The Social Security Committee has agreed to the following Report:—

POWER TO INCUR EXPENDITURE UNDER SECTION 82 OF THE WELFARE REFORM AND PENSIONS ACT 1999: NEW INFORMATION TECHNOLOGY SYSTEM FOR THE CHILD SUPPORT AGENCY

Background

  1. In a letter to the Chairman of the Committee dated 3 December 1999[1] the Secretary of State for Social Security informed the Committee that he proposed to seek the approval of the House to make use of the power granted to him by Section 82 of the Welfare Reform and Pensions Act 1999.[2] This power allows the Secretary of State to place a Report before the House of Commons, seeking approval of expenditure on new services for a period of up to two years in advance of Royal Assent to the particular piece of legislation creating the service.

2. Before that Act completed its Parliamentary proceedings the Chairman of the Public Accounts Committee and the Chairman of the Committee met the then Minister of State for Social Security on 22 July 1999 to discuss how the respective Committees could be involved in the scrutiny of draft expenditure reports relating to the proposed power to incur expenditure.

3. In a letter to the Chairman of the Committee dated 3 September 1999[3] Mr Jeff Rooker, Minister of State for Social Security, outlined the agreement that had been reached:

"...you both agreed that the main role in the scrutiny of these reports will be for the Social Security Select Committee...You discussed with Stephen Timms whether draft reports should be sent to you before being laid before the House, with you then considering them before the House considers authorising expenditure. You agreed that you would be able to consider and comment on draft reports within a few days, providing relevant officials were available to give evidence where necessary. I am very grateful for this assurance and, on this basis, I can confirm that I am content for draft reports to be sent to you...before being laid before the House."

The Proposed Expenditure

  4. In his letter to the Chairman dated 3 December the Secretary of State wrote:

"My Department's dependence on large-scale information technology is well known. Changing those systems is a substantial task; use of the power to incur expenditure would allow earlier implementation of the changes than would otherwise be possible."

Changes to the attachment

  8. During introductory questioning it became apparent that the figures contained in the attachment to the Secretary of State's letter had been changed significantly (the total being reduced by 90 per cent, some £54m). Having made special arrangements to accommodate the request for urgency, the Committee was greatly concerned that the document submitted to it was inaccurate. Bearing in mind that this is the first occasion on which this new and unusual procedure is to be used we would have expected to receive a more accurate document on which to base our examination of the witnesses. We recommend that, if the power to incur expenditure is sought in the future, the Department should present a final draft report so that the Committee is able to provide reliable advice to the House on the necessity for the proposed expenditure and the amount proposed. We further recommend that the Department should give a clear indication of when it is intended to lay the final Report before the House so that the Committee can assess the urgency of the matter. In this case it emerged from questioning[4] that the urgency was rather less than the initial impression given.

The accrual of financial liabilities

  9. We understand that the expenditure within the Department, identified in the final report, is likely to be £6 million. This is the expenditure directly attributable to the reforms contained in the Child Support, Pensions and Social Security Bill. The remainder of the £60 million identified in the draft Report we saw will still be spent but we were told that financial approval for that expenditure had already been received. It is a disappointment to us that we were not informed of these changes and the reasons for them prior to the evidence session that we held with officials from the Department. We recommend that the Report laid before the House should give a detailed breakdown of the expenditure within the Department and that the expected timing of this expenditure should be made clear.

10. Should the House agree to the Secretary of State's Report, the contract with Affinity for the development of the new computer system could be signed. Payments to Affinity will begin only when the new computer system becomes operational. This is expected to be in late 2001. Financial liabilities will, however, accrue once the contract has been signed. In our view the Report laid before the House should be drafted in a manner that makes clear both the amount and timing of this liability. In particular, we believe it would be helpful to the House to know what financial liabilities will have accrued by the time the House rises for the summer (normally towards the end of July) and by the end of the current Parliamentary session (normally late October or early November). In order for the House to be in a position to make an informed decision on the use of the power to incur expenditure, we recommend that the amount, nature and timing of the financial liabilities that will be accrued by signing a contract with Affinity should be stated on the face of the Report.

11. The minimising of the risks involved should be an important part of the Department's negotiations with Affinity. If the Bill is not enacted, or is not enacted with the proposed amendments to the Child Support Acts of 1991 and 1995, or is otherwise substantively amended affecting the Child Support clauses, the Department will have entered into a contract for a computer system that, to a large extent, is no longer required. In this event, the contract would need to be rescinded or renegotiated by the Secretary of State. In his letter to the Chairman dated 3 December 1999, the Secretary of State said that his officials "remain in complex and confidential discussions with our preferred supplier for IT projects, the Affinity consortium"[5] and the witnesses told us these negotiations were in the final stages. We appreciate that these negotiations are confidential. We hope, however, that any contract entered into under the power conferred by Section 82 of the Welfare Reform and Pensions Act 1999 will obviate or minimise the costs to the taxpayer in the event of substantive amendment of the Bill or a failure of the Bill to be approved by both Houses. We recommend that the Report to be laid before the House should make clear how the risks of signing a contract prior to Royal Assent will be minimised, particularly to avoid legal proceedings for breach of contract. The House should be told what unavoidable expenditure there will be in the event of the Bill not being enacted or being substantively amended.

