The deal with EDS, the computer company once owned by Ross Perot - one-time presidential candidate - was a shot in the arm for the controversial market-testing programme. Just one year on from its launch, it is faltering.
William Waldegrave, Minister for Public Service, set high goals for the amount of public sector services to be market tested, or checked to see if they are carried out efficiently. This is often an overture to contracting out or wholesale privatisation, but only half the target of testing pounds 1.5bn- worth of services has been met.
Criticism of the programme is pouring in, not just from the civil service unions but from the computing companies who want the work.
Earlier this month, around 150,000 civil servants took part in a protest against market testing - the biggest civil service strike for 12 years.
This Tuesday, the day the tax records deal was announced, the head of the civil service, Sir Robin Butler, publicly criticised the way the Government is handling the programme, saying this was 'disturbing and worrying' for staff.
Computing services companies bidding for contracts are fearful of the effect on the staff they stand to inherit. Last month, Charles Cox, executive director at Hoskyns, one of Europe's largest computing services companies, warned the Government that it risks alienating staff with vital computing skills because of the 'adversarial' nature of its contracting-out process.
The Whitehall contracts amount to a potential multi-million pound bonanza. But some computing organisations say market testing is now in such a mess that they have been put off bidding.
In June, Hoskyns - the UK arm of Cap Gemini Sogeti, Europe's largest computing services company - won the first public sector computing contract under the market-testing programme. At the time, Mr Cox indicated that private-sector interest would wither unless companies could see better opportunities for profit.
Despite the attraction of multi- million pound contracts, companies winning contracts say they are expected to act as the Government's 'abattoir' - taking on staff in the knowledge that they must fire them.
The Computing Services Association (CSA), which represents many of these companies, says there is no doubt that the process is now hopelessly muddled. The CSA wants to see the formation of long-term, strategic partnerships with the civil service, but wants a thorough debate to find the best way to do this. Mr Cox, speaking at a recent conference on public-sector purchasing, suggested a way round the adversarial approach. He said this might help the civil service to benefit from private-sector innovation and management practice without alienating the existing workforce.
His plan would involve a preliminary phase in which the in-house team of civil servants had a chance to draw up their own proposals for an improved service, possibly with help from a partner from the private sector. If the plan appeared to offer a better service than industry, then the Government's value-for-money objectives would have been met 'without the damaging effect upon morale'.
If it was clear that handing the work to the private sector would yield extra benefits, a normal tendering process should go ahead, but with no internal bid, he suggests.
EDS, now owned by General Motors, has been successful in securing market-tested contracts. Last week, the Government said it was shifting the DVLA's IT branch to the company. It is also thought to be on the shortlist for a number of social security computerisation contracts.
Hoskyns has been awarded the multi-million pound contract to run the Ministry of Defence's Operations West data centre in Devizes, Wiltshire. In July, staff at the Home Office chose Hoskyns to partner them in their bid to run the division that deals with the department's information technology services.
Perhaps most worrying of all, companies such as Hoskyns say the whole point of market testing risks being lost, because government departments are basing plans for the future on the way departments are run today - thus missing the chance to make their IT operations efficient and effective.
Some believe that by concentrating on short-term benefits rather than long-term partnerships, the Government is creating its own political time bomb. Any problems are likely to come to light in the mid-term of contracts let under this year's round of market testing - just in time for the next general election.
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