Official hearing page

25 October 2022 – Keith Todd

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(10.00 am)

Mr Beer: Good morning, sir, can you see and hear me?

Sir Wyn Williams: Yes, I can, thank you.

Mr Beer: Can I call Keith Todd, please.

Keith Todd

KEITH TODD (sworn).

Questioned by Mr Beer

Mr Beer: Mr Todd, can you give us your full name, please?

Keith Todd: Thomas Keith Todd.

Mr Beer: Now, sir, Mr Todd explained to me before he gave evidence that he would like, with your permission, to remove his jacket. Is that acceptable to you?

Sir Wyn Williams: Of course it is.

Mr Beer: Thank you very much, Mr Chairman.

Mr Todd, as you know, my name is Jason Beer and I ask questions on behalf of the Inquiry. Thank you very much for coming to give evidence today and thank you for providing a witness statement to the Inquiry previously. We’re very grateful.

You should have in front of you a hard copy of that witness statement in your name and dated 6 September 2022. If you turn to the last page of that statement, which I think is page 60, can you see your signature?

Keith Todd: Not on the copy on my desk but –

Mr Beer: Have a look at the copy behind you in volume 1 and turn up tab A1 and go to page 60 in there.

Keith Todd: Yes.

Mr Beer: That is your signature?

Keith Todd: That is my signature.

Mr Beer: Are the contents of that statement true to the best of your knowledge and belief?

Keith Todd: Yes, they are.

Mr Beer: Thank you very much. Just for the purposes of the transcript, no need to display now, the URN for the witness statement is WITN03880100.

Can I start, please, Mr Todd, with your career qualifications and experience. I think you were formally chief executive officer, CEO, of International Computers Limited, ICL?

Keith Todd: Correct, yes.

Mr Beer: Relevantly for our purposes, you were also a director of ICL Pathway Limited?

Keith Todd: That’s correct.

Mr Beer: By way of overview, I think you joined ICL in July 1987; is that right?

Keith Todd: That’s correct.

Mr Beer: Initially as the finance director?

Keith Todd: That’s correct.

Mr Beer: You became the CEO of ICL in January 1996 –

Keith Todd: Correct.

Mr Beer: – on 1 January 1996, I think?

Keith Todd: Indeed.

Mr Beer: Now, you resigned from all positions in ICL and related companies in July 2000; is that right?

Keith Todd: That’s correct.

Mr Beer: On 28 July 2000, I think. By way of background, I think you began your working life in 1972 as an executive officer in the Royal Ordnance factories; is that right?

Keith Todd: That’s correct.

Mr Beer: Thinking back, that was then a state-owned weapons manufacturer; is that right?

Keith Todd: That’s correct, making Chieftain tanks, amongst other things.

Mr Beer: Sorry, say again?

Keith Todd: Amongst other things.

Mr Beer: Yes. You completed accountancy training whilst there, I think –

Keith Todd: Correct.

Mr Beer: – so as a civil servant and you qualified as a Fellow of the Chartered Institute of Management Accountants?

Keith Todd: Correct.

Mr Beer: You worked, between 1975 and 1987 for Marconi and a subsidiary of it, here and in the United States.

Keith Todd: That’s correct, in the defence industry.

Mr Beer: Again, weapons manufacturing?

Keith Todd: Yes.

Mr Beer: You took up, as we have said, your role as FD at ICL in 1987?

Keith Todd: That’s correct.

Mr Beer: I think in your time before taking up that position and, indeed, before the events that we’re going to speak about today, you plainly had no hands-on experience with post offices, other than perhaps going in and buying a stamp.

Keith Todd: Merely as a customer, as it is today.

Mr Beer: As our first ICL witness, I’m going to ask you a series of relatively basic questions, if I may, about the corporate structure of the relevant entities involved –

Keith Todd: Mm-hm.

Mr Beer: – and their development across time. Do you understand?

Keith Todd: That’s fine.

Mr Beer: ICL, is this right, was established in 1968 –

Keith Todd: That’s correct.

Mr Beer: – as, or supposedly as, the UK’s answer to the US giant IBM; is that right?

Keith Todd: That’s right. It was bringing together a number of the UK’s technology assets at that date.

Mr Beer: It was part of a push by Tony Benn, I think, under the Wilson government, to create –

Keith Todd: That is correct. A technology competitor to the global technology players.

Mr Beer: Thank you. In 1990, Fujitsu acquired 80 per cent of ICL shares from its parent company, STC PLC?

Keith Todd: Correct.

Mr Beer: STC, Standard Telephones and Cables?

Keith Todd: And Cables.

Mr Beer: I think paid about US$ 1.29 billion, £740 million?

Keith Todd: I recognise that more clearly, yes.

Mr Beer: In 1998, Fujitsu became ICL’s sole shareholder; is that right?

Keith Todd: As best as I recall that was about the date.

Mr Beer: Then in 2002, the ICL brand was dropped by Fujitsu?

Keith Todd: I couldn’t particularly address that. I was aware when I left that there was an appetite to create one Fujitsu, so that date doesn’t surprise me.

Mr Beer: Okay, thank you. ICL Pathway Limited, when was that created and for what purpose; can you help us?

Keith Todd: Yes, so the Pathway company was created when we were looking at bidding for the project to build a new infrastructure for the Post Office, which we’re going to be talking a lot about during the next few hours, and it was our view that forming a dedicated company, sometimes known as a special purpose vehicle, would be a benefit to our proposition that we were going to put forward in response to the request for proposals that were coming out.

The idea behind it was – and this may come up in your subsequent questioning – that Pathway, when it was originally formed, had a number of shareholders. It also had an independent chairperson, Sir Michael Butler, an ex-prominent civil servant, and we felt that, by having a special purpose vehicle that would be fully supported by ICL and Fujitsu, that we would be able to focus the energies and efforts not just on the project but the subsequent success of that business.

Mr Beer: So it was a special purpose vehicle, a company comprising other companies or contributions from other companies.

Keith Todd: Yes, and if I may just add one thing –

Mr Beer: Yes.

Keith Todd: – because when people say “special purpose vehicles” they may default and think Bahamas or – this was a UK company.

Mr Beer: Initially, at least, the main companies that it comprised of were ICL, Girobank, An Post and De La Rue; is that right?

Keith Todd: That’s correct.

Mr Beer: One of those companies, An Post, the Irish Post Office, they, I think, were, you say in your statement, already using software that you were to propose as part of the project; is that right?

Keith Todd: That’s correct.

Mr Beer: Which software was that?

Keith Todd: Software that came from a company called Escher. As I recall, I think the product name may be Riposte, and that we had, as I recall, heard about the software and the success that had occurred with the Irish Post Office, as a result of which we took on board a relationship with Escher as an important subcontractor on this project and An Post’s experience at dealing with the Post Office, we felt, would be very valuable to us as we navigated the proposal stage but also, potentially, subsequently, through the implementation phase.

Mr Beer: So it was a part of the software that you were subsequently to use as part of your proposition to the Benefits Agency and Post Office Counters Limited –

Keith Todd: Yes, it was part of the – a core part of the Post Office element and the counterpart of that and it had given us – the fact that it had been deployed – some confidence in the technologies.

Mr Beer: What did you know about what other technology had been deployed alongside it in the Republic of Ireland?

Keith Todd: I don’t recall any specific knowledge.

Mr Beer: So you didn’t know the system of which it was a part, to your recollection?

Keith Todd: To my recollection, I didn’t know the specific detail.

Mr Beer: Can I turn to your role in Pathway overall, please. In your witness statement, that’s – I will ask for this to be displayed on the screen – that’s WITN03380100.

No, that’s not right. WITN03880100. Thank you and page 5, please.

If we can highlight paragraph 20, please. You say:

“As part of this renewed focus on systems and software, from early 1995 I oversaw ICL’s bid for the Benefits Agency/Post Office Counters Limited … contract to computerise the payments of benefits in the UK. I undertook this role initially as [chief financial officer] and then as [chief executive officer] from January 1996.”

Keith Todd: Yes, that’s correct.

Mr Beer: So what did overseeing mean in your role as chief financial officer from early 1995 until January 1996?

Keith Todd: The CEO I worked with until I became CEO was Sir Peter Bonfield and I initially, as I think you may have articulated, joined the company as CFO but took on responsibility for business strategy as well, in a number of years up until I became CEO.

During that period, we were involved as a founder member of the Camelot consortium and I was a founder director of Camelot that, as I’m sure people listening to this will know, won the right to run the UK lottery and, for a number of years, extremely successfully. So I had experience from specifically prior to the bid for the Post Office on overseeing major contracts.

And if I may just for a moment take a reference back to my days in the defence industry, the defence industry was and is involved in very significant technology projects of all natures, from communications to weapons, to satellites, so my experiences from those days had been useful to ICL as the transition of the company from a product company, which I drove more aggressively from 1996, was occurring. So my – the oversight – to go back specifically to your question – was that, as I recall, Sir Peter Bonfield asked me to take oversight on the strategy, the formation of the team, the consortium, working with, at the time, Mr Bennett.

Mr Beer: What does “in practice oversight” mean at this stage? So early 1995 until January 1996.

Keith Todd: Aware of, get reports on the RF – requests for proposal status, discussions around potential makeup of the participants of our bid, as well as review both as oversight and as CFO of ICL of the financial proposals.

Mr Beer: Did “oversight” mean lead?

Keith Todd: The central focal point in a large organisation – ICL was broadly a 3 billion sterling company. This project was a very important project, no denying on that, because it was very supportive of our new strategy, but it was only one of a number of things which I was involved in and had oversight on.

We had put in place, as I mentioned before, a team, as I recall, with John Bennett certainly, and there were reports that he provided monthly, I’m sure we will talk about shortly. So a team to run the project day-to-day. So I was not involved every day on the project but, certainly, from an oversight point of view had significant involvement.

Mr Beer: Thank you. We will come to the more particular arrangements as to the structure of the team in a moment.

Before we do that, can we establish the broad chronology of events and can we use your helpful document to do this. It’s WITN03880101. Thank you. Just to be clear, this is an exhibit to your witness statement that you compiled yourself?

Keith Todd: That’s correct.

Mr Beer: You say at the top, under the rubric:

“I have exhibited below a timeline of key dates and events that I refer to in this statement, taken from my review of the materials provided to me by the Inquiry. This covers the history of ICL and ICL’s involvement in the procurement process and subsequent contract with POCL and the DSS.”

Keith Todd: That’s correct and my post submission review, I noted a couple of things which, with hindsight, I would have added, which I’m sure will come up. Peter Copping’s time period of his review, Montague’s involvement and the Corbett –

Mr Beer: The Corbett review too?

Keith Todd: – Corbett review, which, on reflection of the timeline, maybe should have been included.

Mr Beer: Just picking this document up then to get a broad overview to start with, in the fourth line, in May 1994 I think Peter Lilley was then the Secretary of State for Social Security, yes?

Keith Todd: Correct.

Mr Beer: He announced an intention to automate the benefits payment system; is that right?

Keith Todd: That’s correct.

Mr Beer: Can you recall, was that an announcement about benefits payment rather than automation of the Post Office?

Keith Todd: I don’t recall specifically but the focus of his responsibilities was the DSS.

Mr Beer: Yes. In any event, in August 1994, next line, the DSS published its invitation notice; is that right?

Keith Todd: That’s correct and you kindly said it before: we are referring to events that happened up to 27 years ago.

Mr Beer: Yes.

Keith Todd: So I hope everybody listening to this will understand I do not have perfect recall of these dates. These were dates facilitated by some documents that were shared.

Mr Beer: Thank you. If there are any particular points in your evidence you wish to emphasise that point again, then please do say so –

Keith Todd: Yes.

Mr Beer: – that you are going from what you have read, not what you remember.

Keith Todd: Yes, yes.

Mr Beer: In any event, in August 1994, publication of an invitation notice, so that’s a notice to potential bidders to ask them to express an interest in the contract if they wish to do so.

Keith Todd: That’s correct.

Mr Beer: Yes? Again, I think, as the chronology shows, this was a DSS lead: they were leading on this.

Keith Todd: I don’t specifically recall at what point it became the joint lead, but yes.

Mr Beer: As you, I think, explain in your witness statement to us, no need to turn it up, there were 92 expressions of interest at this stage.

Keith Todd: Yes, and again that’s, you know, from research and documents provided. I would have naturally recalled – it was very competitive. I would have naturally recalled – and you may be about to get to this – that the final shortlist was, you know, down to three, of which, in my recollection, IBM was the number one competitor.

Mr Beer: Before we get to that, there was a stopping off point in December 1994, next line. That group of 92 had been whittled down to a shortlist of five, one of which was Pathway.

Keith Todd: Correct.

Mr Beer: By the January, January 1995, as you have just told us, ICL was formally incorporated; is that right?

Keith Todd: ICL Pathway.

Mr Beer: Yes.

Keith Todd: Yes.

Mr Beer: Then, as the chronology shows, if we skip on a line or two, in April 1995 a statement of service requirements was issued to shortlisted suppliers. By this time, had the number of bidders been whittled down to five?

Keith Todd: I don’t recall the precise timing.

Mr Beer: Okay. What do you understand the purpose of a statement of service requirements to be?

Keith Todd: A statement from the customer of what the technology is required to be able to deliver and it was a very broad base, covering both the – as I recall, the Post Office infrastructure renewal, which we will expand on, I’m sure, in a moment, and the transformation of the way benefits would be paid to UK citizens.

Mr Beer: So would a short pithy description, would you agree with this, of a statement of service requirements be: a description of the functional requirements which the sponsor or sponsors expected the project to deliver?

Keith Todd: Yes, I think that’s fair.

Mr Beer: By July 1995 had something called the evaluation board narrowed down the bidders to three: ICL Pathway, IBM and Cardlink?

Keith Todd: Yes, I wouldn’t have naturally remembered Cardlink but when I saw it on the documentation it came back. I certainly remember IBM as being our thinking. My recollection – I couldn’t remember the name “Cardlink” – was that the other bidder was too inexperienced in the complex world of delivering complex technology projects.

