One of the government's flagship outsourcing projects has been "more challenging" than originally envisaged and will not deliver the expected profits to the outsourcer, the National Audit Office (NAO) has warned.
In 1999, National Savings and Investment outsourced its IT systems to Siemens Business Services (SBS), in what was at the time one of the largest deals of its kind.
The agreement saved the taxpayer £176m in 2001/02, and met 98 per cent of performance targets.
But much of the productivity gains have come through reducing staff numbers. Of the 4,000 staff who were transferred, only 2,000 remain. Less than a third of the employees who were moved were found other jobs within SBS, while 1,200 staff took voluntary redundancy.
Work on improving legacy systems has also been slower than anticipated. SBS has struggled to migrate to its chosen banking IT system, Thayler. The NAO report highlights "weaknesses in the migration process".
And as a result, SBS will fail to make the returns on the project that it originally envisaged.
Despite these difficulties Sir John Bourne, head of the NAO, hailed the project as a success, as problems were overcome without costly renegotiations of contracts.
"This report shows that there are alternatives to bailing out the private sector," he said in a statement.
In 2000 Bourne had described the project as "one of the most remarkable PFI deals we have seen".
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