F E A T U R E S    Issue 2.10 - October 1996

Big Brother Plc

By Simon Davies

The British government is privatising its data systems on the quiet, and US giant EDS is getting the billion-pound contracts. Simon Davies confronts the company that wants to administer everything from your taxes to your ID card.

It's easy to overlook the most strategically important building in West London. Travelling from Heathrow to Uxbridge, you might well fail to notice a featureless glass-and-steel cube guarded by a bronze eagle. A pity, really. Most people would be astounded at what goes on in there.

I'm standing in a dimly lit passageway deep inside this uncharted facility, accompanied by its Supreme Commander. We've successfully negotiated two security points, including one of those annoying bullet-proof-glass turnstiles. Now we can go no further. Even the boss can't get to the next level, because the pass code changes every hour. He's growing impatient waiting for help. For something to talk about, he sweeps his hand in the direction of a neon-studded metal map of the world.

"We manage this," he says. He reminds me strangely of P. T. Barnum.

In time, we file into an observation gallery. The scene below us vaguely resembles something out of Battlestar Galactica. Rows of workers are dwarfed by vast screens displaying unintelligible flow charts and maps. Behind a wall-size window just a grenade's throw away is one of the grandest computer rooms I've ever laid eyes on: 70 terabytes (70,000 gigabytes) of storage at the last count, enough to give God Himself a momentary headache. At the moment of writing it boasts 50,000 MIPS processing power and services 400,000 terminals around the world.

It looks like enough crunching power to run a government. Which is fortunate, because that's exactly what it does.

This is one of the two international hubs of " EDS" (Electronic Data Systems), the biggest information management organisation on earth. Banks, airlines, oil companies and myriad multinationals depend on EDS to move, sort and make sense of their data. And so do governments. It's not just the Bank of America, France Telecom, General Motors, Sony and Philips in there. It's the US immigration service. And the government of South Australia. And your tax records.

You may not have noticed it, but there's a slow privatisation going on that could be worth many, many times the value of British Rail - and could carry far more important implications. This isn't about last century's infrastructure; it's about the next century's. At the moment, EDS is handling at least some of the data needs of the Child Support Agency, the Driver and Vehicle Licensing Agency, the NHS, the Department of Social Security and the Inland Revenue, among others. Its contracts with the British government are worth billions. And it's not just a matter of money. EDS is part of a fundamental change in the nature of government services and government accountability.

It seems that Orwell was wrong. Big Brother doesn't have a party apparatus, and he doesn't wear a uniform (except, perhaps, the obligatory tie). He doesn't care what you believe. He just sits in West London, piling up the data and trying to make an honest buck. Just a conscientious partner in the great national enterprise. You could almost get to like him.

The market-forces mantra

Paul Clarke has been running EDS's London operation for four years, and he still gushes like a new father. I find myself warming to him - and that comes as a shock. I care about privacy and I fight for it; I've organised campaigns around the world to defeat ID cards. And yet here I am happily chatting to the architects of the machine that will surely run a future national ID card system. The thing is, I've got something in common with these people. I don't trust the government much - and neither do they. They think that much of what it does is wasteful and messy and unhelpful, and I cannot disagree. However, they think they could do it better. And I rather doubt that.

More efficiently? Quite likely. But efficiency doesn't take into account the democratic process, individual rights, the public interest. And I'm not sure EDS does, either. It's hard to say, though. EDS does not go out of its way to let people know what it thinks (unlike its founder, Ross Perot). And while it's a big company, it knows how to keep out of the public eye.

Perot founded EDS in 1962 with a US$1,000 cheque. In 1984, he sold it for an undisclosed sum somewhere in the very low billions to General Motors, a customer which by then accounted for nearly three-quarters of the company's revenue and which, ironically, had no intention of handing over the administration of its business to an outside organisation. Since then it has blossomed into a multinational with an annual turnover on the better side of $13 billion, and growing at 25%. Its activities span IT provision, system integration, data processing and business consultancy. In June of this year, it became a listed company on the New York and London stock exchanges. It has 100,000 employees in 42 countries, and it has contracts for $40 billion worth of business.