Mr Beer: By February 1996, if we move on, is it right that invitations to tender were issued to those three remaining bidders?

Keith Todd: Again, from the documentations, the date is – I confirm the date, but, yes, I would have recalled that we were asked to respond with the three – the other two.

Mr Beer: Then the next month those bids were received in March 1996, but is it right that they all came in over the level of price acceptable to the sponsors, so the bidders were requested to retender?

Keith Todd: So we were definitely requested to retender. I have to repeat again that this is a long time ago. Precisely the reasons for the retender – it’s not unusual for that to occur, but I wouldn’t have recalled from memory that it was because they all exceeded “the price”. We may well come on to this later on, the evaluation and why we won, but, yes, the word “price” is a specific word – another set of words that applies, you know, value for money, and, as we will no doubt get to, risk factor.

Mr Beer: In April of that year, on 22 April, your chronology shows that ICL Pathway’s revised bid was submitted and on 15 May, is this right, Pathway – ICL Pathway Limited was awarded the contract?

Keith Todd: Yes, that is correct, and there’s a point that may or may not come up with your questioning. There was absolutely a surprise I think for all the bidders through this process that when the first tender came out, the extensiveness of it, the number in my mind is 2,000 pages. It was, you know, much more significant than had originally been discussed when it eventually arrived, so there was – yes, it was a very significant document that all the parties responded to.

Mr Beer: So a detailed invitation to tender?

Keith Todd: It was much more detailed than had been indicated previously.

Mr Beer: Did that cause a problem?

Keith Todd: Time to evaluate all of the clauses and subclauses, so yes, certainly it caused a significant amount of additional work.

Mr Beer: Did it affect the quality of the bid that you put in, was that the implication from saying that the ITT was –

Keith Todd: No, I wouldn’t draw that conclusion. I’m just going to summarise and say that there was a great deal more work that the ICL Pathway team and its competitors and our subcontractors had to do at the time to get on top of it.

At the time we bid, we were comfortable with our bid and that – and our ability to deliver, albeit – and I’m sure we will get to this – it was always a very tight timescale.

Mr Beer: In terms of timescale, is it right that at this stage your bid had two significant milestones in it and we get this from paragraph 34 of your witness statement, no need to turn it up, I will just summarise it: firstly, the operational trial of Pathway would be completed by June 1997 and then, secondly, a full rollout to all 19,000 post offices would be completed by end of 1999.

Keith Todd: That sounds correct.

Mr Beer: Thank you. Now, you have mentioned today your previous work history in the defence industry and how that assisted you in this context, and you have told us about how the Camelot lottery system was designed, implemented, rolled out. It’s right, isn’t it, I think, additionally to that chronology that at the same time that ICL was bidding and tendering to the DSS and the Post Office for what became the Horizon contract, it was also in litigation with the DSS? Do you remember that?

Keith Todd: I saw reference to that in the documents but would not have recalled that.

Mr Beer: I wonder whether we could just look at the documents to see whether that assists and indeed it is to do with the system called “ASSIST” in capital letters. Do you remember that system?

Keith Todd: I remember the project named ASSIST, yes.

Mr Beer: That was, I think, a contract between ICL and the DSS, yes?

Keith Todd: Yes, I would probably recall that. I certainly recall the project ASSIST.

Mr Beer: I think we can see from the documents it was for ICL to build and then operate a statistical analysis system for the DSS?

Keith Todd: I wouldn’t have recalled that.

Mr Beer: Okay. I wonder whether we can look please at DWP00000375. Now, just to see what this is to start with, you will see that it’s a memo circulated within the Benefits Agency and Post Office Counters Limited and it is – the subject of it is the visit of Mr Yakamoto (sic), the chairman of Fujitsu, to the Secretary of State.

Keith Todd: Yes. There is actually a spelling there. It was Yamamoto, but that’s on the document as you read it.

Mr Beer: Yes. I think we know – we will find in due course that Mr Yamamoto visited the Secretary of State in December 1996?

Keith Todd: Correct.

Mr Beer: I think, as we will find out in due course, you were present at that meeting between the Secretary of State and the chairman of Fujitsu?

Keith Todd: Correct.

Mr Beer: Now –

Keith Todd: Again, reminded from the document that I think I may have only received –

Mr Beer: Recently?

Keith Todd: Very recently, yes.

Mr Beer: Can we look please at page 7 of this document please. Now, this is part of a series – this is not something you would have seen at the time because this is an internal communication within Benefits Agency and Post Office Counters Limited, in preparation for a Secretary of State meeting with the chairman of Fujitsu and you will see that – from the document as a whole, that it raises a series of issues, the kind of things that a Secretary of State might be asked about. It briefs him on them and then sets out some lines to take. Do you see that?

Keith Todd: Yes.

Mr Beer: It is just the passage at the top of the page that I’m interested in. So if we just read the first few bullet points under the heading “ASSIST”:

“DSS has an ongoing contractual disagreement with ICL in relation to a contract awarded in January 1993 to ICL to build and operate a statistical analysis system [called] ASSIST.

“The contract for ASSIST (in consortium with Hoskyns) was terminated on 19 October 1994 and DSS issued a writ alleging misrepresentation and breach of contract on 19 May 1995. ICL served its defence and counterclaim in December 1995.

“Preliminary hearings have taken place in High Court, mainly on procedural issues. Hearings on the main issues are not scheduled to begin until April 1998 and may run to the year 2000.”

Can you recall this now, that the DSS had terminated their contract with ICL and issued proceedings against your company for misrepresentation and breach of contract?

Keith Todd: I – up until seeing this document recently – had no recollection of that legal action.

Mr Beer: This document tells us that the contract was terminated in October 1994.

Keith Todd: Yes.

Mr Beer: So just orientating ourselves in our Pathway chronology, that’s at the time that ICL was bidding for the contract with the DSS and with Post Office Counters Limited, isn’t it?

Keith Todd: That’s correct and just for the avoidance of doubt, I am not saying I wouldn’t have known about it, but I had – you know, I would not, had I not seen that document, had any recollection of that specific contractual dispute.

Mr Beer: No. You would have known about it at the time –

Keith Todd: Yes.

Mr Beer: – because a government suing a contractor –

Keith Todd: Yes.

Mr Beer: – for – and alleging misrepresentation –

Keith Todd: Yes and we may –

Mr Beer: It’s quite a big thing, isn’t it?

Keith Todd: Yes. We may get into this a little bit later on. It’s a – for any party to sue it is – you know, it should not be taken lightly, but it is always the right of the parties to do that if resolution of issues cannot be achieved through discussion and cooperation.

Mr Beer: We will see the sinews that were stretched and strained in the ICL Pathway contract not to go down the litigation route in due course.

Keith Todd: That is precisely why I’m mentioning that context and again – let me call this an opinion but one maybe many will relate to – there are different approaches in different national jurisdictions. The US tends to be more naturally litigatious, would be my opinion. Europe is less so, but the accepted practice of appropriate law is the right protection if parties can’t agree. I – through – my opinion would be that Japanese culture is even less orientated to take legal action.

Mr Beer: So just in terms of –

Keith Todd: But that is an opinion.

Mr Beer: Okay. Just in terms of the chronology though, the Government terminated its contract with ICL at precisely the same time that ICL Pathway was bidding with the very same contract – supplier, DSS, and also the Post Office?

Keith Todd: ICL had a very substantial business, based on history on its mainframe computing – a word from the past – but mainframe computing, mid-range computing and PCs. I don’t recall the names of the various projects but I think you would find that we had a whole range of relationships and, again we may get to this, but these were not – these were factors which were known at the time.

Mr Beer: What do you mean by that, “These were factors that were known at the time”?

Keith Todd: Well, as you have just pointed out to me, or the document pointed out to me, these factors were known when the evaluation of the proposal was undertaken.

Mr Beer: And just in terms of the chronology, the proceedings were issued, according to this document, in May 1995, and in terms of our Pathway chronology, that’s a couple of months before ICL became one of the three selected bidders for the contract with the DSS and Post Office Counters Limited.

Keith Todd: That’s correct.

Mr Beer: Can you recall was any of this seen as an impediment by ICL to your bid, namely that you were in litigation over a IT contract with the very government department that you were seeking to negotiate another IT contract with?

Keith Todd: I have no recollection of that being discussed. It may well have been, but I would like to just also remind, for context purposes, where we are in 1995. The internet started actually many years earlier but the emergence of the new world really was around this period, and I will keep this succinct, but if you look at some of the names that are households today, you know, in 1994 I don’t think they existed: Amazon, Facebook and these places.

So we had a period through that that we’re talking about – and this is relevant for a wider context to the question – where ICL was changing and working to adapt to the new world of the consumer centric. We were engaged with the Government across the board and it’s various documents that have been presented to me in the last few days and months that reinforce this, so the ICL relationship with UK government and many of the departments was very broad, very constructive, very engaged, trying to really help the UK governmental public sector institutions move forward with what was transformational technologies at the time.

Mr Beer: This ICL Pathway contract was later described as the largest non-military IT contract in Europe; do you remember that?

Keith Todd: I remember it being the largest one we had won at the time.

Mr Beer: To your knowledge, did the DSS and Post Office Counters Limited bring into account, in evaluating your bid that one of them, the DSS, had terminated a IT contract with ICL and alleged misrepresentation against it?

Keith Todd: I have no knowledge or recollection of that.

Mr Beer: You’ve got no recollection of any discussions about the effect of an outstanding –

Keith Todd: No, no, my recollections are that we were very concerned that IBM, a very credible competitor of scale in global technology, might succeed in beating us in the competition.

Mr Beer: You say in your witness statement – we need not turn them up now, but examples could be found at paragraphs 17, 42, 50 and 175, that ICL had a proven track record on delivering large national IT projects, yes?

Keith Todd: That’s correct.

Mr Beer: Would it be fair to describe this issue, the ASSIST contract, as a recent and relevant example where the DSS had taken the opposite view, that your track record was not a good one?

Keith Todd: I think you would probably find there are very specific disputed details about that specific contract, but I’m afraid I can’t help this Inquiry with any details of exactly what that dispute was about.

Mr Beer: Could I turn to a separate issue then, please – that can be taken down, thank you – in the chronology and that’s what ICL was saying at this stage about fraud prevention and detection and I wonder whether we could turn up please paragraph 25 of your witness statement. That’s WITN03880100, at page 7, please.

At the top of the page, you say:

“It was my understanding that the aims of the Horizon project were as follows …”

You set out three:

“… fraud prevention, Post Office modernisation and infrastructure …”

Sorry, if we can just go back to 24 at the top:

“… fraud prevention, Post Office modernisation and infrastructure transformation.”

Then you say:

“I will deal with each in turn …”

Then in paragraph 25 you deal with the first of those, fraud prevention, and in there, in paragraph 25, is this right, you set out the aims of the government in relation to fraud prevention and you describe how ICL already had experience in this area, including with the DSS but not with the Post Office?

Keith Todd: Yes, correct. ICL had an extensive business in retailing, point of sale, at the time, Marks & Spencer’s, Sainsbury’s, as I recall, were customers, Euromarché, Albertsons in the US, we had a number of Post Office banking customers, so we were very familiar with issues around fraud protection.

All of the fraud protection discussions that I recall were focused on DSS. I do not recall any related to the Post Office.

Mr Beer: We will have a look at that, at some documents in a moment.

Keith Todd: Yes.

Mr Beer: Can you remember now that the fraud prevention risk that you describe in paragraph 25, under the joint contract that was agreed with DSS and Post Office Counters Limited, was transferred from the sponsors to ICL?

Keith Todd: I don’t recall the specific wording within the contract on the transfer but, in essence, yes. Risk transfer did take place between the customer parties and the company.

Mr Beer: Just for those that are not as familiar as we are with what that means, in layman’s terms, what does transferring the risk from the clients to the suppliers mean?

Keith Todd: It’s all in context – again, I’m sure this will come up – this was, as I recall it, one of the relatively early PFIs, private finance initiatives, where the public sector were looking at enabling the supply side to take accountability for the service delivery and provide the capital to finance the project and, therefore, take – the risk transfer of the success of the quantity of service delivery, or other aspects of the project, would move from the customer to the supplier.

Mr Beer: Can we look please at what ICL were saying at a relatively early stage in relation to this. This is ICL’s statement of capability of 19 November 1994, so this is part of the initial response to the invitation for bids and it is FUJ00098230.

I think we saw from the bottom of the page the date, 19 November 1994, and so this is a part of the statement of capability of that date, so it’s part of ICL’s response to the initial invitation to bid.

Keith Todd: Okay.

Mr Beer: Can we go to page 8 of this document, please. Can we go to the paragraph second from the bottom. I should read the paragraph above it for context. It says:

“ICL has widespread experience in the security associated with payments systems in the retail sector, both in the UK and abroad. ICL has also undertaken systems and service developments in anti-fraud projects within the UK [DSS] and within UK local government authorities.”

Then this:

“The current approach includes the introduction of positive authentication, full reconciliation …”

Then this:

“… and the provision of a full audit trail – including the ability to manage the ‘statutory declaration’ documents.”

The suggestion that the system includes the provision of a full audit trail, what did you understand that to mean or what would you understand that to mean?

Keith Todd: Well, I don’t recall seeing these words specifically, previously. I do acknowledge they are in the document which we fully submitted. I would read them to mean what it says literally.

Mr Beer: What do you, as the CEO, read them literally to mean, a full audit trail?

Keith Todd: That there would a record of the transactions that had been undertaken in the system.

Mr Beer: So a record of the transactions that had been undertaken in the system, available to who?

Keith Todd: To the parties that were using the system.

Mr Beer: Ie to, at this stage, DSS and Post Office Counters Limited?

Keith Todd: Yes.

Mr Beer: At this stage, there isn’t any suggestion that there would be a charge levied by ICL for the provision of that audit trail?

Keith Todd: I have no recollection of any conversations about such matters. I don’t recall any conversation specifically about audit trails.

