The Sleazy State: How the web of Patronage works / Day 2: Secret deals flout EU tender rules: Computer contracts

MILLIONS in taxpayers' money is being secretly spent on computer contracts by government departments, in apparent breach of European Union rules.

The departments of Social Security, Trade and Industry, and Defence are among those that have been flouting EU tender rules aimed at stopping suppliers establishing long- term 'cosy' relationships with government users, the Independent has learnt.

A Special Services directive was issued last July in an attempt to ensure open competition and value for money by forcing government departments to tender openly for computer contracts. But Britain, apparently alone in the Union, has decided to try to sidestep these restrictions with secret agreements with existing suppliers that allow them to bid for contracts without external competition. These contracts are called 'framework' agreements.

The services directive outlaws such agreements - and they are also in contravention of older EC-GATT rules on fair competition. However, it has emerged that many UK government contracts are awarded in this manner. This means contracts are not advertised or open to public scrutiny, and that only the largest private consultancies, who have established 'preferential' status, gain access to public- sector business.

Paul Clark, managing director of one government computer supplier CMG, said yesterday that framework agreements were 'wonderful so long as I'm not on the outside'. He had such arrangements with the Ministry of Defence, the DTI, and the Ministry of Agriculture. He argued that such agreements were in the public interest because they removed the need for costly tenders.

A spokesman for the DSS, which has one of Whitehall's largest information technology budgets, said that it had 34 'preferred' suppliers in a framework agreement and confirmed that this meant most computer contracts were no longer advertised. But he said that competition existed between the appointed suppliers and that the framework agreement itself was due for re-tendering in two years.

Recently the DSS was taken to task for awarding a substantial contract to Andersen Consulting, the largest management consultancy in the world, without open tender.

Andersen Consulting was accused by the District Auditor, investigating computer-related losses of up to pounds 63m, of winning a contract that it had lost at tender after intensive lobbying with senior officials. Andersen has repeatedly denied that any malpractice was involved.

Andersen had previously won the largest computer contract in British history for operational strategy at the DSS. At the start, MPs were told this would cost pounds 700m, but 10 years later it appears that the project has overspent by pounds 1.3bn. Andersen says that the system was so visionary nobody could have predicted an accurate price at the start.

It also emerged last year that Andersen had provided free consultancy to the Tory party for redesigning its financial systems at its Smith Square headquarters. At the time, Andersen's said that it had also provided assistance to Labour research groups, and had sponsored a Tory and a Labour fringe meeting at last year's party conferences.