TCS’ £600 mn UK deal in jeopardy

TCS’ £600 mn UK deal in jeopardy
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First Published: Mon, May 10 2010. 11 41 PM IST
Updated: Mon, May 10 2010. 11 41 PM IST
Mumbai: With the Conservative Party likely to form the next UK government, the future of a £600 million (Rs4,014 crore today) contract won by Indian technology firm Tata Consultancy Services Ltd (TCS) now hangs in the balance.
The contract, to set up the information technology (IT) infrastructure of and administer UK’s revamped pension scheme is the largest ever IT services deal outsourced by the UK government to an Indian firm. It was expected to open up more opportunities for Indian service providers in the £10 billion UK public sector IT outsourcing market, dominated by European firms.
But the Conservatives, who are opposed to large outsourced contracts, had vowed to review the TCS deal if they came to power, as reported by Mint on 10 March. Nigel Waterson, their spokesperson on pensions, had told Mint the party won’t be “constrained in any way by a contract signed in the dying days of this government.”
In the 6 May elections, the Conservatives have emerged as Britain’s largest parliamentary party, pushing the incumbent Labour Party to the second spot. They are now in talks with other parties to form a government. Waterson, however, did not win his seat. Mint’s emails to the office of Waterson and his party leader David Cameron remained unanswered, presumably because the government is yet to be formed and the Conservatives were still in talks to do so on Monday at the time of going to press. TCS declined comment on the issue.
Analysts who track the UK public sector IT market say even if the contract is not cancelled, there will likely be significant changes in the way it is structured.
The contract could be broken into small chunks and given out to multiple suppliers, John O’Brien, senior IT analyst with Ovum, the technology research arm of Datamonitor Group, said over the telephone from London. This will be in keeping with the Conservative Party’s policy that outsourced public sector IT contracts should be capped at £100 million to avoid overdependance on a single vendor.
“The contract size is way over the preferred cap, but it would be interesting to see how the restructuring would be done,” O’Brien added.
Currently, the deal has two phases, with the first phase, valued at £25 million, running until October. The structure was created to allow a new government to cancel the contract if it so chooses, said a spokesperson of the National Employment Savings Trust, which runs the pension scheme. “The intention behind the £100 million cap is to ensure that future IT contracting becomes more flexible and less reliant on any single vendor, and so large-scale IT projects (are to be) split into small modular components,” said a 7 May note authored by O’Brien and Jessica Hawkins, another Ovum analyst.
O’Brien also said while it would be easier to break up a hardware procurement contract to multiple suppliers, it won’t always be that easy to restructure a services contract, especially one as large as pension scheme administration.
TCS had won the contract as European competitors such as Arbejdsmarkedets Tillaegspension Group, Great-West Retirement Services (Europe) Ltd and Logica Ltd had opted out of bidding for the pension scheme administration project, citing concerns over its commercial viability.
Analysts say even the broader outlook for IT services firms doesn’t look too bright as Conservatives might cut investments into IT projects. “New investment in IT is on hold in the UK public sector pending the full outcome of the general election,” analysts Sarah Burnett and Stuart Ravens observed in the 7 May note referred to earlier. “This pregnant pause is the precursor to major cuts in IT budgets.”
lison.j@livemint.com
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First Published: Mon, May 10 2010. 11 41 PM IST