Mr Beer: To broaden it out, would this be right, you have no memory of any discussion at any time that if the customers – at this time DSS and Post Office Counters Limited – wanted to see the full audit trail, they would be charged for doing so, ie they would have to pay a sum of money to do so?

Keith Todd: I have no recollection of any conversation around that question.

Mr Beer: Can we look forwards, please, to the agreement that was subsequently signed because, of course, this is at a time when there was a tripartite agreement between you – I call it “you”, your company –

Keith Todd: Yes.

Mr Beer: – and Post Office Counters and the DSS. Can we look forward to the bilateral agreement that was subsequently signed with just ICL and Post Office Counters Limited and it is FUJ00000071. So you can see the counterparties to that agreement, yes?

Keith Todd: Yes, yes.

Mr Beer: Then I wonder whether we can look, please, at page 97 of this document. That’s it, thank you. I would like to read under the cross heading “Prosecution support”, “The contractor” – that’s defined elsewhere to mean ICL Pathway Limited – so:

“[ICL Pathway] shall ensure that all relevant information produced by [the Post Office Counters Limited] service infrastructure at the request of [Post Office Counters Limited] shall be evidentially admissible and capable of certification in accordance with the Police and Criminal Evidence Act (PACE) 1984, the Police and Criminal Evidence (Northern Ireland) Order 1989 and equivalent legislation covering Scotland.”

Then 4.1.9:

“At the direction of [Post Office Counters Limited] audit trail and other information necessary to support live investigations and prosecutions shall be retained for the duration of the investigation and prosecution irrespective of the normal retention period of that information.”

Just reading those words, ie the contractual obligations placed on ICL there, would you agree that, in order for Pathway to comply with these provisions, it would be necessary for ICL Pathway to understand what “the requirements of the law” in relation to criminal proceedings are?

Keith Todd: We would have had this contract reviewed not just by our internal legal team but my recollection would be probably by an external team. I would therefore think it reasonable to assume that we had an understanding of what that meant.

I have no specific recollection of that clause or any discussion about that clause.

Mr Beer: Presumably you give that answer because only if it knew what the requirements of the criminal law were could it ensure – ICL could ensure that data that was captured was retained, that it enjoyed sufficient evidential integrity and reliability and could be produced to a court, so only if you knew what the requirements of the law were could you do those four things: capture, retention, ensure reliability and integrity?

Keith Todd: That seems to me to be a reasonable conclusion, yes.

Mr Beer: To your own knowledge, did ICL Pathway seek any advice on what the requirements of the criminal law were in order to be able to achieve compliance with these contractual –

Keith Todd: I don’t recall any –

Mr Beer: Hold on for a moment.

Keith Todd: Apologies.

Mr Beer: So the question is: to your knowledge, did ICL Pathway seek any advice on what the requirements of the criminal law were in order to be able to achieve compliance with these contractual obligations?

Keith Todd: I have no recollection of any conversation about the matter.

Mr Beer: To your knowledge, did ICL Pathway ever ask Post Office Counters Limited what it understood the requirements of the criminal law to be, to seek guidance from it as to how these two contractual provisions were to be fulfilled by ICL Pathway in practice?

Keith Todd: I’ve got no recollection of any conversation with the Post Office about this matter.

Mr Beer: Would you agree, standing back, that those are necessary things to do: getting some advice on what the criminal law requires and/or speaking to the customer as to its understanding of what the criminal law requires in order that these provisions could be complied with in practice?

Keith Todd: Yes.

Mr Beer: Thank you. Can I move on, please.

The award of the contract to ICL Pathway and the – what you have described as the unaligned objectives of the Benefits Agency and Post Office Counters Limited. Can we look please at paragraph 39 of your witness statement, that’s WITN03880100 at page 11. You tell us in paragraph 39 that:

“An additional challenge in the procurement process was the fact that we were tendering for a contract that had two distinct clients.”


“We had initially thought that the requirements of POCL [Post Office Counters Limited] and DSS were aligned. However, after the award of the contract, it became clear that the two clients had separate and distinct management ethos, business objectives and priorities …”


Keith Todd: Yes.

Mr Beer: At what stage, after the award of the contract, did it become apparent that the clients had distinct management ethoses, business objectives and priorities?

Keith Todd: I don’t recall a specific date but that what I was referring to there was – and from recollection, you know, the challenges – and these are multifaceted – first of all – and I will come back directly to your question – about the fact that this was a PFI contract not a design/build. The DSS culture, from my recollection, was one of classic government Civil Service procurement, structured precise, with limited to no commercial flexibility, and the Post Office was emerging with a vision of it becoming a self-sustained, vibrant business.

What I recall and – you know, unfortunately, I can’t pin it down to specific activities, but it did become clear during that period that there had been a long-term frustration from the DSS that it continued to have to use the Post Office for the delivery of benefits so what appeared to be in alignment on a procurement, we experience dysfunctionality between the two and, as I say in my statement, since that time I have never signed a contract with two customers – one contract with two customers.

Mr Beer: Can I just ask you to focus on the words “We … initially thought that the requirements of [the pair of them] were aligned. However after the award of the contract, it became clear that”, they weren’t, yes?

Keith Todd: Yes.

Mr Beer: Can you recall, was that the not clear to ICL before the contract was awarded to ICL Pathway?

Keith Todd: With the benefit of hindsight, it should have been, but it was – I don’t recall it ever being a material factor, and my recollection may be poor, but I do not recall it being a material factor. When one stops and thinks back to what happened and, even at the time when we got through, at that stage, the challenging period, with hindsight at that time it seemed how come we didn’t anticipate that problem, continuing to be completely factual and honest, as I will be throughout this.

Mr Beer: Can we look at the couple of documents then. To start with, some board minutes from ICL Pathway, Fujitsu, FUJ00077832. We see the subject here is “Pathway Group board meeting” and they are the minutes for 3 October 1995, and we can see that you are in the distribution list –

Keith Todd: Yes.

Mr Beer: – five or six down at the top, yes?

Keith Todd: Correct.

Mr Beer: Can we turn forward to page 8 of the document, please, and look at paragraph 2 and just scroll down, please, under the heading “Timescales”, and then it is about five lines from the bottom of paragraph 2 beginning with the sentence “Also”:

“Also the ‘memorandum of understanding’ between BA [Benefits Agency] and POCL [Post Office Counters Limited] is causing trouble in taking forward. In short, something has to give. Either a new faster procurement with a tighter focus on [private finance initiatives], or a cleaner separation between what BA and POCL want.”

Keith Todd: Can you remind me of the date of this meeting, sorry? I know you –

Mr Beer: October 1995, so this is six months before the award of the contract.

Keith Todd: Yes.

Mr Beer: I think you have anticipated my question. Does this not suggest that it was obvious, before the award of the contract, that the two clients maybe had different objectives and priorities?

Keith Todd: They were clearly having difficulty getting their memorandum. As I recall, I think they did – I think they did sign –

Mr Beer: They did.

Keith Todd: They did sign a memorandum of agreement, so, at the time we bid, we would have believed they were aligned. As I have said earlier, you know, with hindsight perhaps we – well, we probably did misjudge that a document bringing people together would actually change – and I hesitate to say these words – sort of embedded cultural factors or long-standing challenges.

Mr Beer: Can we turn forwards in the same document, please, to page 10. We can see that this is a memo from Tony Oppenheim to the Pathway board and so this is a memo submitted to the board in advance of the 3 October meeting, yes?

Keith Todd: Mm-hm.

Mr Beer: Just to help you, the way these papers are collected are that there’s the covering memo that we saw, then there are the minutes and then there are, essentially, the backing papers that appear to have been submitted to the meeting and tabled, essentially, at the meeting.

Keith Todd: Yes, and the evidence that you have shared with me demonstrates the extensiveness of the documentation that was provided at the time.

Mr Beer: To the board?

Keith Todd: (The witness nodded)

Mr Beer: So this is Mr Oppenheim’s, essentially, report to this board meeting. Just tell us – we’re going to hear from him tomorrow – who Mr Oppenheim was?

Keith Todd: He was the commercial finance individual on the Pathway team.

Mr Beer: So a director of ICL Pathway?

Keith Todd: I believe so.

Mr Beer: He sets out his report with the good and the not so good, and can I just look at the not so good at the foot of the page, and can you see the second and third asterisk points:

“Serious timescale slippage pending – not yet declared.”

I will come back to that in a moment, and then:

“Signs of dissent between [Post Office Counters Limited] and [Benefits Agency] – will the joint procurement survive?”

Just a series of questions from this. Again, looking at what we saw on page 8 and now on page 10, was it not clear to ICL Pathway, months before the contract was awarded – this is six months before the contract was awarded – that the two clients had different objectives and priorities, rather than something that only emerged after the contract was awarded?

Keith Todd: Well, as I have said, with hindsight, our judgement could have been different but, at the time when we took the contract, we believed that the parties were aligned, that they had – and I forget the precise name of it – a memorandum of understanding, that the contract was clear that it was a PFI and that there were a series of service deliveries.

What we then did not expect was that the parties would not, in our opinion, operate it as a PFI. They wanted to be involved in nearly every decision and we also experience delays in getting agreements where agreements would be preferable to us proceeding unilaterally.

Mr Beer: You will see that Mr Oppenheim, after the question “Will the joint procurement survive?” has written “Risk or opportunity?”

I can understand, I think, that the joint procurement failing would amount to a risk to ICL Pathway, it would lose potentially millions of pounds, either in costs already incurred or loss of profitability in the future.

Keith Todd: We had committed to this proposal with a total commitment. The timescales we touched briefly on and I’m sure will come up again were always tight. We couldn’t wait for this delayed procurement to occur. We had to start to bring some of our team together and, to your question, yes, we were incurring significant costs because we believed that we had the most compelling bid to win the project and wanted to be able to get – to use the phrase – get off the ground quickly once we had won the business. So, yes, there was risk.

If the procurement never happened, we would have had significant cost.

Mr Beer: Sunk cost?

Keith Todd: Sunk cost, thank you. Yes.

Mr Beer: What I can’t see at the moment is why the procurement failing would be an opportunity for ICL Pathway. Can you assist on that?

Keith Todd: I would be speculating. I don’t have any recollection and, as you said and as I understand it, you are speaking to Tony tomorrow. He might have a recollection. By the way, I have not spoken to Tony since I left ICL, not because we weren’t on good terms but, in appropriate consistency with the requirements of this Inquiry, I have not spoken to anybody about this project.

Mr Beer: Can I get your understanding of what the opportunity might be to ICL if the procurement failed?

Keith Todd: Well, of course, I’m attempting to answer your question, but I just want to make the point that we made very clearly in our position paper, which I’m sure we will talk about in a moment, and the outcome, the final outcome that, actually, if there is only one customer, the Post Office, it would be a lot cleaner and simpler and, at the time when – and I’m probably out of sequence with where your questioning is at the moment.

At the time when that occurred, that DSS withdrew and it became only the Post Office, in my view, that was a lot simpler and, therefore, the opportunity to work effectively with the Post Office would be a lot simpler. That’s the only thing – going back to your question, what does it mean, that it maybe relates to that, that one customer would be easier to work with.

Mr Beer: I understand. Can we turn up please WITN03880100. That’s the witness statement again, please, at page 25 – 25, please.

Can we just look at paragraph 72 at the top, please. You say:

“I acknowledge that Pathway must take responsibility for entering into a contract with two distinct customers. With the benefit of hindsight, we should not have done this. We did not fully anticipate the diverging priorities of what we thought were two aligned government entities. Although we entered into the contract in good faith, it created complexities that we did not expect, albeit perhaps we could have had greater foresight as to the potential issues that could arise.”

You, in this paragraph, are making some partial admissions or partial concessions there but making them conditional on the application of hindsight, right?

Keith Todd: Yes, and to the points you have raised up earlier, that it was my recollection, at the time when we submitted the bid and at the time we signed the contract, we felt there was sufficient alignment. What this is saying and what I referred to earlier that, with the benefit of hindsight, it was clear that we had made a mistake.

Mr Beer: You say that you could have had greater foresight as to the potential issues that could arise. We have looked at a series of entries in the board minutes and a submission to the board six months before where the divergence between the customers’ objectives is made relatively clear, isn’t it? We just looked at the board minutes from October 1995?

Keith Todd: But I think we also acknowledged that there was subsequently an agreement between the parties, DSS and Post Office, which would have addressed those concerns at the time we bid.

Mr Beer: So are you saying that the memorandum of understanding between the two gave you comfort?

Keith Todd: I don’t recall specifically ever seeing the memorandum of understanding. What I’m putting to you is that, in the context of the conversations that would have been had around the board at the time we submitted the final bid, we would have been concluding that we had understood the requirements, we understood our solution and we understood how we were going to deliver it.

Mr Beer: What impact did the – speaking in very general terms to start with – did the agreement between two entities, Post Office and the Benefits Agency, in a tripartite agreement, and then the withdrawal of one of those entities, Benefits Agency, from it have on the delivery of the contract that was agreed between ICL and Post Office Counters Limited, ie the fact that this started as a three-way agreement and you were readying yourselves for that, and it turned into a two-way agreement with a different objective?

Keith Todd: Well, in the period up to the withdrawal of the DSS, there was, from my recollection, a – and you are speaking to John Bennett, I believe, and you’re speaking to Tony Oppenheim and you’re speaking to others from the group. There was a huge amount of time, distracting time, dealing with some of the aspects of the Department of Social Security. Again this may come up later in your questioning, but the CAPS project and the delay, in our opinion on that, we were expecting a single interface from CAPS and, in the end, before they withdrew, there was to be a series of releases of CAPS.

Now, I will go back to – I will go back to your question in a moment, but I wanted to provide this piece of context and, again, you may pick this up later on. There are two consequences of the CAPS delays – three actually. One, just the time in the discussion distracted from the programme. Two, the additional cost incurred – if you had one release of an API, a feed, you have one set of integration and testing to do. If you have multiple releases you have to keep repeating that all the time so it’s much more costly to get it in multiple stages.