It doesn't detract from EDS's success to point out that it was the right company at the right time. The currents that swept it to its current prosperity were strong and deep. In the 1970s some companies - and investors - began to see that the creative use of data might matter as much or more than the creative use of raw materials. That meant they needed information systems. Big ones. Complicated ones. Temperamental ones. Data handling systems require expertise. Most companies didn't really have it. And once the system was there, a lack of expertise was potentially fatal. There was a need for a safe pair of hands.

EDS provided it. By getting there early, having clearly impressive clients and being reliable, EDS became the first choice for organisations wanting help with their data management. Because of the militaristic culture Perot had inculcated in the company, clients called it "sending for the marines."

But the marines were not just an expeditionary force. They stayed on. "Outsourcing" information systems to experts became seen as a wise thing to do, allowing companies to concentrate on the business they knew best. And EDS became the place that people outsourced to.

As with companies, so, in time, with governments. Civil services have all the problems with data systems that corporations do. That alone might lead to outsourcing. And it was not alone. In the UK, the forces of outsourcing had Margaret Thatcher on their side.

In 1979, Thatcher told colleagues that no government agency - not even defence and treasury - should be spared market testing. But it was not until 1991, with the publication of a White Paper called "Competing for Quality", that her vision finally materialised. In this new policy, all departments and executive agencies were required to set targets for the testing of new areas of activity against competing bidders in the marketplace. If a private company could establish that it could perform the role of government more cheaply and efficiently and with a higher quality of service, the job was theirs.

Information management was always one of the new policy's prime targets. Its privatisation was not likely to be a political issue, since few people understood the esoteric domain of data processing. And there was genuine need. While some government agencies, like the Inland Revenue, consistently scored high on international tests, other organisations such as the DSS were hopeless. Internal barriers and ancient traditions prevented sensible integrated policy. The outsourcing mania struck all areas of government, from driving licences and welfare benefits through to health and police. Ministers, MPs, media and corporations all began chanting the market-forces mantra. That meant a field day for EDS.

As the process began to pick up steam, bigger and bigger prizes were offered. Eventually the Inland Revenue itself, exemplary record notwithstanding, was offered up for outsourcing. In the mind of the Thatcherites, the privatisation of tax administration would be one of the toughest of all challenges, and the sweetest of all victories. For EDS and competitors such as Andersen Consulting and CSC (Computer Sciences Corporation), it would be the mother of all public-sector contracts.

Taking over taxes

I'm sitting with David Thorpe, the managing director for EDS UK, in a flash piece of New Mayfair with its own history of helping the government. In the 1980s, Landsdowne House in Berkeley Square was home to Saatchi and Saatchi. After the go-go decade went, the brothers S moved to more modest digs. Their offices were taken over by a global management consultancy, A. T. Kearney, which EDS recently acquired. So the backroom boys of the 1990s have taken over from the flashiest of '80s operators. It seems sort of ironic, and sort of fitting.

Thorpe is less cocksure than the guys out in West London, likeable and easily distracted, not really much of a marine. He explains how EDS's business is changing. EDS doesn't want subcontracted chores; it wants partnerships. That's one of the reasons why it bought out Kearney, one of the world's top ten business consultancies. It is time to move, he tells me, from outsourcing to "co-sourcing". Co-sourcing is a way for EDS to become a partner in some or all key areas of a business, reaping rewards across the entire spectrum. By the year 2000, Thorpe predicts, 50% of EDS's business will be based on this sort of partnership. The pace of change will be so great by then that companies will need a partner that brings more to the picnic than an unfeasibly overdeveloped expertise in operating systems and data architectures. That's what EDS wants to offer.

And it wants to offer it to governments, too. Thorpe shares with his colleagues a deep cynicism about government. By its very nature, he says, it is inflexible - unable to meet the demands of a complex marketplace. Co-sourcing can help. The streamlining that EDS has brought to government, he says, has already changed the culture of some of its departments and saved several hundred million pounds.

