HMRC launches £500M procurement for new ERP, though project's already a 'red' risk

Rivals will need to dislodge incumbent SAP in competition for 5-year deal across three departments

The UK's tax collector is seeking software and technical services suppliers to replace its SAP ERP with a subscription-based product, in a project already judged a "red" risk by the government's projects watchdog.

The procurement — launched in line with the 2021 shared services strategy — will also provide vital software for the Department for Transport (DfT) and Department for Levelling Up, Housing and Communities (DLUHC) under the umbrella of the so-called Unity programme.

According to official documents released late last week, HMRC is looking for a software and technical services provider to design and operate a centralized finance, procurement, HR and payroll shared service function across all three departments. The tender notice states the winning supplier will be expected to operate a standard set of processes that are fit for the purposes of all Unity departments.

The departments want the tech supplier to "design, build, deploy and operate a standard, single set of systems that are scaled to the future and that deliver performant services underpinning the business processes."

It will also be expected to "migrate data from the Unity Departments' existing systems to the new target Unity systems such that each business process continues to operate without disruption."

However, the necessary business transformation and associated change management are not within the scope of the contract.

Earlier this year, HRMC said the total baseline whole-life costs of the project would be £214 million. The tender notice put the maximum value of the procurement at £500 million, including both the software supplier and technical delivery partner (TDP), under separate contracts. The TDP contract is set for an initial term of five years with a option to extend for two years. The software contract is set for an initial term of ten years, with extension options of three and two years.

"HMRC is aware that the organizations who seek to provide software services are likely to be different to those who provide system integration services. Additionally, given the size, scale, and business criticality of the requirements, HMRC is intending to establish strategic working relationships with the suppliers leading delivery of the services [both technical delivery and software)," the notice said.

"Suppliers are required to submit a joint bid for this procurement and HMRC will only accept consortium bids comprising of one primary software supplier and one system integrator," it said.

Although it has just formally launched the procurement process, the Unity project has already been awarded a "red" rating by the Infrastructure and Projects Authority (IPA), a joint unit between the Treasury and the Cabinet Office. The IPA says a red rating means "successful delivery of the project appears to be unachievable."

"There are major issues with project definition, schedule, budget, quality and/or benefits delivery, which at this stage do not appear to be manageable or resolvable. The project may need re-scoping and/or its overall viability reassessed," according to the IPA definition.

However, the report quoted HMRC justifying the project: "Our colleagues will be empowered through intuitive, streamlined and automated processes, improving their experience and enabling everyone to spend more time delivering essential services for the public," it said.

SAP is the current ERP software supplier to all three departments in the cluster. HMRC also uses an SAP system to manage how it collects tax.

HMRC is just one of the departments leading procurement for SaaS ERP systems to run central government departments. In June, the Department for Work and Pensions launched a competition for an ERP refresh package worth an estimated £933.7 million. The 12-year contract includes both software and systems integration services as part of a "bundled procurement." Department for the Environment, Food and Rural Affairs (Defra), the Home Office (HO), and the Ministry of Justice (MoJ) will also make use of the procurement under the "Synergy Programme."

In July, the Department for Science, Innovation & Technology (DSIT) – formed on February 10 – launched a procurement at £215.6 million for 10 years, with the option of a two-year extension. Departments within the Matrix cluster include the Department for Business, Energy & Industrial Strategy, the Attorney General's Office, the Cabinet Office, the Department for Digital, Culture, Media & Sport, the Department for Education, the Department of Health & Social Care, the Department for International Trade and HM Treasury. It also includes 20 arm's-length bodies, including the UK Space Agency. The Matrix was the "trickiest" of the five clusters, Alex Chisholm, permanent secretary and chief operating officer of the Cabinet Office, told MPs in January.

The remaining two clusters are Defence and Overseas, which includes the Foreign, Commonwealth & Development Office, the Department for International Trade, and other units.

Chisholm also told the Public Accounts Committee the government was closing the £100 million funding gap created by the Treasury when it offered £300 million for the Whitehall ERP refresh in the November 2021 spending review. The Cabinet Office said departments had initially sought £400 million for the spending review period to March 2025, but the Treasury offer was well short, he said.

Chisholm said the initial figure was based on "relatively speculative numbers." Work between the Cabinet Office, the Treasury and individual department clusters reduced the gap, he said.

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