The third is, remember, this was a PFI contract, so the delay in having benefits coming out – pinch benefits, one comes to mind – by, I think, over a year, but the actual dates are in my materials so they can be seen, results in lower income under a PFI.

Mr Beer: Because just to make it clear for anyone that’s listening, under that arrangement – we will come to look at the arrangement subsequently with Post Office Counters Limited – speaking in broad terms, ICL Pathway was paid in pence per transaction and the tap wouldn’t be turned on until the transactions started?

Keith Todd: The transactions started flowing. So as the transactions were delayed further, the ability to – we were frustrated from our ability to be able to earn income. But if I then go back to what I recall your question was, at the point of withdrawal, it did not have a fundamental change to the core system, which was being deployed in the Post Office for infrastructure. It was going to be a different way of handling the payments to beneficiaries, and so it didn’t have a fundamental impact at that particular point.

Mr Beer: Any other effects on having negotiated and started to work towards the delivery of a system with two customers with different or unaligned objectives and then changing to just having POCL as the contracting partner? You said that it didn’t have any fundamental effect on the technology; any other effects?

Keith Todd: Well, it simplified the management processes.

Mr Beer: So it was a positive effect?

Keith Todd: At the separation it was a positive effect and that, in the end, at that particular point, was a factor that I do recall as the reason why ICL Pathway, ICL Fujitsu took the loss as part of the settlement agreement.

Mr Beer: So at the moment, only positive effects from the change in contractual position and change in the nature of the service that was being offered by ICL?

Keith Todd: Yes.

Mr Beer: So, essentially, what we’re talking about now is simply interesting background, is that right, to the contract that was eventually agreed, a more straightforward design and build contract?

Keith Todd: Yes, the – again, maybe you’re going to bring further factors out in this conversation, but at the point at which that took place, which was I recall in 1999 –

Mr Beer: Yes; May 1999?

Keith Todd: May 1999, I think a short period of agreement at that point it moved from PFI to a more standard design, build and operate contract.

Mr Beer: Had the fact that there had been five years essentially, between August 1994, the Secretary of State’s announcement, and reaching that point, agreeing in May 1999 the more straightforward design and build contract between POCL and ICL, did that have any impact, ie there had been a five-year delay, on the timescales that were then agreed to by ICL for the delivery under the design and build contract?

Keith Todd: I don’t recall any.

Mr Beer: In terms of timelines for delivery of the agreement under the tripartite agreement, can we just go back to the passage from your witness statement we were looking at in paragraph 39. This is page 11 of the document we’ve got on the screen. Thank you. It is five lines from the bottom – six lines from the bottom:

“By the time the bid was submitted …”

We’re talking about, here, the original bid:

“… we felt we had a sufficiently clear understanding of the requirements as defined at that time. It was a complicated process with a variety of players, but we felt that Pathway could deliver the project successfully …”

Then this:

“… albeit on an extended timeline to that which was proposed by POCL and DSS. This was [over the page] reinforced by virtue of the fact that when Pathway was awarded the contract based on its re-tender document in April 1996, the new [invitation to tender] had adopted the Pathway timetable for the project.”

So it’s right, isn’t it, that at this time there wasn’t any question of Pathway being forced, at the outset of the contract, to deliver to an unrealistic timetable set by the sponsors, it was Pathway’s timetable that had been adopted?

Keith Todd: Yes. As I said earlier on, I would have had no specific recall of this. The documentation that I reviewed drew these dates and factors together, but certainly that is what the documentation would suggest and that’s why I put it forward in my statement.

Mr Beer: So it was Pathway’s own timetable that led the way?

Keith Todd: That is what my statement says. It was, at the end of the day, the timetable that we had responded to. As I said in my statement, that there was some concern about not complying with the required timescale because if other parties had done at an attractive price, we may have lost, but the documentation that exists – that is better recall – frankly, a lot better than my memory – would suggest that actually the timetable that we bid and was accepted, was initiated by us.

Mr Beer: Thank you. Sir, might that be an appropriate moment for the morning break?

Sir Wyn Williams: Certainly. How long do you suggest, Mr Beer?

Mr Beer: 15 minutes from now, sir?

Sir Wyn Williams: What’s the time now by you, so that I can –

Mr Beer: I have two different times. I have either 11.25 or –

Sir Wyn Williams: All right, 11.40.

Mr Todd, I know you’re alive to this point but there’s likely to be a number of breaks in your evidence, so talk about anything except your evidence, all right?

Keith Todd: Yes, no I understand that fully. Thank you, sir.

Mr Beer: Thank you, sir.

(11.22 am)

(A short break)

(11.38 am)

Mr Beer: Sir, are you able to see and hear me now?

Sir Wyn Williams: I can, yes.

Mr Beer: We’re just waiting for Mr Todd to be brought back into the Inquiry room.

Sir Wyn Williams: That’s fine.


Mr Beer: Mr Todd, moving the chronology on a little bit, in November 1997, the DSS and Post Office Counters Limited served on ICL Pathway a formal notice of breach of contract, that’s right?

Keith Todd: Correct.

Mr Beer: Cutting through it, your company denied such a breach and, indeed, served a reply that said, far from it being in breach of contract, the programme was now no longer commercially viable for you and that to compensate ICL Pathway it required a 30 per cent price increase, or a 5 per cent price increase and a five-year extension on the contract term; do you remember?

Keith Todd: I’m reminded by – so I remember the principle, yes, but the detail from the documents provided, and I think it’s even clear from documents that have been shared that the DSS did that to “protect their position”.

Mr Beer: What do you mean they did it to “protect their position”?

Keith Todd: Serve notice of breach of contract.

Mr Beer: What do you mean they did it to “protect their position” though, rather than believing that you were in material breach of contract?

Keith Todd: Well – so I’m not a lawyer but I have been around contracts for a long time. It is legitimate practice and we, ICL Pathway, could have filed an earlier breach of contract because – and through this period of the challenges we faced, we were continually challenged with when do we call time on what was a very difficult period of time.

We chose not to file for breach at that time and did subsequently submit our position paper to make clear to all parties, so there was no ambiguity of what our view was, but we were diligently trying to work forward on the project to transform the Post Office infrastructure and move the project forward.

It was DSS’s right to, at any time, file – submit the breach of contract, as it would have been for us.

Mr Beer: In general terms, can you assist the Chairman as to how it had come to this, that in May 1996 Pathway had been awarded the contract and in November 1997 both sides were alleging material breaches against the other?

Keith Todd: As a result of a number of things which we have touched on already, the difficulty in implementing the contract we signed, which was under a PFI, what in our opinion was delay in decision-making around some aspects where we were trying to be cooperative with the parties and, as mentioned before, the delay, in the DSS case, of the CAPS programme.

In relation to the Post Office, as made clear in my position paper, and I believe I referred to it in my statement, it became clear through the early phase of the initial pilot, the initial Go Live in the Post Office and the subsequent work, that there was a unreasonably significant number of the post offices which were not fit for purpose for deploying modern technology.

Mr Beer: You mean physically?

Keith Todd: Physically, physically, which had not been clear earlier. So, to the Chair, there were a number of issues which I would have expected that we would have been able to resolve without it ever getting to the point of dispute and breach but we were not.

And my next point is clearly opinion. I think what we found we were caught in – “caught in”, my words – was a dilemma where the Post Office was not excessively funded and its ability to take an appropriate, in my opinion, pragmatic, commercial decision on adjustments to the contract was challenged because of the ability to pay. I think we were also – and, again, I accept this is opinion – challenged by the executive branch of government not being prepared to, in our opinion, acknowledge their responsibilities.

And, again, you may wish to take this on later on, one of the reasons why – and it will be clear to all – we felt, in the end, we had to escalate it further to include political involvement is in order to get, in our opinion, a fair and reasonable judgement on defining a way forward. So there were a lot of, you know, factors that were frustrating the project that resulted in those delays, Chair.

Mr Beer: In the answers that you have just given, in your witness statement and in your position paper, you blame the Benefits Agency and Post Office Counters Limited and do not accept any responsibility by ICL for reaching this position; is that right?

Keith Todd: No, I don’t think that is fair. We were rightly pointing out where we think that they, the customers, had frustrated this contract. As I have acknowledged earlier on, we certainly did some things wrong and, as well reported in – I think in some of the documentation that John Bennett acknowledged that there are certainly some things that the company did wrong.

Mr Beer: The thing that you have so far referred to as the company doing wrong is not realising sufficiently in advance how unaligned the objectives of Post Office and the Benefits Agency were. Is there anything more than that, in not realising how the customers’ objectives differed, that you, on behalf of ICL, looking back –

Keith Todd: Well, it’s very difficult and I am genuinely not trying to be evasive on this but I don’t recall specifics, but, you know, it would be inappropriate for me to sit here and say that there were no aspects of the project that we couldn’t have done better.

I do refer to resources. I believe that the resources were being made available. The involvement not just of the Pathway team but the access to other resources in ICL was – you know, was there, did take some delay, sometimes, to get resources up to speed. So that might be an example of where, you know – had we resourced more heavily earlier, in anticipation of problems, some of the challenges of the projects may have been better addressed.

Mr Beer: Can we turn up, please, a document that you have referred to: your position paper.

Keith Todd: Yes.

Mr Beer: It is POL00031117. Thank you. I just want to see what we’ve got here first in this little clip surrounding the position paper.

The first page of this PDF is a copy of a letter sent from you to Stuart Sweetman, who was by then the MD of Post Office Counters Limited, and you say:

“Following John Bennett’s conversation with Paul Rich, I am enclosing a courtesy copy of the letter and position paper that I have sent to Peter Mathison”, who was the chief executive of the Benefits Agency, yes?

Keith Todd: Yes.

Mr Beer: That’s dated 10 March.

Keith Todd: Yes.

Mr Beer: Then if we go over the page, please, we can see a copy of that letter.

Keith Todd: Yes.

Mr Beer: You say to Mr Mathison:

“Dear Peter

“I … now enclose on a without prejudice basis a position paper which sets out ICL’s views in relation to the Pathway Project.

“May I suggest that we arrange a further without prejudice meeting after you have considered the enclosed document so that we may continue to seek a way forward in this matter.”

We can see the letter at the top was itself headed “Without Prejudice”, if we just scroll up.

Keith Todd: Yes.

Mr Beer: What was this sent without prejudice to: without prejudice to what?

Keith Todd: To our legal contractual rights. As I said earlier on, a few minutes ago, the approach that I was taking, ICL Pathway was taking, ICL and Fujitsu were taking, was to find a constructive way forward to make this project successful, despite the challenges we felt we were facing that we discussed earlier on.

In the event we were unable to find a way forward in the form of a compromise, which did subsequently happen, as you pointed out in May 1999, confirmed in, I think, July 1999, you know, we may have been forced to take legal action. It would have been very much the last resort.

Mr Beer: So it was without prejudice because the position paper sought to find a constructive way forwards, rather than relying on strict legal entitlement; is that right?

Keith Todd: But it was also attempting to do – so, yes to your question, but the important point about the paper, which I think I do refer to in my statement – the number of stakeholders in this conversation was significant, not just, you know, in terms of the Post Office and the DSS, but, you know, the wider government organisation. And I do recall a time, discussing with my colleagues, that I was concerned that Chinese whispers may be occurring, that briefings were getting miscommunicated and that the antidote to that was to try and write, what I believe still is, a clear paper outlining the position that we saw through the eyes of ICL Pathway and ICL.

Mr Beer: Can we go over the page please to the position paper. And did you write this?

Keith Todd: I was participant to writing it. At the time a number of individuals were involved, working obviously with the Pathway team, John Bennett, almost certainly Tony Oppenheim, but Richard Christou, who was, at the time, commercial and legal head and was my, sort of, right-hand on commercial and legal matters, as well as reviewing it with Fujitsu. So there were a number of people that were parties to the preparation of this paper.

Mr Beer: You introduce it by saying:

“The purpose of this summary is to inform [the Benefits Agency and Post Office Counters Limited] … of Pathway’s position in relation to the Pathway Project … in order to facilitate proper commercial discussions to resolve the present problems and differences facing the parties on the Project. The key issues have been summarised under headings …”

I think we see eight of those in due course:

“… with the aim of provision an overview of the problems which Pathway has experienced in performing the Project in the context of a PFI contract.”

I just want to look at some of the headings. Overall – you have obviously looked at this more recently. Do you actually, in the paper, suggest any constructive way forwards or do you just set out the problems?

Keith Todd: We set out the problems. You had mentioned previously, I think, prior to this paper we had made a commercial proposal. I believe it was – from recollection, it was before, but I can’t guarantee that, and it was clear – if I go back to what I referred to a few moments ago – that it was, almost structurally, verging on impossible for the Post Office and the DSS executives to agree to a commercial solution.

It was my recollection of our view at the time that we needed to escalate it – as I said a moment ago – to have, in my opinion, transparency on what the underlying issues were as we saw them.

At the end of the day, where the other parties – and they probably didn’t agree with our view of it – without going through the court process, a conclusion of these difficulties was arrived at, as we have said, in the May 1999 time to July 1999 timeframe, both commercially and from a project point of view.

Mr Beer: Can we look at the first heading, “PFI principles” further down the page please. In this and the next paragraph you set out essentially, is this right, the theory of a PFI contract in advance of the remainder of your points which explain why these principles were, in your view, undermined by the conduct, actions, omissions and decision-making of the DSS and POCL; is that right? This is a statement –

Keith Todd: Yes.

Mr Beer: – of the theory of a PFI contract.

Keith Todd: Yes, yes, where substantial control to deliver the services is handed over to the supply side and control of the design and implementation is not with the customer.

Mr Beer: So you say, in the third line:

“The Supplier [that’s ICL] takes the entire risk of providing a solution to meet the business requirements of the Sponsor, but, in turn, the Supplier is given the overall freedom to determine the solution to be provided. It is therefore fundamental that, having transferred the initial risk associated with the implementation phase of a project, the Supplier should not be hindered during this phase by the Sponsor. It is for the Supplier to manage the technical aspects of the project in an expeditious time frame so that the Supplier is capable of earning revenue which is commensurate with the risks of the project.”