Sounds good. But it is not always quite that simple. Take the Inland Revenue contract, EDS's biggest UK contract to date, a "strategic partnership" that amounts to something not unlike co-sourcing. The invitation to tender took 18 months to produce and ended up about two feet thick. In the end, only two organisations were seen as fit to tender for the job: EDS, and a partnership of CSC and IBM. In November 1993, EDS won, reaping a billion-pound, ten-year contract to manage and control all the Revenue's IT business.

The Revenue's staff association tried to stop the deal. It planted questions in Parliament, mounted a strategic lobbying exercise and wrote to the 50 biggest companies in the country warning that tax data in the hands of an American private company might fall victim to industrial espionage, but all to no avail. The staff association couldn't successfully argue with a quoted £225 million that the contract would save over its lifetime.

With the help of 2,000 former Revenue employees, EDS now runs the PAYE tax system on a day-to-day basis. (The employees, says the union, get a better deal now, though they're contractually barred from discussing their terms of employment) It will engineer and manage new projects such as Self Assessment. But the precise details of how it does all this are unclear. It is not that no one has tried to specify them - people have. Expected results, required process, record keeping, finances, staff transfers, confidentiality provisions, copyright conditions and so on are all laid out in an astonishingly long contract, one that more than matches the tender in complexity. But you can't get at it. The contract is treated as "Commercial in Confidence", meaning that no one has the right to view it. The government documents that led up to its development are also exempt from disclosure.

So information is flowing more freely than ever around the Inland Revenue. It must be; after all, the contract requires it. But how it flows, and who controls its flow - that is now unknowable. If efficiency has been gained, then it has been at the expense of accountability.

Or rather at the expense of the notion of accountability. Anyone who has had the misfortune to be stuck in a DSS office, or at the wrong end of an administrative bungle, will laugh at the notion that the system is accountable to the public. But in theory, at least, there is a democratic line of accountability leading from the administrative clerk to the minister, and ministers are accountable to Parliament. Pathetic, unworkable and disreputable as this chain may have become, it still carries some normative, ideological value. But not after outsourcing.

The not-so-odd-at-all couple

So, three years on, how does the relationship look? I may not be able to see the contract itself, but I can ask questions of its incarnation, in the form of John Yard and Peter Clough.

John Yard used to be in charge of the Revenue's IT section, with 2,500 staff under his control. Now he has no IT staff, but instead has responsibility, among other things, for managing the EDS contract. He likens it to running around with a pooper scooper. Peter Clough is the EDS group director responsible for the private-sector end of the contract. He and Yard enjoy a close working relationship - so close, indeed, that they compare it to a marriage. They've almost taken each other's names. Clough's business card reads "c/o Inland Revenue"; Yard's boasts the impeccably corporate title of "Director, Business Services Office". And if one of them is giving me a harder sell than the other on the afternoon I meet them, it's civil servant Yard - in the nicest, most convivial sort of way.

What, I ask them, about democratic accountability?

"I think there was a key concern about whether [in outsourcing] we overstepped the boundaries and lost the benefits of the public sector doing this work. The key for us around all of that was the security of taxpayer records and confidentiality. We were very concerned that the propriety that tends to be associated with the public sector should equally apply to any private-sector organisation that gets involved in this work." Propriety?

"Honesty. Dealing with things in a fair and equitable way."

Hang on a minute. Whoever claimed, even in their wildest fits of loving kindness, that government agencies were honest, fair and equitable? To the extent that they ever do display these qualities, surely it's merely because they are ultimately subject to democratic processes. But Yard is adamant.

"If we outsource, we have to enter into contractual arrangements which we believe will protect the public interest. We will then be accountable if that public interest isn't served." So you see, if the public interest is served, then the system is accountable. Even if no one can hold it to account, and the public isn't asked. EDS appears to be co-sourcing with Sir Humphrey.

I change tack, and come at them from the direction that matters most to the whole deal: money. Since the contract was signed, some voices have started to ask questions about the decency of the outsourcing emperor's exposure. In a report released earlier this year, Leslie Wilcocks, a fellow of Templeton College, Oxford, analysed 61 outsourcing deals in Europe and the US. In about half of these the expected savings either did not materialise or were not measurable. None of the Strategic Partnerships of the Inland Revenue/EDS type examined reaped the expected savings. Poorly negotiated contracts often favoured the vendors. The greatest chance of failure lay with long-term contracts in which all IT was outsourced. Or co-sourced, if you prefer. Sound familiar?

