The great computer catastrophe: Technology has cost us millions but we are still waiting for the promised revolution, says Tim Kelsey

IF BASIL ZAKHAROFF, the legendary arms dealer of the early 20th century, were alive today, he would probably have gone, not into arms, but into computer consultancy. Zakharoff sold more than weapons. He sold a vision: that new weapons technology, such as the Maxim machine gun, was of such awesome power, it would put an end to war.

Today's computer consultants also come to governments bearing visionary gifts, of a revolution in working practices, in corporate efficiency, in people's lives. But rarely are these promises realised.

In the early Eighties, a group of senior civil servants and computer consultants met to discuss the most ambitious computer project in British history. They proposed to computerise the administration of all social security benefits. The plan was called Operational Strategy. All were in agreement: this was a vision with great social implications. As one put it: 'What I'm doing is stopping riots in the streets. People won't even have to walk to the dole office to claim their unemployment benefit. There will be no frustration.'

One consultant remembers that some then boasted that the Operational Strategy was a new instrument of political engineering, which would redress the balance of power between the state and the individual. The citizen would no longer have to spend so much time filling out an ever-increasing number of forms; he would have more freedom.

In 1982, MPs were told that the vision would cost pounds 700m. Ten years later, the project has been overspent by at least pounds 1.3bn. It has achieved few of its objectives. The great staff savings have not materialised and the errors generated by incompetent management of the computers have raised serious concerns about the credibility of the whole system.

Last month, for example, the National Audit Office revealed that the computer had overpaid at least pounds 30m in unemployment benefit in 1991, and made a minimum of 800,000 errors in other payments.

Down at the dole office, people still have to fill in forms.

The catastrophe of Operational Strategy is symptomatic rather than exceptional (the DSS wrote off a smaller system conceived in the late Sixties for about pounds 6m). But no lessons seem to have been learnt.

The newly privatised electricity companies, it has emerged, are renegotiating a contract with a computer services company that is costing them (and therefore us as consumers) as much as pounds 30m to administer. At the end of this week, the National Audit Office will publish a report that will castigate Training and Enterprise Councils for poor computer management.

It is impossible to say just how much money has been lost through incompetent computerisation in the public sector. Whitehall spends pounds 2bn a year on information technology. One expert believes that at least 10 per cent of this amount is wasted on doomed, inappropriate and sometimes allegedly fraudulent ventures.

The Foreign Office had to write off pounds 77m on a computer system two years ago. The Ministry of Defence abandoned one recent project at a cost of pounds 10m. And its current computerised stock-taking system is so inadequate that it was unable to stop millions of pounds being lost through theft of stores, including portable computers, by MoD employees.

Tony Collins, of the trade newspaper Computer Weekly, believes that about half of the pounds 400m spent annually on NHS information technology is wasted. GPs and hospitals still communicate on pieces of paper.

The scale of the losses is unacceptably high. One consultant who used to work with the public sector says: 'Most people don't appreciate the extent of wastage because they don't understand what computer services are about.'

It is not just the public sector that has been repeatedly embarrassed in its pursuit of computerisation. The private sector has not fared much better. The Stock Exchange Council recently shelved its Taurus project, for paperless trading, at a cost of at least pounds 250m. The knock-on cost to members of the Stock Exchange, who had set up their own computer systems in readiness for Taurus, probably matches that. The merchant bank Barclays de Zoete Wedd may not repeat its attempt to set up a computerised settlements system which it wrote off last year for pounds 15m.

But the largest losses, and the greatest resistance to admitting mistakes, remain in the public sector. And the computer consultants continue to benefit from the apparently inexhaustible willingness of public servants to invest in massive, flawed computer projects.

The private consultants who devise and manage these vast computerised information systems first appeared 30 years ago, as the full potential of the computer revolution started to become clear. Since then they have thrived on the lavish resources of the public sector. There is probably no other area of the world economy that has grown so fast or so profitably as the computer services industry.

Like arms dealers before them, the purveyors of this new technology thrive in an atmosphere of secrecy and ignorance. They are the 'witch doctors', according to Robert Sheldon, chairman of the House of Commons Public Accounts Committee (PAC), who spends most of his time investigating the waste of public funds in the incompetent pursuit of computerisation. 'The civil servant doesn't really understand what he is being sold; but the man has a certain reputation and you believe him.'

Ignorance of the technology means that the public sector, in almost every case, chooses to hire private sector consultants and computer facilities managers. In blatant contradiction of the free-market philosophy of the Conservative government, these consultants are often hired without open tender, on contracts that do not determine a level for fees or include clauses for poor performance. There are acute problems in policing these contracts. The suspicion of fraud - the public sector seems to take very few precautions in its computer contracts - lingers, but there is no firm proof of it.

It is only rarely that disasters come to light, but there is little doubt among members of the PAC that the amount wasted on computers dwarfs other incompetency in the public sector. More than 75 per cent of all National Audit Office reports now deal in some way with information technology. The losses are growing rapidly.

The chief consultancies to the public sector have grown out of the largest City accountancy firms. First among them is Andersen Consulting, a part of Arthur Andersen & Co. Each new senior manager at Andersen is issued with a thick file called 'Ethical Standards'. Andersen is careful to remind its staff of their responsibilities, particularly when dealing with public funds. But the interests of private consultancies, as Robert Sheldon fears, are fundamentally at odds with those of government: 'The private businessman is interested, of course, in his bottom line. They come to this without the ethos of public service.'

Andersen was criticised by the PAC for its role in the fiasco of Wessex Regional Health Authority. The company helped inspire a 'visionary' computer system that would link all the authority's regional information services, and won the first contract in the mid-Eighties. Andersen attracted the district auditor's criticism because of the way it lobbied for the contract: it lost the original tender but, after persistent lobbying, finally won the contract. The health authority never legally sanctioned the decision, the system was a failure and the taxpayer has lost as much as pounds 63m; but the authority has no redress against the contractor through the contract.

If it chooses, the Government can easily enforce proper tenders and contract safeguards in the public sector, which for us as taxpayers is the proper focus of our attention. It seems inexplicable that a government so dedicated to restraining public expenditure, even when it provokes widespread political unpopularity, should tolerate such financial negligence when it comes to computers. The complexity of accounting for this waste has meant that much remains hidden from public view.

It is a telling indictment that the Government does not have any clear idea how much its departments have lost. It is time the Government took control. The first task is to remedy Whitehall's ignorance of information technology and reduce its dependence upon the solutions of private consultants. In computers at least, we do not need visions but value for money.

(Photograph omitted)