Then over the page, please, second paragraph:

“It follows from this overriding principle that the Sponsor has the right to monitor the … work and the right to reject the IT solution following acceptance testing if the solution is unable to meet the acceptance criteria. However, the acceptance criteria can only be based on the Sponsor’s business requirements. In other words, having defined the requirements to be met by the system, it is not then for the Sponsor to dictate the solution, which must remain the exclusive responsibility of the Supplier.”

So what you were saying here was that the solution to the requirements that the customer had set out were the exclusive preserve of you, ICL. You’ve got to be trusted, you took the risk on of delivering those and it wasn’t for the Benefits Agency or POCL to interfere?

Keith Todd: Not wishing to be pedantic, but ICL Pathway but – which was a wholly owned subsidiary at this time of ICL – but yes, that is correct and what we had seen through the period of this, from the early days, was a desire from the customers – my recollection says specifically the DSS, but I would not exclude the Post Office – to be involved in every decision which was challenging.

Mr Beer: You say in the next paragraph:

“The problems which Pathway has faced and continues to face on the Project arise from the fact that … the Authorities [that’s both BA and POCL] have breached these basic PFI principles. Moreover, [the Benefits Agency] has compounded the situation by separately misrepresentation the true position …”

So that they were making false statements, is that right, the Benefits Agency?

Keith Todd: Certainly, from my recollection of what was going on at the time, it felt that there was a greater knowledge that the camps’ programme timescales, that I referred to earlier, were changing. We never got to the bottom of any conclusion, or any insights to be able to prove that one way or another, other than what is attached to this document, which is the schedule of the timeframe for the roll-out of the benefits, how it changed from when the RFQ came out to the, sort of, final position before DSS withdrew.

Mr Beer: You said that you never got to the bottom of it. You were certainly, by this stage, sufficiently sure of yourselves to allege against the government department misrepresentation?

Keith Todd: I would – I’m not a lawyer. That was our opinion at the time. That document was not a formal breach document. It was our view about the position being misrepresented.

Mr Beer: You don’t throw allegations like that around just because they are written under cover of a without prejudice letter, do you? You must have some evidence to back them up?

Keith Todd: Well, the schedule at the back.

Mr Beer: So it’s true then that you did have evidence of misrepresentation by the Benefits Agency on the progress and timelines of the CAPS delivery programme?

Keith Todd: The fact we have attached to this document a schedule of when the delivery existed, or was going to be compared to the RFP, is evidence that the timescales slipped.

Mr Beer: That’s not evidence of misrepresentation, is it?

Keith Todd: That’s true.

Mr Beer: So why was the allegation of misrepresentation made?

Keith Todd: I don’t recall.

Mr Beer: If we just scroll through the document to look at the headings. The next is “Design Interference/Enhanced Requirements” and then, over the page, to “The Authorities and the Programme Delivery Authority”, yes?

Keith Todd: Yes.

Mr Beer: Then over the page, please – sorry, back a page, please. Just under that, just picking up some points, at the foot of the page there, you say:

“The contractual programme was based upon an aggressive implementation timetable …”

Just stopping there, that’s the timetable that Pathway had proposed, yes?

Keith Todd: It had proposed it in response to our understanding of the times that the customers would want for the rollout of the infrastructure.

Mr Beer: What does “aggressive” mean in this context?

Keith Todd: I don’t recall.

Mr Beer: So I think we had established earlier that ICL was the author of the aggressive timetable; is that right?

Keith Todd: The timetable which ICL Pathway put into the proposal was in response to the RFQ, which was later than – as I understand it from the documentation – the RFQ, request for proposal, had asked for and so, therefore, yes, it was our proposed timetable.

Mr Beer: In this sentence, you say that this was done partly to achieve fast business returns for the parties. Does that mean, in part, so that ICL can start to earn money by reference to the volume of transactions undertaken using the system?

Keith Todd: Well, again, I just need to – you know, this is a complicated topic because there’s a lot of things going on at this time. Again, from my recollection of the situation, there was a lot of challenges in the Post Office, the need for modernisation of the infrastructure and the original timeframe in the RFP had been aggressive because the Post Office wanted to roll out new technologies quickly, so we were conscious that the Post Office wanted to be able to get the benefits of a new infrastructure that was going to be the basis on which new services could be provided for their business.

It was also important, as I recall understanding, the DSS wanted to, you know, address the fraud challenges, so –

Mr Beer: And there was a saving to be made there?

Keith Todd: Yes, and so, therefore, my answer to your question is; it was in the interests of all three parties to have as short a timetable as possible. The benefits for all parties were important and, therefore, a short timeframe. It was also, to link back to something I touched on earlier, you know, we had the opportunity, going back well before the date of this position paper, to stop work and I do recall some conversation about that, you know, “Do we just stop and reset?”

The view we took was what I believed to be the right one, which was a constructive one, which was to focus on the project, get the initial Go Live working and that did occur, as I recall, as required, and although albeit being limited, was “successful”.

Mr Beer: Successful in what sense?

Keith Todd: Well, as I’m re-reading the reports, that it had met the requirements for – at that time, I think it was Child Benefit, one benefit and a limited set of post offices to be rolled out.

So going back to your question on the timeframe, it was in all parties’ interests to get this infrastructure in as soon as possible.

Mr Beer: And, from ICL’s perspective, which is the question I asked, in order that it could start earning revenue?

Keith Todd: Including that.

Mr Beer: There’s a reference here that the programme was based on an aggressive timetable partly for political reasons. What were the political reasons that there was an aggressive timetable?

Keith Todd: I don’t specifically recall. I believe it was related to what I touched on a moment ago about the importance of improving the Post Office footprint and reducing the number of closures of post offices, but I’m afraid I can’t recall specifically.

Mr Beer: Was that a political reason, as you saw it?

Keith Todd: I’m just suggesting it was, it was a political pressure, and, certainly, as I think about it here, yes, I mean it’s – it has – being most of my life lived in the UK – not all my life – but, yes, it’s been a pressure that I would have understood to be there, to have a vibrant Post Office. Without being off at a tangent, you know, I use it regularly and it’s a great service in the community.

Mr Beer: Can we go forward to page 11 please, which is under the heading “CAPS”, and can we look at the bottom paragraph on the page, please. You say:

“CAPS is so fundamental to the viability of the project programme that had Pathway known the true position it is doubtful whether Pathway would have entered into the contract. At the very least Pathway would have priced the services to reflect the deferred CAPS programme and revenue loss. Following award of the contract, if Pathway had been told of the delay to the CAPS programme, Pathway would have had the opportunity and time to mitigate the impact of such delay and respond commercially to the changing circumstances of the project. Pathway would have been relieved of the coercive effect of the aggressive timetable, which drove Pathway to minimise delay and absorb additional cost without proper recourse to the procedures laid down in the contract.”

What was the amount of losses or absorbed losses that you’re referring to there?

Keith Todd: I don’t recall the specific number.

Mr Beer: You can’t remember now how much money Pathway lost as a result of the delay that you attribute to CAPS?

Keith Todd: Specifically related to CAPS, no, I don’t recall.

Mr Beer: You say in the second line from the bottom:

“Pathway would have been relieved of the coercive effect of the aggressive timetable …”

What was the coercive effect that you refer to there?

Keith Todd: It must be referring to the timetable that we anticipated receiving – you know, that we anticipated we needed to deliver to, to meet the requirements for the Department of Social Security’s part of the contract.

Mr Beer: In your statement – no need to turn it up – at paragraph 83, which is page 29 of your statement, you refer to ICL Pathway facing “revenue losses and increased costs”, which run into hundreds of millions of pounds.

Keith Todd: Yes.

Mr Beer: Can you recall how many hundreds of millions of pounds you were there referring to?

Keith Todd: Well, there were various calculations done, as I have been reminded by looking at documents. The Corbett analysis at one point, as I recall, had two numbers, a net present value number, which was 200 to 300 million, and the gross value of that, as I recall from seeing recent documents, was put to my colleagues as 500 million.

Mr Beer: Your colleagues within ICL?

Keith Todd: Fujitsu/ICL, I seem to recall from reviewing the documents recently. If I had not seen any of these documents I would have been saying this was a very – it was a very substantial – a few hundred million.

Mr Beer: Was the response to that, within ICL, itself to tighten its belt to try and reduce the spend on this contract, reduce staffing?

Keith Todd: The only area where documents have reminded me that we did was in relation to, I think, the rollout plan because, if there is not going to be a rollout plan to the same timeframe, we need less people around the country to implement, so it would have been redundant cost on the implementation teams. I don’t recall at all, ever any reductions in the core team that were responsible for delivering the service.

As I have referred to previously, my recollection is that we had taken a line consistent with my and Fujitsu’s philosophy that we wanted to succeed on this project and that we had invested significant sums of money and we wanted this to be a national success for the customers and ourselves, so, you know, we were fully vested and fully committed and, you know, the support, as the documentation shows, from Fujitsu through – and ICL and, frankly, the team, you know, the team in Pathway that were dealing with these additional matters and just delivering the project, having to cope with the commercial discussions, the decisions on the project, you know, the team in Pathway I think should – I think I made a statement in my statement that they take great credit for how they continued to work under challenging conditions.

But to go back to your question, there was no recollection of mine that says there was any wholesale cutting back of costs. It was only where the costs would have been redundant.

Mr Beer: Does that represent your view overall that for ICL and for ICL Pathway Limited, it should take great credit for the delivery of Horizon?

Keith Todd: No. I didn’t say that.

Mr Beer: No. Why is that not your view, that it should take great credit for the delivery of Horizon?

Keith Todd: We were delivering a project which we knew internally as Pathway, which was the technology infrastructure. As we have discussed today, there were some great challenges through the early stages of this project, the initial Go Live substantially happened, as I recall, on time. Subsequent challenges put delays into the project.

There is no doubt with what happened and the events that led in subsequent years it is – in a sense, there’s no way that any party can feel comfortable at being involved in any element of this project.

Mr Beer: Can we turn back to the position paper, insofar as it deals with Post Office Counters Limited, and that’s in a section on page 10 of this document. As you rightly said in answers a moment ago, it was to do with the premises infrastructure that you made allegations against Post Office.

Keith Todd: Yes.

Mr Beer: It is at the foot of the page, please, under the heading “POCL”, and it is just in this paragraph, it’s one paragraph that relates to the Post Office. If we can just read this first:

“It became apparent during installation work for the first 200 Post Offices …”

Just stopping there, that’s part of the initial Go Live, it was one, then ten in Stroud and then rolled out to, I think, 201 or 202?

Keith Todd: Yes, the initial Go Live was I think – yes, the initial ten, and the subsequent phases were those up to 200, yes.

Mr Beer: “… the first 200 Post Offices that many post offices are not fit for the purpose of installing automation equipment. [Post Office Counters Limited] could not reasonably have believed that the Post Office premises were fit for automation and did not give Pathway a proper opportunity to investigate the physical condition of the [Post Office Counters Limited] premises for itself before entering into the contract. If the extent of the work required to render [Post Office Counters Limited] premises fit for installation of automation equipment had been made known at the pre-contract stage Pathway would have adjusted its bid price accordingly and allowed more time for this work in planning. Indeed, the full impact of this problem is still being assessed. Of greatest concern are the substantial additional costs and the possibility that the problem is so severe that it will not be possible to maintain the required ‘beat rate’ during national roll out. Indeed, it would appear to be impossible to automate all post offices in their current role.”

Just picking up on a phrase there, “Beat rate during national roll out”, that was a number of post offices automated live per week?

Keith Todd: Yes, yes, and as I recall, reminded by the documents, that I think when I left it was getting up to 300, so there was a – yes, a roll-out plan that increased the number of post offices that would be upgraded. The exact phasing of that I don’t recall.

Mr Beer: At this stage we’re still dealing with a PFI contract, yes?

Keith Todd: We are.

Mr Beer: Yes.

Keith Todd: Thank you.

Mr Beer: You say that:

“It became apparent during installation work for the first 200 … that many post offices are not fit for the purpose …”

Isn’t that the risk that the supplier takes on, rather than for the client under a PFI deal at the time that you were then operating? The client doesn’t have the responsibility of assessing their own premises’ readiness and fitness and suitability for automation, they simply make a requirement, how post offices need to be automated and then, as you say, it’s up to you, as the supplier, to ensure that that happens.

Keith Todd: That would be, in our view, unreasonable and no, I would disagree with you.

Mr Beer: Why?

Keith Todd: Because we would have been given some indication – I say “we”. I was not directly involved, just to, you know, remind you. This was a very important contract in the whole of ICL so the team would have had some exposure to what a post office looked like and based on the sample of what we would have seen, a view would have been taken on the roll-out.

What we’re saying here was, it subsequently turned out that whatever we saw during the bidding phase, or the early phase, the actual quality of the estate was significantly worse than expected.

Mr Beer: But I’m drawing you back to what you said at the outset of this position paper, which said that it’s not for the client to make arrangements for or to specify –

Keith Todd: Well, there would always –

Mr Beer: – hold on, let me finish the question –

Keith Todd: Sorry.

Mr Beer: – how the premises are to be automated. They settle a requirement that they are to be automated and then it’s down to you, the supplier, to make sufficient investigations to work out how that is to be done and how much it’s going to cost, no?

Keith Todd: I would disagree that there would be an assumption of a basic adequacy based on what had been represented at the time, but, you know, I had no participation in the direct conversations that made those assessments.

Mr Beer: Before this contract with the Post Office, ICL had no experience with working with the Post Office whatsoever, had it?

Keith Todd: That’s my recollection.

Mr Beer: I think you confirmed that in paragraph 25 of your witness statement.

Keith Todd: Yes, that was my recollection.

Mr Beer: Did they keep you locked out of post offices? Did they prevent you from going in – or the company from going into post offices to assess their fitness, physically, for automation?

