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Government IT contracts have been a political nightmare for many years. Many have been an economic disaster and reports on the issue continue to surface in the press, with coverage focusing on the budget-breaking sums that have been invested in IT and the poor returns from the end product.

As legal advisers to the public sector, we clearly have a role in addressing these issues and in creating successful IT transactions for clients. Our role is twofold: first, to understand the legal issues that affect public sector IT procurements; and second, to advise on the wider procurement approaches that can be used effectively in IT contracting.

The Office of Government Commerce (OGC) works with public sector organisations to help them improve their efficiency and gain better value for money from their commercial activities. It has instituted some guidelines to follow for successful IT contracts, but the most important lessons can be learnt from the major government IT projects, which are now coming up for renewal or renegotiation. Examples include the recent IT contract that EDS renegotiated with the Department for Work and Pensions, which was signed despite a perilously difficult relationship between the IT supplier and the government department.

Current legal issues

It goes without saying that IT lawyers must understand the current legal issues affecting the public sector.

Employment law issues often loom large in public sector IT procurements, particularly where staff are to transfer from the public sector to a private sector supplier. While the Transfer of Undertakings (Protection of Employment) (Tupe) Regulations are designed to protect employees’ rights, many public sector employees dislike the idea of being transferred to the private sector. This unpopularity was evident in an eight-week strike by 100 IT support staff employed by Swansea City Council, where Unison claimed that the council had failed to consult staff or evaluate an in-house alternative.

In view of these difficulties, the public sector is increasingly looking for alternatives to staff transferring under Tupe. For example, on Bradford City Council’s £160m IT transformation programme, a strike was narrowly averted by the council agreeing that staff could be seconded to the winning bidder, IBM, rather than be permanently transferred. There are many practical difficulties associated with the secondment model, but in view of the sensitivity of employment issues in all outsourcings, it is likely to continue to be used.

In the area of data sharing, the benefits of a more joined-up approach to public service delivery are clear, especially in light of our increasing reliance on cross-departmental procurements (with departments sharing services) and national taskforces. But in the area of data collection and government access to data, this approach is not without its difficulties. To avoid risk of challenge (and the associated loss of public confidence), data sharing must always have a clear basis in law and take into account the requirements of human rights legislation, confidentiality and the Data Protection Act.

In response to freedom of information legislation, the public sector will need cooperation commitments from IT service providers to ensure that its disclosure obligations can be met. In addition, since the legislation allows public bodies to withhold confidential information from disclosure, public authorities must ensure that their contracts do not allow too much information to be restricted by confidentiality obligations (thereby damaging their ability to comply with policy objectives towards open government).

Developing best practice

It is essential that IT lawyers stay abreast of best practice and apply the lessons learnt from the many failed IT projects in the public domain. There has been a growing recognition, reflected in the McCartney Report of 2000, that some of the old contracting models were more suited to a traditional punitive customer-supplier relationship than to a mature partnering environment.

Customers are more willing to adopt a more balanced approach to contracting, with recognition of those areas where it is unreasonable (or poor value) to transfer risk to the service provider. With a growing interest in ‘best of breed’ procurement approaches and the development of the OGC model IT services agreement, IT procurement in the public sector is facing new legal and commercial challenges.

Taking ‘best of breed’ contracting as a current example, many customers in the public and private sectors are looking at how to create enduring partnerships with IT suppliers without losing the ability to tap in to the benefits provided by niche suppliers. Contractually, this can be achieved through various mechanisms, including:

  • Non-exclusive contracting: Some customers are moving away from exclusivity commitments with suppliers after experiencing problems defining the scope of exclusivity. But they also want to create greater flexibility with numerous suppliers. Unless consortia can provide the required range of services, many suppliers will be seeking to secure some form of minimum commitment or financial compensation to mitigate the risks of falling volumes and lost scope.
  • Supply chain management: Many public sector customers are seeking a high degree of involvement in how consortia are put together and managed. This degree of control is often abhorrent to suppliers, who may well have to disrupt existing commercial arrangements to accommodate the customer’s requirements.
  • Governance: There are also increasingly sophisticated models of governance and public sector IT contracting approaches which create useful templates for central government departments. The recent NHS and Department for Environment, Food and Rural Affairs contracts fall into this category, although the former has been accused of being too draconian for suppliers.

    Such governance models are, however, critical, as they reflect the need to establish more sophisticated relationships between the customer team and the service provider delivery team. They are also essential to the successful management of multiple suppliers.

Looking forward

None of the above issues are revolutionary. What is different, however, is that, as a result of new thinking (essentially in view of the large number of high-profile disasters), new confidence (as the private sector market has been slow) and the creation of new documentation (the OGC model IT services agreement and other templates), we have seen the negotiation of a number of public sector contracts that the private sector would be pleased to be associated with. If the public sector is able to manage these contracts successfully, we might at last see some real IT transformation in the way that enables the Government to free itself from its IT burden.

Bridget Fleetwood is a partner at Pinsent Masons