Entrepreneurs looking for government contracts, update this negotiation strategy to your rule books. The Finnish Tax Administration is reforming their information systems, replacing seventy tax systems with a single one. Selected was the Fast Enterprises’ Gentax taxation software, along with Finnish-Estonian Nortal, who plans to implement the project for €62 million with the overall price of procurement running around €226 million over 15 years.
Also competing in the bid was IBM, whose bid of €38 million with a total value of €143 million over 15 years was rejected. The Finnish Tax Administration was able to do so under the public procurement laws, which says the contracting authority may reject abnormally low tender.
“For us, it is essential that the operational reliability and success of the taxation will be ensured also in the future,” said the Chief Information Officer of the Tax Administration, Markku Heikura.
The story isn't over yet. After being rejected, IBM is appealing the decision to the Finnish Market Court, who may reverse the decision.
Without any real baseline to compare it to, I don't know how to interpret this news other than to shake my head. On one hand, IBM's offer could have been purposefully low to win the contract, and could "discover additional costs" later, or to spit out a shoddy delivery. But at the same time you hear about the insane amounts of money governments pay to build a barely usable website, and you have to ask yourself where they think the baseline is for ICT spending. Take for example California's $2 billion court management system, which was eventually scraped.
Perhaps I'm again showing my naiveté, but since they're just implementing Fast Enterprise's Gentex software, it seems IBM's upfront of €38 million will buy you a moon-shot worth of man hours, even for a difficult problem like reliably putting together seventy tax systems into a new system. But I look at that winning bid and think, man, the number of entrepreneurs that would fund to build an even more badass tax system.
In order to deliver quality results, the Finnish government should be able to reject bids that are too far south. But with the number of clown consultants driving up prices in these ICT procurements, it should be interesting to hear the Tax Authority's reasoning in court.
UPDATE: Interview with Markku Heikura, CIO of the Finnish Tax Administration
ArcticStartup got in touch with Markku Heikura for more information on the matter and here is the interview:
ArcticStartup: Why was the rejection of the IBM offer based on the price?
Markku Heikura: The price that IBM has given was so surprisingly low, we didn't believe that with that price it is possible to make the whole project ready.
ArcticStartup Comment: Basically according to the Procurement Act, the contractor can evaluate the price and make a decision if the offer price is reasonable to complete the project. In this case, they believed that it was not.
ArcticStartup: How was the decision to start this project made?
Markku Heikura: Currently we have 60-70 tax systems that are of varying ages. Some of them are very old. We have made those 'tax type' by 'tax type'. They are isolated and a couple of years ago we made an enterprise architecture study and to find the best way to go forward and this was it.
ArcticStartup: How are you going to ensure quality and that the final product will be up-to date and relevant?
Markku Heikura: We made a one year evaluation project before the procurement. We found out that it is possible to make the project quite fast and to renew our environment. Through that evaluation process we decided to start the procurement process.
Of course when you renew 60-70 systems, you have to do it in phases. The implementation is based on rule engines, so you do not have to build from scratch each time.
ArcticStartup Comment: When referring to the rule engine, Heikura refers to the systems by both IBM and the Fast Enterprise/Nortal co-operation. Basically both systems allow for fast implementations and modifications, which should in theory allow to easily keep the system up-to-date.
ArcticStartup: What is the timetable for the product?
Markku Heikura: If we can go forward, we will have one launch every year and the total timetable for implementation is five years..
So at least this means that the Finnish Tax Administration did base their decision on the evaluation of the feasibility of completing the product, which means that they had to thoroughly go through the offer and decide if it is realistic or not.
Credit card and flag of Finland image by Shutterstock