Keith Todd: No, that would not be the case.

Mr Beer: Did ICL ask for access to post offices?

Keith Todd: I have no specific recollection. I believe that there had been an assessment of the post offices which we had had access to, which was the basis on which we had made an assumption, but you may get more clarity when my colleagues who were dealing with this day by day appear before this Inquiry.

Mr Beer: Before the contract, can you help us with what ICL Pathway did itself to find out what the state and standards were like within post office branches?

Keith Todd: I’m afraid at this time I – you know, I can’t recall. This is now 27 years ago.

Mr Beer: Yes. Can you therefore not recall what opportunity there had been for ICL to investigate the physical condition of post office premises?

Keith Todd: I can’t recall anything specific. My judgement is that we would have had some access. For example, the initial ten, we must have known where they were because of the very early delivery date for the Go Live of those initial ten.

Mr Beer: But that’s post-contract –

Keith Todd: Yes, yes, that’s true.

Mr Beer: – the Go Live. We’re talking – the criticism here is that you wouldn’t have signed up to the contract if you had known the state of the branches, so it’s no good pointing to the Go Live phase and saying “Well, we might have – we discovered things then.” What you’re saying here is that you didn’t know the physical condition of the Post Office estate before entering into the contract, aren’t you?

Keith Todd: I’m saying – this document is saying, our position was that we had a different understanding of the state of the Post Office estate. I’m afraid I can’t help you with specifics on what that was based on: 1, because it was 27 years ago; and 2, I didn’t personally inspect the post offices.

Mr Beer: Of course and I’m not suggesting that you did. Would you accept that Pathway had been contracted to build an end to end, automated and operational accounting system for the Post Office network and that it was down to Pathway to check that the Post Office branches could support such a system before it contracted?

Keith Todd: The answer to the question you’re posing has a big dependency and that is that we would have had to make an assessment not by pre-bid – to your own point, pre-bid go and visit 20,000 post offices to inspect their estate. I think that would have been unreasonable for any bidder for any contract to do.

What is likely to have been done – now, I cannot attest to whether it was represented by the Post Office or it was our assessment of the ones we saw – there would have been a view taken about the suitability of the post offices for the deployment of this technology.

Quite clearly the team that were working every day – and I believe some of the documents that were put in front of me more recently – acknowledge the challenges that my team found in looking at some of the Post Office estate. I don’t believe the lack of fitness for deployment of technology was challenged by the Post Office but maybe my recollection is incorrect.

Mr Beer: Given that this was the late 1990s, what did ICL Pathway expect of branch post offices, some of them likely to have been in operation for 100 years or more, using paper based systems?

Keith Todd: I’ve never thought about the question as you posed.

Mr Beer: Well, you say in this document that the Post Office did not give Pathway a proper opportunity. Was that proper opportunity asked for and denied to Pathway?

Keith Todd: I don’t recall specifically the answer to that. I repeat what I said earlier on, that I had a full-time team, some of whom you’re going to be interviewing, that were focused on this on a day-to-day basis.

Mr Beer: Would you accept that with an estate of say 20,000 post offices, the reasonable thing to do would be to inspect a sample of them and then draft a minimum condition guarantee?

Keith Todd: As you say, that is rational and reasonable.

Mr Beer: Was that done?

Keith Todd: I don’t recall.

Mr Beer: What was the minimum standard of condition that Pathway expected?

Keith Todd: Again, my detailed knowledge/recollection of 27 years ago would not be able to give you a sufficiently – a sufficient answer.

Mr Beer: Maybe if I can jog your memory, would it be that, in order to support the hardware to be installed within the premises, at least there was –

Keith Todd: It would need counter space and power, yes, this is –

Mr Beer: Well, hold on – a telephone line that was connected to the BT service?

Keith Todd: Okay, I would not have recalled that.

Mr Beer: Can you recall whether there was an understanding that the telephone line connection from post office branches would be a copper line, ie an ordinary telephone line, connecting into the BT network?

Keith Todd: I don’t recall that.

Mr Beer: Can you remember now discussion over whether such copper telephone lines were subject to interference from other devices, or inclement weather, or degradation over time, and that could affect the quality of the signal being transmitted across the system?

Keith Todd: I have no recollection of any conversation at the time about the quality of the copper lines into post offices.

Mr Beer: If we just look at paragraph 74 of your witness statement, please, which is WITN03380100, at page 25. Page 25, thank you, under the heading “Post Office infrastructure”, you say at 73:

“There were significant issues with the Post Office’s own infrastructure. During installation work, it became clear that many post office premises were not fit for hardware installation and DSS/POCL did not factor this into the timeframe for completion of the contract.”

I will just ask again: wasn’t it your responsibility to establish whether the premises were fit for hardware installation as part of your due diligence, if you like, before entering into the contract?

Keith Todd: I would say, clearly, based on what we wrote at the time in this position paper, and we would have had access to other documentation and current knowledge, we did not believe that was the case.

Mr Beer: In paragraph 75, if we just scroll down, you set out the position, as you say clearly, in the position paper that we have read, and then just go back up to 74, please. You say:

“In the December 1997 monthly report, these issues were highlighted as ‘critical’ to resolve. The report again noted the ‘difficulties within the Post Office estate’ regarding ‘the poor physical condition of the vast majority of the post offices’ and that ‘the appetite to confront this head on within POCL has yet to be seen’.”


“By March 1998, the monthly report stated that these issues had escalated into a ‘major dispute’, ‘the total cost for putting their estate into a fit purpose for automation is on the wrong side of £40 million’.”

Now, we know that national rollout began at least by the start of the year 2000, yes?

Keith Todd: Mm-hm, yes.

Mr Beer: How were the issues that were so critical being referred to here – “putting the estate into a state that was fit for purpose for automation” – resolved by the year 2000?

Keith Todd: When the contract would have been rebaselined, which was between May and July 1999, that matter must have been taken account of. I have no specific recollection of how it was taken account of but, to state the obvious, you know, it was a known issue, it was in our position paper, a view would have had to have been taken at that time.

Mr Beer: So breaking it down, was any work, to your knowledge, done by ICL between the position paper that we have been speaking about, which raised this issue as to the fitness of the estate and the commencement of the contract in May 1999 to put the estate into a state fit for automation?

Keith Todd: Well, there was no work done by ICL Pathway to make the estate fit. I have no recollection of what further research was made. My recollection is that the Post Office team did not dispute that it needed to be upgraded. The issue was a commercial one as to –

Mr Beer: Who was going to pay for it?

Keith Todd: Yes.

Mr Beer: Can you recall who was going to pay for it and who was going to do the work?

Keith Todd: It was our view, as put in the position paper before the revised contract, that it should be the Post Office. At the time the contract was reset in – I repeat these two dates, between May and July – I think it was signed in July – July 1999, that matter must have been taken account of but I cannot sit here and recall a decision.

At the time that the Treasury sponsored – an individual, I think it was Steve Robson in the Treasury – sponsored a short period for the two parties, Post Office and ICL Pathway, to agree a new contract, which Christou and Tony Oppenheim, as I recall, and John Bennett, were the primary parties discussing and negotiating it, and the fitness of the Post Office estate was known about, so my assumption is that we took full account of that in signing up to the new contract.

Mr Beer: What would you say to the suggestion that, come the new contract in July 1999, this issue was overlooked and that national rollout commenced in the year 2000 with the cracks having been papered over?

Keith Todd: Surprise.

Mr Beer: Looking at the position paper as a whole, taking a step back, would this be right, that the entirety of the fault in ICL Pathway’s mind was that of the Benefits Agency and, to a lesser extent, the Post Office and that ICL Pathway was entirely blameless?

Keith Todd: I mentioned and said earlier, I think it would be inappropriate for us to say that we had no faults. Our position paper was a position paper to point out the things which we felt that the other stakeholders had not appropriately handled and that had affected our ability to deliver the contract.

Mr Beer: Were there any admissions in this without prejudice letter of anything that ICL had done wrong or incorrectly?

Keith Todd: I read it several times recently and I don’t recall it and I –

Mr Beer: I don’t think there are, are there?

Keith Todd: No, no.

Mr Beer: You suggested earlier that this position paper was supposed to be a constructive way forward. Why were the errors and omissions and faults of ICL Pathway not also identified in this without prejudice letter?

Keith Todd: I can only provide you with my view at this stage, as opposed to necessarily at the time, but, you know, we were dealing with an intense situation where it – from recollection, it felt that we were struggling to get – and this is well reported in some of the documents that have been shared from the government’s side – that I was getting frustrated by the intransigence, the inability to move anybody forward, whilst we continued to spend a lot of money in delivering this project and, therefore, a robust position was taken in our conversations and this position paper set out not our faults, but the faults of the other stakeholders.

Mr Beer: That was the constructive way forward, was it?

Keith Todd: Well, what papers like this fail to take account of is any of the other conversations that were going on but it was a statement of our concerns as to what had gone wrong from the other stakeholders.

Mr Beer: Can we look at this from a different perspective, please, and –

Sir Wyn Williams: Before you do that, Mr Beer, could someone take the witness statement down from my screen, please.

Mr Beer: I’m so sorry, sir, that should have been my request.

Sir Wyn Williams: Fine, thanks. Thank you.

Mr Beer: Can we look at this from a different perspective and have on the screen FUJ00077834, please. This is a report entitled “Chief executive’s report [of] May 1997”. It is dated 7 May 1997 and if we just skip forwards to page 5, please, and go to the foot of the page, we can see that it is authored by you.

Keith Todd: Yes.

Mr Beer: Just go back to page 1, please, so that you can orientate yourself in the nature of this document. There’s an overview at the beginning and then you set out, in a number of headings, the position in relation to issues such as politics, the market, competitors, the financial performance of ICL Pathway and then some specific issues.

Keith Todd: Of ICL, yes.

Mr Beer: Sorry, of ICL.

Keith Todd: Yes.

Mr Beer: Can we look at Pathway specifically, which is on page 5, and this is the part of your report – and this goes to the board presumably, the ICL main board.

Keith Todd: Correct.

Mr Beer: At paragraph 7.5 you say – so this is May 1997:

“The latest release of the Pathway software has gone live (release 1b) last Friday. On schedule, however a significant amount of time was required to eliminate ‘software bugs’, which meant that resource that was working on release 1c and 1d due in July had to be diverted to resolving the software issues. This additional work has an adverse impact on the development costs.

“We have advised the customer that there could be a six week delay in the next release. The customer is appreciative of the open approach. Actions are in place to mitigate the consequence of delay ie national roll out starting in January 1998, rather than November 1997.

“Although this delay is disappointing we do not see any issues ahead of us that cannot be resolved. The relationship with the customer, DSS and Post Office, is good, but they are concerned about the potential delay.”

So this is May 1997 and, summarising this, what you’re saying here is that there’s been an initial live release, that that has led to the identification of some software bugs, that has diverted resources and that you have, therefore, had to tell the customers that there’s going to be a delay of six weeks. That was all down to ICL Pathway, wasn’t it, all of those things that we mentioned?

Keith Todd: Those words imply that.

Mr Beer: Well, “We have advised the customer”, this is you telling the customer – or the company telling the customers – as to what has happened internally within ICL Pathway and the consequences on delivery of the project. So it’s not something that they have done, you’re not saying to the customers –

Keith Todd: No.

Mr Beer: – “You have done something wrong, this is – it’s your fault, you have had an impact on the delivery timetable”?

Keith Todd: Yes.

Mr Beer: It’s identification of issues that are the responsibility of ICL Pathway, isn’t it?

Keith Todd: It’s a statement of fact that there’s going to be a delay. It’s reporting – it’s not necessarily covering all of the things that were going on at that time.

Mr Beer: Well, is there anything mentioned here that is anything to do other than with software bugs that are the responsibility of –

Keith Todd: No, there’s no mention of anything else.

Mr Beer: – ICL Pathway?

Keith Todd: No, and that is my monthly report, as we have talked about before. There were monthly reports which you have had extensive access to, which is good, going back through Pathway and also ICL board reports that, as I recall, happened on a monthly basis and I would provide a synopsis of the main factors during that – as part of that report.

Mr Beer: And at this time, in the May 1997 CEO report, you were saying that relations between ICL Pathway and the customers were good and so you were saying that they, the customers, were concerned about the potential delay caused by ICL problems at this point.

Keith Todd: That’s an interpretation of that.

Mr Beer: Just read the three paragraphs again to yourself.

Keith Todd: Yes, no –

Mr Beer: And –

Keith Todd: I’m not –

Mr Beer: “That is an interpretation of it” suggests, Mr Todd, that it is an unfair interpretation of it.

Keith Todd: No.

Mr Beer: Is it the correct interpretation of it, please?

Keith Todd: So not from recollection, from looking at this document, it is a fair representation of it.

Mr Beer: “We ICL Pathway have made some errors, we’re still in good relations with our two customers, despite the delay, about which they are concerned”; fair summary?

Keith Todd: Yes, I … I stand by what is written in that document because it would have been what we felt at that time. There may be other factors, but yes. Yes.

Mr Beer: Would you have kept factors back from the board?

Keith Todd: No, no.

Mr Beer: Right. Can we go to the July 1997 –

Keith Todd: No material factors. Small factors, yes.

Mr Beer: Can we go to the July 1997 report, please, which is FUJ00077835. So you can see again, this is your report for July 1997 and if we just go to the last page, which is page 7, at the foot of the page, we can see your name against it.

Keith Todd: Yes.

Mr Beer: There’s a similar format of an overview at the beginning, an outline of the political situation, the market, competitors, other suppliers to you, the order book and then individual projects and we find the section concerning Pathway at page 6 please, and if we can just read that – that’s the entirety of it there. You say:

“Following the completion of the internal audit and the results of the early Release 1C tests we have declared an eight week slip. This in effect means that the 1C deliverable would be 15 weeks later than expected.

“The project issues are being addressed with strengthening of the programme management …”

Just stopping there, that means within ICL Pathway?

Keith Todd: Yes.