12. The timetable for the signing of a contract with the Affinity Consortium and for the commencement of work on the new computer system is of particular importance. We understand that a contract is likely to be signed in late February or early March after the House has agreed to the Secretary of State's Report and after the Treasury has agreed to the business case presented to it by the Department. We were told, however, that work on the Child Support-specific reforms is likely to commence in September. Thus, it appears that it is only from September that financial liabilities will accrue. We believe that it may be possible to ensure that Affinity does not begin the Child Support-specific work until after Royal Assent by relatively minor adjustments to the timetable, thus avoiding the accrual of financial liabilities with Affinity. The Report to be laid before the House should specify when Affinity will commence work that is specifically related to the Child Support, Pensions and Social Security Bill.

Negotiations with Affinity

  13. The witnesses gave us a detailed summary of the method used to select a preferred supplier. The contractor had been chosen following the required EU Procurement procedure and a full evaluation of three short-listed bidders under the Private Finance Initiative. The witnesses were unable to inform the Committee on the relative value of the bids but were satisfied that Value for Money had been obtained for the taxpayer.

14. The delivery of a new computer system is crucial to the success of the proposed reforms. It is essential that the Department learns the lessons from other PFI IT projects. The Public Accounts Committee's 22nd Report of 1998/99, Delays to the New National Insurance Recording System[6], stated that:

"We believe that the Government should conduct a full review of the NIRS2 project to draw out the key lessons, and take these into account in letting contracts for and managing other major information technology projects".[7]

The Public Accounts Committee has also published a report on Improving the Delivery of Government IT projects. We expect the Department to take careful note of the conclusions and recommendations contained in the Public Accounts Committee's report on Improving the Delivery of Government IT projects.[8]

The target date for implementation

  15. In our Tenth Report of Session 1998-99[9], we commented as follows on the provision of IT systems for the new proposals for Child Support which are now encapsulated in the Child Support, Pensions and Social Security Bill.

"The importance of effective computer systems cannot be exaggerated. We recommend that the new child support scheme should not be implemented until the new computer system is fully operational."

We welcome the assurance given by the witnesses that, if the new IT system is not in place in the target period (late 2001), the Child Support reforms will be delayed until the system is fully operational. The witnesses seemed much less certain as to whether the final contract would contain appropriate penalty clauses if the contractor was unable to deliver on time a fully operational system. We recommend that the issue of compensation in the event of delays or inadequacy of the system should be addressed in the negotiations with Affinity. We also noted that the officials were not able to give an assurance that the contractor believed he could meet the deadline, only that the target remained late 2001. Given that the doubts originated in evidence to the Committee by the Public and Commercial Services Union on 15 September 1999 in our inquiry into the 1999 Child Support White Paper[10] we are surprised that officials were not in a position at least to report the contractors' comments on this suggestion.

Conclusions

16. Even before it became clear that the document submitted to the Committee bore little or no relation to the likely final version we were concerned that the proposals involve an unusual procedure which, although approved by the House, will involve expenditure from the public purse possibly before the Bill has received Royal Assent. While the power to incur expenditure in this way has been passed into law, we believe it would be appropriate to consider how best the House and its Committees should deal with any future similar cases. We therefore recommend that the arrangements are considered by the Procedure Committee and we should welcome that Committee's view on the procedure to be adopted in future. We also recognise that the Committee of Public Accounts has a continuing interest in this matter and has reserved its right to inquire into it should the need arise.

17. The Committee accepts in principle that a realistic, properly costed and suitably safeguarded amount of expenditure should be authorised under the power to incur expenditure in order that the new Child Support arrangements can be implemented without delay. However the draft report and oral evidence which we received did not give us sufficiently accurate information on which we could make an unequivocal recommendation to the House. We therefore recommend that when the Secretary of State's report has been finalised a copy is provided to the Committee prior to the laying before the House so that the Committee may provide the assurance and advice which we believe should be available when the House considers the Report.

2   See extract at Appendix B Back

3   Appendix C Back

4   See Para 12 Back

5   See Appendix A Back

6   HC, 1998-99, 182 Back

7   HC, 1998-99, 182 Para.8 Back

8   HC, 1999-2000, 65 Back

9   HC, 1998-99, 798 Back

10  HC, 1998-99, 798 Q406 Back