vital personnel and skills to the US-owned company and may find it too costly to 'extract itself' from the partnership at the end of the contract in 2004.
'The department needs to manage the risks associated with joint working, and avoid becoming locked into a partnership with EDS,' the report states.
The cost of the ten-year contract, originally estimated at £1bn in 1994, has risen to more than £2bn through additional work and capital spending increases.
But the Revenue has only managed to benchmark 37% of its annual expenditure with EDS, leaving 63% without adequate value-for-money cost comparisons.
The Revenue has argued that it has difficulty finding out sensitive market information, but the NAO recommends that it urgently expands its benchmarking and uses commercial organisations to ensure that the contract remains cost-efficient.
The public watchdog also cast doubt on the contract's ability to keep pace with technological advances after finding a low level of software development from EDS.
But despite its concerns, the NAO gives the contract its seal of approval, stating that it has been successful in helping the Inland Revenue introduce major tax changes, such as self-assessment.
But the Public and Commercial Services Union remains unhappy about the contract after members in tax offices complained about major delays in computer systems. A spokesman for PCS said there had been some improvements but there were still 'general problems' with new EDS systems.