Mr Beer: “… technical support …”

That means within ICL Pathway, yes? Yes?

Keith Todd: Yes.

Mr Beer: “… and increase in project resource to address the volume of test issues.”

That means, again, within ICL Pathway?

Keith Todd: Yes.

Mr Beer: “The reasons for the delay are rooted in the long delay in agreeing the delivery spec, specifically the security environment was not agreed until the end of April and the multiple additional interfaces into the customer’s systems.

“There are clearly lessons to be learned from this project for future PFI projects and these will be shared with the customer. The priority is to ensure the project implementation goes in effectively and the customer confidence is restored.

“I have briefed the head of DSS, Benefits Agency and Post Office Counters personally with the project team, in parallel with the project activity to deliver 1c in October and Release 2 in March. We are assessing the implications on the overall programme with the customer.”

So here you were suggesting that there were lessons to be learned for ICL; is that right?

Keith Todd: Certainly for ICL but I would have thought for – I was implying on all parties dealing with PFIs.

Mr Beer: Were you suggesting that customer confidence needed to be restored? End of the fourth paragraph.

Keith Todd: Yes, I’m just looking. It says that.

Mr Beer: So was the customer, ie Benefits Agency and POCL, were they suffering from a drop-in confidence in ICL Pathway at this point?

Keith Todd: That’s the implication of the statement.

Mr Beer: The delays here were again, at least in significant part, due to ICL Pathway, ie the eight-week slip referred to in the first paragraph; is that right?

Keith Todd: We don’t get into the underlying causes of the slip. What I believe it is doing is declaring that it had occurred and reading it in isolation, it does suggest what you said.

Mr Beer: Yes. I mean we heard evidence from Mr Copping, last week, from PA consulting who said that the problems with release 1 were significant and were a product of ICL’s serious misjudgments.

In neither of these reports, the May or the July 1997 report, were you saying that the company needed to take a stand against the DSS or Post Office Counters Limited, ie pointing out any of the things that, a little while later, you were to observe in the position paper; is that right?

Keith Todd: As I have said on a couple of occasions, I think today, we were trying to focus on getting the project delivered and, in parallel, have discussions to resolve issues on the project, but also any of the commercial issues.

As you referred to earlier, the situation was brought to a head by the submission of a breach letter to the company which required us to produce or clarify – produce the position paper which we discussed a few minutes ago.

Mr Beer: Can I understand that answer, that you went on the robust offensive by the position paper in 1998 because of and as a result of a breach notice served on you; is that right?

Keith Todd: Well, I’m not familiar with these types of proceedings and at the risk of you putting words in my mouth –

Mr Beer: I’m trying to understand your answer.

Keith Todd: No, I accept that. I’m just trying to avoid adopting your words.

Mr Beer: You explain it to me then. I’m looking at the moment at some internal reporting by you, up to your board, that doesn’t identify any problems with the customers, it only identifies, in the first document, a problem with ICL Pathway’s own performance. Then, not long later, we have your position paper which points the finger in eight respects at your customers and, essentially, I’m asking: how did that come about?

Keith Todd: Well, depends which part of what came about. The involvement of Fujitsu, ICL Pathway, you know, there was great transparency right the way through the company at that time. Some of those issues that resulted in the position paper were definitely appearing – they have not been reflected in these reports that you are referring to.

Mr Beer: Why was that? Why were they not being reported back to the ICL main board?

Keith Todd: I don’t specifically recall that. I do recall that all matters, including Fujitsu, were aware of the underlying issues and, you know, you may get to it eventually, I think everybody from Fujitsu, ICL board down, the independent advisors, believed that we had dealt with a very difficult situation, dealing with two elements of government, very professionally and very well through a very difficult time. That’s – and I provided some of that evidence in – attached to my statement.

Mr Beer: Can we, just before the break, turn to one last piece of evidence on this issue and look up POL00043645.

Moving forwards to September 1997 this is a record of the Counter Automation Steering Group of that date and we can see who is present: from the Post Office, Mr Roberts, Mr Cope, Mr Close, Mr Sweetman and Mr Rich; and from ICL you, Mr Bennett and Mr Coombs?

Keith Todd: Yes.

Mr Beer: It records the action in terms of who spoke. Can we just look at what Mr Roberts said the purpose, ie of the meeting, I think. He needed:

“a clear picture from ICL on how they think the programme is going and their confidence in solving issues around delay; and

“assurance about the programme for the [Post Office] board.”

Then you are reported to have given your overview and can we just read through what you are recorded as saying:

“Horizon is critically important to ICL and Fujitsu, and to Post Office, and (hoped) it is for DSS;

“his belief that the programme is doable, and that ICL will commit all necessary funds to deliver its part.

“his view that his own macro objectives in setting out on the programming had not changed, ie

“to put in a UK national infrastructure via post offices that could be developed long-term for society as part of a ‘national information flow’;

“[and secondly] to take the first serious steps, through using cards for DSS fraud control, to take the ‘information society’ to technology-resistant ‘mass market’ in the country and then build on that (eg via smartcards);

“he [that’s you] has taken a calculated gamble that delivering Pathway’s programme will enable ICL to become the [Post Office’s] main technology partner;

“that Horizon remains the best practicable option for DSS;

“that Horizon is a world-class system (evidence of many postal administrations wanting it).”

Can I pick up a couple of points that you are referred to as raising there or reported to have raised.

What was the nature of the calculated gamble that you had undertaken? Who or what were you gambling with?

Keith Todd: I don’t recall those words at all.

Mr Beer: Thinking back, can you remember what you might have been gambling with?

Keith Todd: I wouldn’t have been gambling with anything, I would be taking a view about a long-term relationship with the Post Office. The Post Office with a modern infrastructure in the information society, as it was known in those days, would have provided an opportunity for increased revenue for the Post Office, as well as a subsequent – ICL Pathway.

Mr Beer: You expressed the view that Horizon was a world-class system and that many postal administrations around the world wanted it, yes?

Keith Todd: Yes, I did – actually, I don’t recall – to be accurate, I don’t recall, and I had read this in this document the night before, but I certainly do recall that, apart from what we have already referred to, that the Irish Post Office had adopted the system, we had seen an opportunity for many post offices around the world – I don’t recall all their locations – that we were seeing as a future business opportunity. So success on this project would have been very beneficial to other opportunities in the post office marketplace.

Mr Beer: Then just lastly, over the page, please, at paragraph 5, Mr Roberts summarised as follows, first:

“The Post Office was very disappointed at the current situation;

“The Post Office, and POCL, is still keen to do this project and make it work;

“ICL’s credibility is at stake and confidence in Pathway within the Post Office is still uncertain …”

Then, over the page to paragraph 6, you are recorded as replying by saying you:

“… appreciated the spirit in which the meeting had been conducted, and reaffirmed ICL’s commitment to make it work.”

And “The meeting ended”.

Would you agree that a fair reading of these minutes is that these are the Post Office saying that they are disappointed in ICL’s performance, that your credibility was at stake, rather than the other way round: you suggesting that it was fault within the Post Office that had led to the existing delays?

Keith Todd: As we discussed earlier, and my recollection is, the significant challenge that we had related to the Post Office was the estate. The related item was the decision-making which they were part but much more significantly related to DSS than the Post Office as I recall it.

Mr Beer: Mr Todd, thank you very much.

That’s an appropriate moment for a break for lunch, sir, if it suits you.

Sir Wyn Williams: Yes, of course.

Mr Beer: Thank you very much. Can we say 2.00 then, please?

Sir Wyn Williams: Yes, of course. 2.00 everybody.

Mr Beer: Thank you.

(1.00 pm)

(The luncheon adjournment)

(2.00 pm)

Mr Beer: Good afternoon, sir, can you see and hear me?

Sir Wyn Williams: Yes, I can.

Mr Beer: Good, and we can see and hear you.

Hello, Mr Todd. Can we turn to the issue of bugs, errors and defects. You address this important issue in paragraph 77 to 79 of your witness statement, which is WITN03880100 at page 26. Thank you, page 26 and 27. Thank you. We see the cross heading “Bugs, defects and other issues”?

Keith Todd: Yes.

Mr Beer: If we just look at 78, please, you say:

“During the monthly board meetings we would have reviewed the total outstanding number of bugs, their priority and also a general description of what they were. We were assured through our governance and oversight processes that the fixes for these were being handled appropriately. The technical team was experienced in both diagnostics and resolving these issues.”

What was your governance and oversight process or what were your governance and oversight processes, as far as they related to fixes?

Keith Todd: So there was a team within ICL Pathway, focused on the management under John Bennett. It had a full management team, including a technical director, a project manager, operations director, quality assurance manager and the processes would operate within ICL Pathway and matters as shown in the board report were escalated to the board or the board was briefed on the progress of clearing the significant software issues.

Mr Beer: How were any resolutions monitored and reported to you?

Keith Todd: Just through the board, from my recollection.

Mr Beer: I’m sorry?

Keith Todd: Just through the board – the board meetings, through my recollection.

Mr Beer: So was there a tracking system operated by the board itself to see what had happened to past resolutions or fixes of bugs, errors or defects?

Keith Todd: There was a process, as I recall, within ICL Pathway that kept track of all bugs and issues raised.

Mr Beer: I’m thinking more at board level, at the board meeting of ICL Pathway?

Keith Todd: I don’t – other than as presented through the board reports, I don’t recall any other process, other than as reported by the executive team of ICL Pathway.

Mr Beer: Who on the board, if anyone, had technical knowledge in terms of the issue of bugs, errors and defects?

Keith Todd: I am, at the moment, trying to recall who the other players were on the board.

Mr Beer: Mr Bennett as the managing director?

Keith Todd: Well, his background was in sales and marketing, rather than technology.

Mr Beer: Mr Christou, legal and commercial?

Keith Todd: Correct. You do remind me one minor – well, one correction to what I recall writing, which was there was no Fujitsu director – from reviewing a document over the weekend that I was given last Thursday, it reminded me that Kura Kawasan(?) of Fujitsu, a board member with technical knowledge, was appointed at that time but that was after the renegotiation with the Post Office.

Mr Beer: So can you recall at these board meetings anyone with technical expertise being brought into the meeting to explain to you the process of clearing bugs, errors and defects or what was the cause of the bugs, errors and defects?

Keith Todd: So, firstly, I don’t recall any specific situation, but there would have highly likely been representation from the Pathway team. Now, separate from the Pathway team, ICL’s structure also did have a CTO, Andrew Boswell, I don’t recall, it’s a long –

Mr Beer: CTO meaning?

Keith Todd: Chief technology officer. I don’t recall any specific involvement but, you know, Pathway was not a walled garden. There would have been almost certainly conversations going on about the technical aspects and I am sure, when you talk to John Bennett, he will be able to provide additional information about access to other technical expertise outside of the team within Pathway.

Mr Beer: In paragraph 79, you continue:

“The progress of these fixes was well documented in the monthly report. By way of example, the December 1997 monthly report set out the following issues: ‘live experience over the last few weeks of release 1c has as expected thrown up a list of operational, procedural and minor software errors which require careful attention. The total list is higher than expected and the pressure now falls on customer service to manage the operational introduction of the various fixes’. The January 1998 monthly report provided an update on these issues: ‘substantial progress has been made with release 1c over the last four weeks with a large number of major operational issues successfully fixed. This system is now much more operationally easy to use by the counter staff and this should help considerably …’.”

Was anything done to consider why there were a higher than expected number of bugs, errors and defects –

Keith Todd: I don’t recall.

Mr Beer: – ie a moment of self reflection: “Why is this number higher than we expected?”

Keith Todd: I would be making a conjecture comment now, as opposed to recalling specifically something which I’m afraid was 25 years ago.

Mr Beer: I understand.

Keith Todd: Yes, and, you know, to make part of the public record, there was, at the time, good conversations. These were not five-minute board meetings.

Mr Beer: Can you recall now who provided the training to the individuals who provided customer service?

Keith Todd: No, I’m afraid I can’t.

Mr Beer: Can you recall whether there was any work done at this time – and I’m talking about 1997/1998 – to consider, from a postmaster’s perspective, the operating experience of the system?

Keith Todd: Well, as a result of reading 4,000 pages of documents in the last few weeks, I do recall in that review that there had been engagement with the subpostmasters in getting feedback. I cannot give you very precise definition of exactly all – the process that went through and the exact timing, but there was dialogue. You know, we had a very professional solid team engaged full-time on this project and including, as I have been reminded through review of these documents, feedback from subpostmasters.

The board would only get a high level commentary.

Mr Beer: Do you understand what I mean when I refer to the concept of reference data?

Keith Todd: In broad terms, yes.

Mr Beer: I’m using it in this sense: data that’s used to classify or categorise other data across a system. Typically they are static data or –

Keith Todd: Yes.

Mr Beer: – slowly changing over time, like units of measurement, fixed conversion rates –

Keith Todd: Yes, I understand what you’re talking about.

Mr Beer: – calendar structures, that kind of thing.

Keith Todd: Yes.

Mr Beer: We have heard in the Inquiry some expert evidence as to the importance of reference data and, in particular, if reference data are used in a data driven logic system, such as this, and such reference data are not timely or accurate and/or if they’re complex, the system that they support will not operate as intended, understand?

Keith Todd: Yes.

Mr Beer: So that’s the context of these questions.

Can we look please at FUJ00058166, please. This is one of the monthly progress reports.

Keith Todd: Yes.

Mr Beer: Just to be clear, were these given to the board for its monthly board meetings, or are these a separate species of document?

Keith Todd: As I recall, they were provided to the board.

Mr Beer: You will see this is for December 1997. Can we turn to page 15 of the document, please. Just go back a page so you can see the context, please, and look at the whole page on the previous page.

So under “Current critical problem” and then under 4 is “Issues” and we’re looking at one of the issues. Go back to page 15, please, and it is the second bullet point from the bottom – that’s it:

“Reference data …”

This is two bullet points up:

“Reference data is poorly defined in the contractual requirements but is crucial for the proper control of changes to outlet/product data. POCL are only now realising its significance and we must be vigilant if we are to avoid requirements creep.”

