|
Finally, it's dead. After a decade of failure and delays, the government has pulled the plug on the Private Finance Initiative for IT projects. The Treasury's review of the PFI, which also abandoned the use of the scheme for projects costing less than £20m, makes no mention of the string of private finance disasters in IT, sticking instead to general explanations of why it hasn't worked. But while the government would prefer to gloss over the PFI's troubled history, it is the reports of IT catastrophe that have caught the public eye. Just think back to the now infamous queues outside the Passport Agency during the summer of 1999, when hundreds of people were forced to cancel their holidays and some 400,000 passports were lost in production. That project, originally signed as a ten-year contract with Siemens Business Services, is now said to be running successfully. But, it is understood, the contract has been changed to become more flexible. There are countless other examples: the £240m Libra project to help share case records between magistrates' courts, which after four years is still not working; the disastrous first attempt to create an electronic card for benefits payments, abandoned in 1999 at a cost of £1bn; the Child Support Agency's heavily delayed programme with IT giant EDS; and the Criminal Records Bureau (CRB), which is still nowhere near functioning as intended. It is no surprise that the PFI doesn't work for IT, according to Andrew Davies, visiting professor in information systems at the Cranfield School of Management. One key element of the scheme is that the aim is to transfer the risk as well as the financing to the private sector. This means that in IT contracts one supplier does too much. While there would usually be separate agreements for the design, build and operation of an IT system, with the PFI the contractor often takes on much more, says Davies. `The tendency has been to get one contractor for everything, and over quite some length of time ¿ often seven to ten years. The contractor is often paid for the operation and the development of the IT system. And, where the project has involved business change as well, another level of complexity is added. `What this means is that in the CRB's case there has been insufficient delivery of key services, while in the benefits card project, for example, there was no delivery at all,' he says. `In many ways the CRB is even more complicated than the benefits project, with the contract being let even before they had decided how to operate the system.' As with many PFI schemes, the government thought it a good idea to give the contractor, Capita, a lot of freedom to deliver the system, Davies says. So it shied away from being too prescriptive about what it wanted. `This meant that effectively it didn't really know what it wanted, and then that became defined as not really knowing what to do. But the problem with an organisation like the CRB is that there are some very complex legal issues dictating what the systems have to do.' This confusion still haunts the CRB, which has a backlog of processing work and delays in launching basic services. It has also doubled its charges for record checks. As is to be expected, the Treasury's review makes no reference to failures such as this, but it does clearly present the case for why the PFI does not work for IT. It points out what has been commonly accepted wisdom for a while now. As well illustrated by projects such as Libra, which hit delays due to new software requirements, a PFI scheme can't cope easily with specification or technology changes. On top of this, the Treasury says, it's always much harder to define your IT requirements. With a construction project, it is more clear cut. A hospital is a tangible asset, but it becomes much more difficult for rigid PFI formulas to deal with grey areas such as `business change'. Perhaps the biggest obstacle for the PFI is the failure of third-party funding. As projects such as the CRB have found, it's hard to transfer risk to the private sector, yet that is the whole point of the PFI. It is also notoriously difficult to identify where revenues or cost savings may be found. Indeed, the opposite usually occurs. The upshot is that banks are reluctant to get involved and so set higher rates for funding IT projects. The PFI, with its likely delays and difficulties, becomes hardly worth the extra expense. But if it has such obvious flaws, one puzzle remains. Why wasn't it abandoned earlier? The answers to this don't come as easily as the question. Perhaps the simplest explanation is the most persuasive ¿ neglect. Charles Pybus, director in charge of IT PPP advisory services at consultancy KPMG, explains: `I think that the government's attention has been elsewhere, especially as it has viewed the PFI as something that, as a delivery vehicle, has been successful in other sectors.' He says that ministers were able to turn their attention to IT projects only after they had brought out an initial set of general guidance on the initiative. He also points out that, in effect, the PFI had been abandoned much earlier. `It is a case of policy following practice,' he says. `Even departments that were originally running the PFI have gradually moved away and found alternative models for their IT contracts.' The aim of the Treasury's review, then, is to prevent any future PFI IT deals being signed. Now Whitehall has it in black and white. The Treasury has also written to individual departments and councils telling them to continue with PFI IT projects if they have just started or are about to go ahead, and notifying them that it will offer them alternatives in the autumn. Treasury officials are likely to consider several options over the next few months, including `traditional' contracting. Paul Golding, a partner and head of IT practice at law firm Nabarro Nathanson, says: `The government is going to have to put its hands in its pockets for IT projects, and it's going to be signing much more traditional types of service procurements, systems implementation and support contracts for new major implementations.' There is likely to be much more emphasis on breaking IT projects up, doing the early development work in a form of `partnership deal' and then contracting again when systems have to be installed, integrated with old systems and run. New names for these practices are already being sought. The Treasury says that it is looking at what it calls `pay as you go' contracting, for example. While the unions would like to see a return to `in-house' IT specialists, it is more likely that the private sector will be relied upon. Some commentators even think that there may still be a place for using private finance where investment is needed. Davies expects many projects to be carried out as public-private partnerships. `With this form of contract you can do initial pilot development in the knowledge that you are going on to a full project. The difference under the PFI is that you would have had to go through a whole separate procurement process for each stage. PPPs make it easier.' In the latest round of major initiatives, such as the £2.3bn NHS IT programme, the whole effort has indeed been split into separate chunks. This makes much more sense ¿ it would have been far too ambitious to take on in one go. But, while the government appears to have learned the lessons of the PFI in its effort to computerise the NHS, other dangers are lurking. As with many past failures, politics may be the programme's downfall, says Golding. `The procurement is going ahead extremely rapidly and you have to be aware of the political imperatives behind those decisions,' he says. `It may have been better for the project to take longer over it. But they've got to get things moving in the NHS, especially as they are facing an election in two years' time.' The other problem, according to Davies, is in trying to impose an IT system from the centre on what is a `decentralised' organisation. `I don't envy them their challenge, others have tripped up in that particular hoop,' he says. `The difficulty is trying to get the NHS to work in different ways than it does, and trying to find solutions to accommodate the way it is set up.' The PFI may have been put to rest but, be warned, the threat of IT catastrophe has not gone with it.
|
