The HERKULES project

Table of Contents

1 The HERKULES project

2 Implementation of HERKULES
2.1 Risk sharing in HERKULES
2.2 Partnership Dynamics
2.3 Evaluation

3 Areas of concern and room for improvement
3.1 What constitutes the core of public services?
3.2 Cost control and efficiency gains
3.3 Public Involvement

4 Lessons learned

5 References
5.1 Block 1 and 2 Resources
5.2 Field Readings
5.3 External Resources

1 The HERKULES project

In late December 2006, the German Federal Armed Forces (Bundeswehr) commissioned a consortium consisting of Siemens Business Services (SBS) and IBM to modernize and manage its non-military information and communications technology (“white IT”) under the HERKULES project. A company called BWI Informationstechnik GmbH (BWI IT) has been formed to supply the relevant IT services. Siemens and IBM hold 50.1% of the shares in a 25.05%/ 25.05% split, while the German Federal Government holds 49.9%. The Bundeswehr is represented on the board of directors, and the consortium is open to audit by the military, the German Defence Ministry and the General Accountants' Office. The 10-year contract is worth approximately EUR 7.1 billion. This is said to be the largest public-private partnership (PPP) in Europe and up to 2,950 German Federal Armed Forces IT employees have since been working within the project. By the year 2016, BWI will revert to 100% Bundeswehr control. Thus, although HERKULES can not be termed a „PFI in its purest DBFO form” (Broadbent/Laughlin 2003: 204), it features a private consortium acting as provider of a “service package” that could not have been delivered by public sector agents alike. Built-up of the IT infrastructure as specified by the public sector and the initial operation of all white IT is at the heart of the HERKULES PFI service package. However, unlike in classic PFIs, the IT infrastructure will become public property at the end of the contract.

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The HERKULES project is designed to update the Armed Forces’ data centres, software and applications, PCs, telephones, and voice and data networks to modern standards. This includes maintenance and support of desktop software, SAP software as the large-scale back end, web-based applications belonging to the intranet of the Bundeswehr, and communication programs such as IBM’s Lotus Notes. Siemens will be responsible for operating and modernizing the decentralized systems at more than 1,500 locations in Germany, encompassing 140,000 PCs, 7,000 servers, 300,000 fixed-network telephones and 15,000 mobile phones. In terms of objectives (Newman: 2001), the BWI IT was created predominantly to bear the enormous financial upfront investment of the project. The yearly parliamentary approved defence budgets were neither flexible nor big enough to engage a project of this dimension. Also, the IT experience that private partners such as SIEMENS and IBM were able to contribute to the partnership was welcomed by the Bundeswehr. Thus, the declared objectives of the HERKULES partnership agreement were management-oriented (internalisation of managerial know-how of the private business sector in order to improve efficiency and efficacy) as well as finance-oriented (utilisation of private capital).

The Social Science Institute of the Bundeswehr (SOWI) has been charged with the evaluation of HERKULES. In my functional capacity I have had the opportunity to contribute actively to the performance evaluation to date. This paper outlines the scope and schedule of HERKULES and identifies the major (dis-)advantages of this PPP compared to unilateral public policy implementation. Special focus is given to the question of risk sharing and the project inherent partnership dynamics. Chapter 2.3 continues to describe how the performance of HERKULES is evaluated. Hereafter, potential room for improvement and areas of concern are being analysed. The paper concludes with a brief lessons learned chapter.

2 Implementation of HERKULES

The HERKULES project follows a detailed implementation plan which is staged in three phases.

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In order to understand HERKULES it is necessary to recognize that this form of partnership with private sector organisations constitutes a significant departure from the traditional command and control way of direct provision by the government. For the realm of defence policy, a core public service and since the emergence of the modern state in the late 17th century the exclusive domain of government, the “entanglement of bureaucratic and private interests” (Drache 2001: 72) through the creation of the BW IT is notably new. Therefore, it is assumed that the principal-agent theory confers more explanatory power than the machinery concept of structure and agency, especially for the aspect of risk sharing.

2.1 Risk sharing in HERKULES

In their principal-agent based typology of risks in PPPs de Palma et al. (2009) identified the following conditions under which PPPs would obtain the best results for the principal:

-a fully specified contract between the government and the firm;
-stable terms of contract over time;
-measurable output indicators;
-credible punishment in case cheating is proven.

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