Yard and Clough contend that they're different. They've got a special relationship. EDS and the Revenue are on a profit-split deal, Yard points out, that divides the spoils if profits from the operation go above the £225 million mark. It's in EDS's best interest to perform if they want an extra piece of the cake. Much the same synergy applied, though, to the outsourcing deal between IBM and an amalgamation of regional police forces for a fingerprint database system, an agreement which ended up in court. And it may have applied to EDS's deal with the Child Support Agency.

EDS supplies all the CSA's technology and know-how, and was responsible for designing and implementing the Agency's current computer system. In the middle of this year - for reasons largely shrouded by various layers of secrecy - the whole system collapsed. The backlog quickly grew to more than 350,000 cases. An already miserable and unhappy staff found themselves (amazingly) even more unpopular than they had been before.

There then followed the rapid passing of bucks, with both parties claiming innocence. John Staples, the man in charge of the contract at the EDS end, told me his organisation was blameless. The problem, he explained, is with an organisation that changed its administration and its policy after the system was implemented. There was simply too much paperwork (a child-support application form is now 34 pages) and the government kept tinkering with its policy.

The view of almost everyone I spoke to at EDS was that they were the unwitting victims of a hate campaign against the the child-support system. In reply, a CSA press officer told me, "I don't think there's anything we can say about this matter."

The Government of Florida certainly had something to say. It had contracted EDS to build a system for social security payments. In the first year the system went haywire, causing massive log-jams of cases and paying out $100 million more in benefits than it should have. The State stopped paying EDS, and EDS sued, arguing that the government had changed the system unexpectedly after implementation and - just like the case here with the CSA - seriously underestimated the amount of information it would need to process. "We delivered what they asked for," an EDS spokesman told local television.

In short, the EDS view is that these failures come from unanticipated changes in policy. The contract, the technology and the special relationship - in both cases - could not withstand sudden governmental policy changes. The company isn't to blame; democracy is.

The contract defines the relationship between parties; it lays out the way tasks must be undertaken. If the people or their politicians decide, in their messy way, to ask for something else to be done, then the company is often unable to do it. This could yet be a serious problem in the Yard/Clough marriage. According to David Thorpe (father of the bride at EDS), the Inland Revenue contract was drawn up before Self Assessment - the most important change in taxation practice in 50 years - was developed. The part of the contract dealing with this fundamental change was simply an add-on. If Self Assessment was indeed an add-on, then history points to a potential disaster that could at least partially paralyse the tax system. John Yard says that this won't happen, and that Self Assessment was factored in from the beginning. It would be nice to be able to check.

How bad can it be, though? After all, the whole idea is to bring in the rigours of the market. If EDS doesn't do what's needed, then, in theory, the government could find another supplier, or even take the work back in-house. In practice, it's the worst kept secret at the Revenue that this is a marriage for life. Yard explains in understated language that it would be "difficult" for the Revenue to handle its own information in future. "We could buy our assets back from EDS, but we couldn't necessarily get the people back." The bottom line, according to other Revenue officials, is that within a couple of years the Department will not have the competence to frame the right IT questions, let alone find the right answers.

What about getting another partner? The problem here is that the detailed knowledge of how the system works is now locked into one company, and very hard for an outsider to duplicate. "The issue that will crop up on a re-compete," explains Yard, "is that if CSC wins, for argument's sake, they will need to negotiate with EDS for how they get the expertise, and I foresee an issue at that point which says that if the very best people are involved the losing company will be rather reluctant to let them go." EDS European Communications Director Mark Fox says he cannot recall when a major contract has changed hands.

One conclusion that might be drawn from all this is that a ruthless company could easily hold a government to ransom. With the competence extracted from the customer and with competition held at bay, a government's outsourcing partnership in an information age could quickly become a policy nightmare : a marriage made in hell.

