THE Scottish Government agency in charge of 500,000 public pensions has been left with a £23m budget shortfall after disastrously mishandling an IT project, watchdogs have found.

The Scottish Public Pensions Agency (SPPA), which runs the retirement schemes of teachers, NHS staff and emergency workers, spent £6.3m on integrating IT systems without a clear business case, after accepting an “abnormally low” bid with an “unrealistic time scale”.

Contractor Capita then failed to hit any project milestones and the plan had to be scrapped, and the SPPA now needs £23m of public money to get back on track.

Auditor General Caroline Gardner said Capita’s inability to hit its targets was “the main contributor” to the failure, but also blamed the SPPA for not setting objectives for the project, failing to scrutinise it, and a debilitating churn in its leadership.

The Scottish Tories said it was “yet another botched IT contract on the SNP’s watch”, while Labour accused ministers of letting the SPPA get away with “extreme negligence”.

The SPPA’s problems go back to a 2013 plan to integrate its pension administration and payment systems to achieve efficiencies and meet new pension rules.

However there was “no evidence of a clear business case” to justify the route taken, “nor evidence that it had fully considered other options”.

Because Capita’s tender price was so cheap, it was officially classed as “abnormally low” and the SPPA had to check if it was a “valid bid”.

The SPPA warned the Scottish Government’s Legal Department that it didn’t have the skills to interrogate the tender deeply, but the SPPA then “took no further action” and accepted Capita’s reassurances.

A rival bidder even issued, then withdrew, a legal challenge to the SPPA decision as the bid was so low.

The SPPA awarded Capita the contract in October 2015, with the project due by March 2017.

Despite the 18-month target, the SPPA chose not to extend its existing systems in case of delay, which auditors called “a high-risk approach with an unrealistic timetable”.

By May 2016, Capita was warning it would miss its first milestone, with further failures forcing the SPPA to extend the life of systems at an unplanned cost of £4m.

By late 2017, the project was two-and-half years behind schedule, and in January 2018, amid growing concerns, the SPPA’s chief executive pulled the plug.

Of the £6.3m spent on the project, £0.8m went to Capita, with the rest spent on extending existing contracts, staff costs, software licences and specialist help.

Although it recovered £0.7m from Capita after a financial settlement last November, the SPPA has written off £1.6m in assets it will never use.

It now estimates it needs £13.6m capital and £9.9m revenue funding from the Government over the next five years to modernise its IT systems properly.

Ms Gardner said: “The public sector is under pressure and we are seeing more instances of bodies embarking on IT projects without the necessary staff and assurance arrangements in place to manage them properly.

“In this instance, I found no evidence of a clear business case for a new integrated system, which was pursued at a time when the SPPA was going through significant change.

“The result was a project that failed to provide value for money and has considerably set back the SPPA’s planning.”

Tory MSP Bill Bowman said: “The Nationalists should have learned lessons from similar failings with farming payments, NHS 24 or even Police Scotland. But instead, we have another shambles which is draining the public purse when it can least afford it.

“This report poses some serious questions for the SNP government.

“It has allowed this agency to get away with extreme negligence, and seems to have watched on while an agreement which was patently too good to be true was signed.”

Scottish Labour MSP James Kelly said: “This is an absolute mess which has cost taxpayers millions of pounds. Auditors found that the SNP’s cuts to public services has left them under pressure and under staffed, leading to botched projects like this.

“We now know Derek Mackay is sitting on half a billion pounds of unspent money. It is about time he properly funded Scotland’s public services.”

The Scottish Government said: “While the report raises important issues, there has been, and will be, no disruption to pension services.

“The SPPA is already taking steps to improve how contracts are managed and will consider the findings of the Public Audit and Post Legislative Scrutiny Committee when it has considered the report.

“The Scottish Government is examining the report and will be reviewing its findings.”