19 July 2006 | Paul Snell

The National Audit Office (NAO) has commended the procurement process in the first re-tendering of a major government IT contract.

HM Revenue & Customs (HMRC) decided in 2002 to invite bidders to provide IT outsourcing services. It believed a new partnership would be cheaper than continuing existing arrangements, estimating the cost at around £3.8 billion, compared with £4.1 billion. Capgemini won the contract, beating a bid from the incumbent supplier RPS - a collaboration between EDS and Accenture.

The NAO report, published today, praises HMRC for offering incentives to encourage competition among suppliers and paying for transition costs of £37.6 million.

Initially suppliers were slow to tender because they felt they had little chance of winning the business over the existing provider. But more came forward after HMRC contributed £7.7 million to bid costs and design and implementation studies. The NAO said this was "an essential step to achieving value for money".

Procurement costs also came in under expectations, at £27.5 million instead of £29.6 million.

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