As I leave the happy couple I find that some of what they say makes sense to me. But I still think the contract is a fundamental weakness. I don't think we can accept glib assurances that ministers will ultimately be held liable for their outsourcing decisions. If EDS's co-sourcing dream takes off in the public sector, the old line of political accountability - weak as it already is - will collapse.

Wiring government

Other links, though, may be made easier by the new dispensation. As people's connections to the workings of their government are cut, connections between the parts of that government could become far more commonplace. That, at least, is how David Thorpe sees it. And he thinks this will be a good thing. "The failure of government," says Thorpe, "is that we have failed to link our systems. Wherever we go we have to fill out separate forms and put our name and address down countless times. Fraud is easy because systems aren't linked together."

"I believe," he adds, "that we are close to decisions in government that will facilitate more integration of departmental systems." Australia and New Zealand, he continues enthusiastically, already have data-matching systems in which many arms of government are cross-matched and linked. He agrees with Paul Clarke, the master of machines out Uxbridge way, that there is no technical reason why all EDS machines should not be linked together right now.

"The Police National Computer could have better access to driver- and vehicle-licensing systems tomorrow; insurance companies could have better access to vehicle information tomorrow. It isn't the technology that's standing in the way," Thorpe argues. "It's will. It's vision. It's an ability to implement them.

"But we live through a period when there is enormous scepticism about anything like that in this country because it looks like Big Brother. That's why we're going to have three or four identity cards in our pocket if we're not careful."

He's right. This is definitely an area to be careful about. The matching of computers for fraud recovery and tax evasion is equivalent to the imposition of a general warrant upon the entire population. This is a point that has not escaped the constitutions of Germany, Hungary and Portugal, which all impose strict limits on centralised numbering and matching systems. But Thorpe sees this as a simple matter of public opinion. "It is possible to improve data matching so that there's one system for government; shared access; reduced fraud; improved systems; less paperwork. More efficiency."

Thorpe's views are reinforced with gusto by his boss, John Bateman, managing director for Europe, the Middle East and Africa. Part Australian, part South African, part British, the gravel-voiced supremo comes across as a bluff mixture of pragmatism and ruthlessness. The EDS vision, he tells me, is not merely national. It is global. It vaults boundaries of time, context and geography. Bateman believes that the localised way of doing business is disappearing. The way people work transcends culture. EDS is, of course, at the cutting edge of this trend. "Instead of considering local business in a local environment, what we do is provide a local front, but then all the solutions we can apply to those companies are regardless of geography. If we've done something very successfully for a company in any part of the world, we have an organisational structure which helps us apply that, tune it, localise it, and reapply it into a new situation in another part of the world."

In this truly multinational world, John Bateman believes data protection law is pointless. Everything is rising above the national consideration. Countries that try to protect data within the confines of their own borders are trying to legislate against the sea.

I have to agree. I've seen his world. I've seen the gleaming new buildings set into the solid traffic of Bangkok, one gun-toting security guard per satellite dish. Container-loads of sensitive personal information - health records, police files, insurance data, credit-card accounts and government records - are dispatched from all over the world for processing here. EDS, needless to say, is a player. Right now, investment is concentrated on the US health and insurance industry, but the clients for data outsourcing come from all sectors and all countries - particularly Britain. Conventional borders disappear before our eyes, and our most intimate personal details are shunted around the globe behind our backs. It's cheaper for companies and governments. It's more efficient.

Bateman, like everyone else in this organisation, believes that efficient, market-based information management is the only solution for a troubled economy. That governments are steeped in obsolescence. That civil service is an oxymoron. That all things are possible through the application of logic, common sense, innovation, partnership and passion. In EDS, such ideas are not discussion points; they are axiomatic truths. Without so much as a blush of reserve, people here will tell you that EDS is creating templates for the world's future.

I ask Bateman if he sees any role for government in the future. "The role of government may well be associated with...." He pauses for reflection. "To be honest, I really struggle to come up with a clear definition of ultimately what role government has."

And then he laughs.

Simon Davies is director of the watchdog group Privacy International.