A three-way stretch for the taxman's £4bn bounty

It's been called a 'stitch-up' and a 'sham', but now the battle to supply a computer system to the Inland Revenue is getting serious. Clayton Hirst reports on 'Project Aspire', the scheme that could make or break the PFI

In the early hours of tomorrow morning a van will set off from London and head up the M1. Packed inside the vehicle will be three sealed boxes, each containing around 5,000 sheets of paper. Its destination will be the Inland Revenue's Operational Research Centre in Telford. On arrival, and after various security checks, officials will begin to pore over the pages, illustrated with hundreds of complex diagrams and charts.

The reputation of senior civil servants, ministers and some of the world's most powerful companies will rest on the interpretation of these pages, as will billions of pounds of taxpayers' money.

Welcome to "Project Aspire". At £4bn, this is one of the largest IT Private Finance Initiative (PFI) projects in the UK. Its aim is to provide the Revenue with a new and sophisticated computer system and develop software for 73,000 desktop machines in the next 10 years.

The three bids were only submitted on Friday but already the project has been mired in controversy. There have been accusations that the contest is a sham – that the Revenue's current IT supplier, Texan computer giant EDS, will almost certainly emerge as the victor. And a handful of competitors – notably IBM and Lockheed Martin – have refused to bid amid dark talk that the project is a "stitch-up".

Following a string of small IT blunders at the Revenue and a severe reprimand from the Treasury Select Committee over a botched property deal, pressure is bearing down on the department's chairman, Sir Nicholas Montagu.

Aspire has attracted three bidders. The incumbent, EDS, has teamed up with management consultant Accenture in the hope that it can persuade the department to extend its contract. The pair have two competitors. The first is Fusion, a consortium headed by Syntegra, BT's IT arm, along with America's Computer Sciences Corporation and SchlumbergerSema, the Anglo- French group. The other bidder is IT services company Cap Gemini Ernst & Young (CGE&Y).

When the eventual winner is announced in May or June, each team will have spent around £10m on the bid. On past evidence, this could be a waste of money. Richard Holway of Ovum Holway, an IT consultancy, says: "When I first started to look at the project, I thought that there was no way of getting rid of an incumbent like EDS. The Government had extreme problems even getting people to quote for Aspire. Our research has shown that 97 per cent of project renewals go to the incumbent. So, on paper, there is little chance of a real competition."

Sensing that the competition could become a one-horse race, the Revenue has taken some unusual steps to encourage competition. If successful, this could provide a model for future PFI projects. As a result, EDS's rivals dismiss claims that the competition is one-sided.

"You would need a highly developed sense of conspiracy to think it is a stitch-up. The Revenue has bent over backwards to make it fair," says Martin Cook, who is heading the bid for CGE&Y.

"The Inland Revenue has done a lot to make us believe it is a fair competition," says Ken Clark, fronting BT's bid.

The Revenue's most controversial step has been to pay part of the companies' bidding costs. A spokesman refuses to say how much money the department is offering and insists that "a stringent set of conditions will be imposed" before any bidder receives payment. But a source close to the Revenue reveals that the bidders will receive £3m apiece.

The department has also given BT and CGE&Y access to EDS's files on the project. One reason is that the Revenue was accused by the National Audit Office of jumping into bed with EDS.

One big problem is a controversial project called NIRS2. This is a computer system used for calculating national insurance, which was designed by Andersen Consulting (later renamed Accenture). The £100m scheme was 17 months late and in 1999 was subject to a stinging attack by the Commons Public Acc- ounts Committee.

But NIRS2 is critical to Aspire. If a new company is brought in to run the Revenue's computers, then the department must terminate its contract with Accenture. Estimates put this cost as high as £13m. But the Revenue has made it clear to bidders that the cost won't count against them when the offers are evaluated.

In total, the Revenue's efforts to promote a fair competition could cost the taxpayer £22m, and this doesn't take into account the millions in advisers' fees.

So what chance does each bidder have of winning?

Mr Holway reckons that now steps have been taken to promote competition, the odds on EDS or BT winning are "roughly evens". On CGE&Y, he says: "I would have expected the company to be a partner in a consortium rather than leading it."

But Mr Cook at CGE&Y says: "We are Europe's largest IT outsourcing company. We are a global powerhouse in our own right. As a firm we are hugely committed to Aspire. It is top of our list." He says that one of the firm's strengths is its existing and close relationship with the Revenue.

Bill Thomas, UK managing director of EDS, says his job is to persuade the Revenue that "we are the safest pair of hands". To help drive the message home, EDS chairman Dick Brown and Accenture chairman Joe Forehand met with Sir Nicholas late last year. Mr Thomas adds: "It is always easy for rivals to say that they can do a better job. But it's like watching sport: it's is easy to be critical when you are a spectator."

Of the three, the BT-fronted bid is the most unconventional, as it is a consortium of medium-sized specialists rather than a one-stop IT shop. In recent months the Treasury has hinted that it would like to see groups of smaller companies running public IT systems.

Mr Clark at BT says: "Our view is that there is no single source for the type of expertise needed. We are not a traditional outsourcing company so we can be more flexible."

So, as Revenue officials start to assess the bids, they have much to consider. Not only is the future of their chairman and three large IT companies in their hands, but also the direction of the PFI.