The Inland Revenue is in danger of becoming "locked in" with its sole IT provider, EDS, because it has become so reliant on the US-based computer giant, an official watchdog has warned.
EDS could be in a position to exert "undue" influence over the scope or cost of any future work because of its dominant position over the Revenue, built up during its ten-year contract that has been estimated to be worth over £1.5bn, the National Audit Office (NAO) said in a report it has just released.
EDS, which was founded by Ross Perot, the billionaire who failed in his attempt to become US President, could even be in a position effectively to bar any other contenders for future contracts because the Inland Revenue would lack the independent resources to evaluate other bids.
Many of its staff have been transferred to the US firm - notably the 1,900 officials in the Revenue's Information Technology Office - and those few remaining at the Revenue who understand the IT work required could be easily poached by EDS, leaving the taxman utterly beholden to one supplier.
The NAO's report, Inland Revenue/EDS Strategic Partnership, calls on the Revenue to rotate staff responsible for monitoring the EDS contract to spread their specialist expertise as widely as possible.
While acknowledging the benefits to both parties of such close working, the NAO concludes: "it also presents risks which could affect the independence and objectivity" of the Inland Revenue's evaluation of EDS's performance against its competitors.
"It could also make it difficult, or costly, for the department to extract itself from the partnership at the conclusion of the contract in 2004, or lead to the loss of skills to EDS," says the report.
In what makes disturbing reading about the risks of a Government department forming close partnerships with the private sector, the NAO also expresses concern that the taxpayer will end up paying too much for the taxman's computer services.
It discloses for the first time that the cost of the EDS contract has risen another £409m over the £2bn price previously disclosed - already double the original figure.
The taxman, so keen to take other people's money, has failed to ensure fully that it is being properly spent. Despite the huge size of the EDS contract, only a third of the services have been "benchmarked" for value for money, and there has been just one market-testing exercise.
The NAO warns that the Inland Revenue, now removed from the open market place because of its relationship with EDS, is in danger of losing touch with market rates and competitive prices offered by other suppliers. "This may lead to the procurement of solutions that do not provide value for money. The risk is greatest in fluid markets such as information technology," it says.
EDS, which is a major supplier to many other government departments, such as the Department for the Environment, Transport and the Regions, runs the contract with the Revenue as a "partnership" that operates from board level downwards.
The contract was deliberately not a fixed-price one because of the changing needs of the Inland Revenue dictated by the Budget and other Government legislation.