The National Audit Office (NAO) has branded the business plan for shared services between the UK's seven Research Councils "flawed" and the related IT contract with Futjisu "poorly-managed", after the project was delivered millions of pounds over budget.
The government had hoped to cut costs by streamlining the back office functions of the research councils by implementing a Shared Service Centre, covering ICT, finance, procurement, HR and grants allocation services.
The plan was agreed with the Department for Business, Innovation and Skills (BIS) in January 2006 with completion scheduled for December 2009. A company wholly-owned by the research councils, RCUK SSC Limited, was responsible for the new centre.
However, the centre was operational 15 months late, in March 2011, and £130 million had been spent on the implementation - 65 percent more than the initial budget of £79 million. Some services, particularly finance, are still not yet where they need to be.
The business case for the shared services solution forecast that the councils would achieve total savings of £395 million over 10 years.
However, the NAO said: "The business case analysis underpinning the decision to opt for the chosen shared service solution was flawed. The financial case for the chosen option relied heavily on making savings from better procurement for the councils - some 85 percent of the gross savings to be generated. These projections were inherently uncertain and did not take into account that some savings might have been delivered by existing joint procurement arrangements."
In addition, the contract with Fujitsu to put in place IT systems for the centre was "poorly-managed" by the project team and subsequently terminated, which led to an extra £13 million in costs being incurred.
Fujitsu was awarded the 10-year, £46 million contract to build and maintain IT systems for the centre in August 2007.
However when the IT company was appointed, the council's project team did not have a sufficiently clear design specification for the centre. This led to miscommunication between the project team and Fujitsu about expectations and deliverables, which meant that Fujitsu did not deliver to agreed milestones.
The councils' project team eventually terminated the contract, having paid £32 million to Fujitsu, and parts of the system had to be rebuilt in-house.
"Had the contract worked as planned, we estimate that subsequent costs of at least £13 million would not have been incurred," the NAO report stated.
Although some benefits have been achieved through the new shared service platform, for example, the new grants function allows councils to stop using older systems that were increasingly at risk of failing, some processes are still not stable.
For example, the centre has had difficulties producing robust financial and management information, which means that councils have had to run parallel systems or manage their business without adequate data.
BIS is now planning to expand the number of bodies that is served by the shared service centre, in an attempt to claw back costs.
Amyas Morse, head of the NAO, said: "This is yet another example of a project embarked upon without the necessary planning. Once it did start to go wrong, proper governance or intervention from the department [BIS] should have rectified the problems, but this did not happen until a great deal of taxpayers' money had been spent."
"The department, the research councils and the shared service centre now need to get performance up to where it needs to be. Any plans for expanding the range of clients served by the centre must be based on a thorough and realistic assessment of value for money."