The PFI Contract for the Education and Library Boards' New Computerised Accounting System

John Dowdall, the Comptroller and Auditor General for Northern Ireland, today reported to Parliament on a contract negotiated in 1999 by the South-Eastern Education and Library Board for the development and operation of a new IT system to support the financial and management needs of the five Education and Library Boards (the Boards). The provision of this service, procured under the Private Finance Initiative (PFI), is due to run until 2012 and is projected to cost £17.6 million at 1999-2000 prices.

The system broke new ground as a major PFI project in the IT sector and a range of complex issues had to be addressed. The report points out that the procurement and implementation of the project was successfully handled and the Boards now have a system capable of producing commercial-style accounts and management information. An independent evaluation of the benefits delivered by the project also records that it met its primary objectives and was a very major achievement.

Nevertheless, the full system contracted for was not delivered as the Contractor failed to provide a new payroll and human resources system which formed part of the specification. However, no payment was made for these elements of the contract. Moreover, the main objective of the project was only achieved with significant input from consultants who were paid more than £2 million.

Today's report highlights a number of key issues emerging from the review of the project and lessons which other public sector organisations need to keep in mind when developing and managing relationships with private sector PFI contractors.

On The Procurement Process (Part 2 of the Report)

The initial timetable for the project envisaged that the contract would be awarded in January 1998. In the event the PFI Agreement was not signed until January 1999. In our view the target for the completion of this phase of the project was optimistic. Future projects should note that this stage is likely to take longer than expected and should build this into their planning (paragraphs 2.11 and 2.13).

On The Implementation Process (Part 3 of the Report)

While it is clear that the Contractor failed to meet the specified requirements for payroll and human resources services under the agreement, in our view, the late inclusion of this complex requirement increased the likelihood that the contract would not be met in full (3.14).

A Report by the Committee of Public Accounts at Westminster in 1993 (paragraph 1.8) records the problems the Boards experienced in trying to integrate their previous payroll and human resources systems. While this related to difficulties experienced in 1987-88 and there has been significant advances in technology since, the report notes the view of the South Eastern Board's Internal Audit Branch that the most obvious lesson arising from the project is that the difficulties with implementation of the previous payroll system were not adequately considered in the specification of the new system (paragraph 3.15).

The Report acknowledges that, in difficult circumstances, the Project Board succeeded in establishing a system capable of producing accruals accounts and management information. However, it also highlights what it considers to be weaknesses in the reporting and monitoring arrangements during the implementation of the project. Insufficient management reporting over a sustained period could curtail the ability of a sponsoring Department to trigger timely action should circumstances merit it. The report also takes the view that implementing a system like this within a demanding timetable, requires a more proactive, hands-on approach by the sponsoring Department. Perhaps designating a more formal role for the Department on the Project Board during the implementation stage would have added to the overall strengthening of the project management discipline (paragraph 3.25).

On the Costs Incurred (Part 4 of the Report)

After three years of the contract the cost of consultancy on the project, including legal and technical advice, stands at £2.2 million although the expected costs for additional finance staff were lower. The original forecast up to the end of this period was £606,000. One senior consultant had been engaged almost full time on the project from January 1997 to October 2001. It is essential that in all projects, public sector bodies should ensure that external advisors are working to a clear specification and within an agreed timetable for completion of the work. The report notes that, in July 2000, the Department stated that its experiences of managing PFI contracts on school building projects called for "…much tighter control and shorter timescales" in relation to the use of consultants in future PFI contracts. (paragraph 4.6 to 4.10).

The decision to proceed with the PFI solution was influenced by projected staff, maintenance and software licence savings of almost £6 million over the course of the original contract period. The anticipated annual savings which were associated with the payroll element of the project have not been realised to date, although some of these are counter-balanced by the reduction in payments to the contractor. With regard to the deferral of benefits, the Department told us that the Boards have effected savings in their Headquarters services because the funding provided was net of projected annual savings and Headquarters budgets were reduced to reflect this. In addition, the independent review stated that the continuation of the existing payroll services produced compensatory benefits. The Department also said that this reduction in funding has not had a detrimental effect on other Board services. However, it is important to realise that what happened in this case is that an element of the annual efficiency savings which were originally anticipated have had to be offset against this project instead of being available for service provision in other areas. (paragraphs 4.24 to 4.26).