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TCS’ 600 mn pound contract under fire in UK

TCS’ 600 mn pound contract under fire in UK
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First Published: Wed, Mar 10 2010. 01 15 AM IST
Updated: Mon, May 10 2010. 04 44 PM IST
Mumbai: With a general election due in June in the UK, a £600 million (Rs4,104 crore) contract the British government awarded last week to Tata Consultancy Services Ltd (TCS) has come in for political criticism in that country.
The main opposition in the UK, the Conservative party, has vowed to review the contract if it comes to power.
“The original procurement timetable called for contracts to be signed end-June. So we were very surprised when this timetable was suddenly accelerated,” the Conservative party’s shadow pensions minister Nigel Waterson wrote in an email to Mint. “Our view is that contracts of this sort should not be signed so close to the election.”
If the deal is cancelled after its first phase, which ends in October, TCS, India’s biggest information technology (IT) firm, may end up with a revenue of only £25 million from the contract—for setting up and maintaining the IT infrastructure of the UK’s state pensions scheme that’s expected to benefit millions of Britons.
TCS did not respond to Mint’s queries.
Mint had reported on 16 December that TCS was the only company left in the fray for the UK’s National Employment Savings Trust, or NEST, project. TCS was selected through an international competitive bid by the Personal Accounts Delivery Authority, or PADA, under the UK government’s department for work and pensions.
Last week, the Conservative party voted against the auto enrolment legislation—critical for the implementation of the pension scheme—in the House of Commons to protest against the Gordon Brown government’s decision to sign the contract close to the elections.
Waterson said the Conservative party is “intent on holding an immediate review of NEST” if it wins the election. He said a review would not necessarily involve a fresh tendering process to select a new service provider, but the party would not be “constrained in any way by a contract signed in the dying days of this government”.
A shadow minister is a part of a grouping of senior leaders of the opposition who form an alternative cabinet to monitor the activities of the government.
Shadow ministers often become cabinet ministers if the opposition comes to power.
PADA defended its decision to award the contract to TCS. The contract is structured such that in October, at the end of its first phase, the new government can choose not to continue with TCS for the rest of the project, a PADA spokesperson said.
The seven-month, first phase of the contract will allow “TCS to commit actual resources and manpower”, the spokesperson said. “Signing the contract now provides value for money by securing the terms and conditions established during competitive dialogue.”
The spokesperson said the terms were consistent with the government’s commitment not to enter into long-term contracts at this point in the electoral cycle.
“The contract we are proposing is entirely consistent with that, whilst enabling PADA and TCS to get on with their work and derisk the implementation of the scheme,” the spokesperson said.
The contract is critical not just for TCS but also for other large Indian firms that are chasing opportunities in the £10 billion public sector technology outsourcing market in the UK, currently dominated by European IT firms.
Mint had reported on 3 December that an increasing amount of back-office and IT-related work was expected to be outsourced by the UK government as part of its efforts to trim expenditure.
Among large Indian IT firms, TCS has been more successful in winning deals from the UK public sector. In the last few months, it has won at least two other large contracts from UK public sector bodies.
But other firms such as Arbejdsmarkedet Tillaegspension Group, Great-West Retirement Services (Europe) Ltd and Logica Ltd had opted out of bidding for the pension scheme TCS has won, saying the project was not commercially viable.
Milan Sheth, partner, technology advisory services, at consultancy Ernst and Young, said TCS has in the past successfully demonstrated its ability to undertake large volume work at relatively lower margins.
“TCS has a large India practice, especially in the government space, and they know how to play that game,” Sheth said. “In any case, it will increase their visibility in UK’s public sector market and may help in opening up new opportunities in the future.”
TCS caught in political crossfire
• TCS successful bidder for project to set up IT framework for state pensions scheme
• The decision to award contract too close to general election in June, says opposition
• Opposition vows to review the contract if/when it comes to power
• Contract structured in two phases, with first phase running to October worth £25 million
• The new government can decide not to continue with TCS for the second phase
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First Published: Wed, Mar 10 2010. 01 15 AM IST