Do you see that?

Keith Todd: Yes.

Mr Beer: Given that ICL Pathway was brought in to provide the expertise to build and thereafter to operate the system, can you assist us as to why ICL Pathway had seemingly not anticipated the need carefully to describe and define the reference data and their importance in the contractual requirements?

Keith Todd: I’m afraid I cannot recall specific discussions around this topic. I would say that, almost certainly – and I would have expected ICL Pathway to have anticipated reference data. As I recall – again, reminded by these document reviews, that there was a dispute or disagreement about who was responsible for reference data. What I understand from the review of the documents, our view was – which seems reasonable – that the Post Office was to provide that reference data of the instruments and de facto standard – yes, the word is reference data – the reference point for transactions going through the system.

It’s not uncommon in my today’s world of trading software, because I’m still working full-time, of having contracts that are traded having a standard definition. So reference data is a common feature, as you are saying, for any major system.

Mr Beer: Given that this bullet point records that reference data is crucial for the proper control of changes to outlet and product data, it would be important for it to be clearly defined in the initial contractual requirements?

Keith Todd: The requirement for reference data, without doubt. The precise definition of the format, probably.

Mr Beer: Can we look a little further on into the piece, please, to March 1998 in relation to this issue. This is FUJ00058170. This is the monthly report for March 1998 and can we look at page 5 of the PDF, please, and the third bullet point on the page. So it’s March 1998, third bullet point:

“The last month has not been an easy one for the work on new release 2 planning and progress. Severe problems with EPOSS testing within Pathway and linking through to reference data within POCL have caused a delay of between three and five weeks to the schedule. A mitigation plan has been drawn up although this has high risk and low confidence and discussions are now in hand with the sponsors to open up the debate on a better plan to get to live trial in January 1999. This area will remain extremely difficult for some time.”

So it appears that EPOSS and linking through to the reference data, as it is described there, was still in March 1998 a live issue.

Keith Todd: It does and your earlier point is totally valid, reference data is fundamental to the operation of this type of system.

Mr Beer: Can we look please at FUJ00058187, please, the monthly progress report for October 1999, and can we look at page 5 in the PDF, please, and can we look at the second half of the page, three bullet points from the bottom. So this is October 1999:

“Too many reference data errors are being distributed to the live estate, which has been causing major problems with reconciliation and cash [flow] production. We are pressing for a full end-to-end review across Horizon as well as Pathway such that solutions can be found and implemented prior to a roll-out restart in January 2000.”

So it seems that in October 1999, a mere three months or so before the planned rollout, reference data were still an issue?

Keith Todd: That’s what it is saying.

Mr Beer: Can you now recall, to your knowledge, why was the issue with reference data still a problem at this time?

Keith Todd: I’m afraid I have no recollection to be able to answer that question.

Mr Beer: Do you, even now, remember that it was a problem up until –

Keith Todd: I do –

Mr Beer: – very shortly before the contract rollout?

Keith Todd: I do recall that reference data was a problem. I have to say that, in my today life, reference data whilst working for core systems, is often a problem even after Go Live because reference data changes and if processes to manage those change are not – don’t happen in a timely way, then problems can occur within the system – any system, to be able to function properly. What I don’t know, in terms of the timing of this, is whether we’re talking about changes to reference data, new sources of reference data, or anything more fundamental and –

Mr Beer: We will be picking those issues up with later witnesses.

Keith Todd: Yes, I’m – yes.

Mr Beer: Just rolling back a little bit and looking at a separate issue, I think you believed – is this right – that if the DSS withdrew from the contract, the tripartite contract that had been signed, there was a real and immediate risk to ICL’s planned floatation?

Keith Todd: If we had ended in a legal dispute with the DSS, that would have had an impact on our credibility and floatation, so in one sense that is the case.

In terms of the Pathway business, in the context of the whole of ICL – as I mentioned before, a £3 billion revenue – you know, it – the float wasn’t solely dependent on Pathway, anything but that.

What I would add-on the related topic is that Pathway taking a substantial provision loss – 180 million as well reported – did at least draw a line under the difficulties of the past at that time and at the time we signed the new agreement which was, as we were saying earlier, July 1999, the potential of the ICL float still existed.

Mr Beer: The suggestion I was making to you was that you believed that if the DSS withdrew from the contract, never mind litigation, there was a risk to – a real and immediate risk in your mind to ICL’s planned floatation; isn’t that right?

Keith Todd: The way they withdrew the settlement agreement, it was not, was my answer. They do not have, just as I believe I put in my statement – it wasn’t viable for ICL or ICL Pathway to withdraw unilaterally. Parties can’t unilaterally withdraw from contracts, so it would have almost certainly have led to some form of litigation, which would have damaged floatation.

I repeat what I have been saying several times today, that our focal point, encouraged by our colleagues in Fujitsu, fully supported by me, was to focus on trying to make this project a success, to deliver the programme and the potential for the Post Office as well as the DSS.

Mr Beer: Presumably there would be a risk to floatation because of potentially the loss of hundreds of millions of pounds of future revenue for ICL from the benefits payment card side of the agreement?

Keith Todd: The – the settlement that occurred cleared that issue up, in that the future potential of this contract for ICL Pathway and therefore ICL was understood after renewal was not dependent on PFI. So it was dealt with as part of the settlement agreement and, as I said a moment ago, as of 1999 the potential of the ICL float still continued.

Mr Beer: Can we look at some documents in relation to this issue please and start with DWP00000174. This is a letter – if we just look at the next page, please – from you.

Keith Todd: Yes.

Mr Beer: Your signature has been redacted though. In fact, it was PPed, so somebody else’s signature has been redacted?

Keith Todd: That’s fine.

Mr Beer: Then go back to the first page please and see that it is a letter dated 27 July to –

Keith Todd: 1998.

Mr Beer: Yes, 1998, to Frank Field MP, who was a minister of state in DSS at the time?

Keith Todd: Yes.

Mr Beer: If we just read through, you say:

“I am glad that you have had an opportunity to see the ICL Pathway system and that we have been able to discuss the importance I place personally on delivering this system on behalf of the Benefits Agency and POCL.”

Were you there, in that sentence or part of the paragraph, emphasising how this project was tied to you as an individual rather than you writing simply as the figurehead of the company?

Keith Todd: I have no idea where the word “I” was used.

Mr Beer: Well “I personally”?

Keith Todd: “I personally”, yes.

Mr Beer: What were you trying to convey?

Keith Todd: I don’t recall. Maybe, yes, my commitment to the project, that was it. I was clearly writing on behalf of the company, it was on company letterhead.

Mr Beer: Yes, plainly you were writing on behalf of the company, but it seemed to suggest perhaps something more than that, that you were tying yourself personally –

Keith Todd: Well –

Mr Beer: – putting your personal position at stake?

Keith Todd: Reputation. Well, as I have said in my statement – and maybe this is where you’re going – I at no time felt I was at personal risk on this project. We had full transparency throughout the group with what was going on. Apart from the board meetings, regular other conversations of which, you know, there obviously are no minutes and the strategy and the approach to the project, the resolution of the problem, the robust position I took were not my, “I”, strategy, it was our strategy.

Mr Beer: You carry on:

“As you have seen for yourself, the system is already eliminating encashment fraud in the 204 post offices in which it is operating and, is capable of being rolled out now to many others.”

Is that right, by – in the light of the documents we have just been be looking at, in the monthly reports – that as of 27 July it was now capable of being rolled out to many other post offices?

Keith Todd: We were working through the issues that had arisen and in conjunction with the parties would, you know, continue to roll out to other post offices.

Mr Beer: Skipping over a paragraph, you say:

“The system is technically sound. The entire project is deliverable within a relatively short timescale (ie within the lifetime of this Parliament) …”

Keith Todd: Certainly my understanding as reflected in that letter at that time was that the issues that existed, that do exist in complex projects, could be addressed, resolved and therefore the programme could be delivered. It was not trying to say there were no issues at this particular time.

Mr Beer: You have seen – we looked a moment ago at the monthly reports before this time, saying that there were still problems with reference data, still problems with the EPOS system. Were you being open here, in saying that the system is technically sound, it could be rolled out to many others and the entire project is deliverable within a relatively short timescale?

Keith Todd: It was my understanding at the time and my recollection of the situation that all the problems that had been identified were resolvable problems.

In any complex system – and I suggest anywhere and we all see this every day, I think even today on – excuse me – on WhatsApp, WhatsApp was down for a while – issues occur, they get resolved and we move forward. So I was making a statement, in the context of the architecture and the approach to the overall programme, as opposed to that particular moment on the programme.

I have clearly been around technology for my entire career. I am not a deep technologist but I understand a lot about technologies and managing projects and the team that we had around this I felt, and frankly still feel, were more than competent to be able to give me the relevant advice, both within the Pathway team, as well as the ICL team, not to mention the broader Fujitsu team that, at times, were brought in to provide assistance.

Mr Beer: You continued:

“The best way forward is to roll out the infrastructure as quickly as possible and to issue the payment card to all legitimate claimants. Failure to do so will significantly damage ICL and its floatation, and the project’s sponsors – the only ones to benefit will be the fraudsters.”

So here you were tying the need to roll out the project quickly with, otherwise, the significant damage to ICL’s floatation, weren’t you?

Keith Todd: I think you’re – you’re taking the words in a specific context. I don’t recall writing those words, or – I did sign the letter, I’m certainly not suggesting I didn’t sign the letter, I don’t recall those particular words, how that phraseology. I think the big point was – we talked about earlier on – that if we did not move forward constructively together with DSS and Post Office, and find a solution to the way forward, then that would impact ICL’s floatation.

It was, at no time – the float was, at no time, an impact in terms of the resource allocation we made to this project and our extreme lengths we went to to try and bring – what our opinion was – sanity to this project from a – an environment, government environment, which was very challenging to corral and get decisions in. And so – to go back to your question: at no time did floatation have any direct impact on this project.

Mr Beer: Can we look please at BEIS0000278, thank you. This is quite hard to read. You have been referred –

Keith Todd: Oh, yes, yes.

Mr Beer: – by the Inquiry, a couple of months ago, to this record of a telephone conversation made –

Keith Todd: To David Wright, the ambassador.

Mr Beer: Yes, the British ambassador to Japan and this is, I think, either an email or a cable from the British Embassy dated 26 January 1999. We can see that at the top.

Keith Todd: Yes.

Mr Beer: If we just read it through together we can see the subject “Project Horizon: ICL/Fujitsu views”, and then the summary:

“ICL chief executive calls [that’s you] after discussions with Fujitsu. Describes latter’s [that’s Fujitsu’s] dismay, risk to ICL’s floatation and of Fujitsu’s disengagement from ICL if project Horizon fails. I believe the last risk is real.”

Then if we move on, please, to paragraph 2 under “Detail”:

“At his request, Keith Todd, chief executive of ICL, called on me on Saturday 23 January … after talks with the Fujitsu President. He expressed Fujitsu’s quote complete disbelief and lack of understanding at [her Majesty’s Government’s] decision-making process unquote. Fujitsu could not comprehend how [her Majesty’s Government] could contemplate quote destroying ICL unquote. If the project failed, the floatation of ICL would be undermined and Fujitsu would reconsider all its options on ICL. This might, according to Todd, include sale.

“Todd [that’s you] pointed out that the ICL purchase and the injections of capital into it by Fujitsu had very much been the baby of Yamamoto (the previous Fujitsu chairman) and Naruto (presently vice chairman and chairman of ICL). The new Fujitsu president, Akikusa, and chairman Sekizawa, were adopted parents and their commitment to the continuation of ICL could not be taken for granted.”

The comment by the ambassador:

“My own knowledge and experience of Sekizawa confirm this.

“Todd also thought that, at a time of general Japanese corporate financial weakness (including Fujitsu), ICL had to make itself independently wealthy. The recent results had been good and the future was promising. But the danger to ICL’s future in remaining a subsidiary of Fujitsu was that they might be broken up or sold. He repeated that a failure of project Horizon would undermine floatation and would result in 700-900 job losses.”

He, that’s the ambassador, undertook to pass your message on to those concerned in London. The message that you were conveying there was that, unless the project proceeded, there was a real risk to ICL’s floatation.

Keith Todd: As I said a moment ago, that if the project did not proceed and we had ended up in litigation, then our floatation would have been severely affected.

The other thing that I have said so far and, as you take the elements of your questioning and put them together, I had had to take, and did take, with full knowledge of my colleagues, a robust position to try and cause something to happen. With hindsight I was probably too patient, too long, in my opinion, in relation to this particular topic, but hindsight is wonderful.

What we had to do was to ensure that there was no ambiguity, that the consequences – and I think this was even indicated by one of the Fujitsu representatives, if I recall documents I have seen recently again, that if we could not find an agreed way forward between the parties, there would be a significant impact. Floatation, quite frankly, was a byproduct, would have been a byproduct.

Mr Beer: The floatation is the point that you consistently emphasise to external parties, isn’t it, to Frank Field and to the British ambassador?

Keith Todd: I would maintain that I recall emphasising all aspects of it. I go back again to what I said earlier on. The work that ICL was doing in relation to the new information society, its impact on a whole raft of things, was extremely positive to – yes, to this country and a number of things going on. It was important that we got clarity.

If we could not have got the attention of the key principals in this then this project would have stopped and litigation would have occurred and, as I said a moment ago, in that context, floatation would have been put off.

Floatation in the end was not stopped because of this project. It was stopped, as has been stated publicly, by the fact of the market conditions at the time. It was just before the market crash, I think, in 2001, but also the view of the Fujitsu team was the ICL performance – and I would agree with this – was not sufficient for the float to happen at that time.

Mr Beer: That was the point at which you resigned; is that right?

Keith Todd: I did and I put in my statement one other thing which, in a sense is – well, not in a sense, is absolutely my opinion, but was not previously stated. As happened – and you referred to it earlier – a couple of years later, all of the Fujitsu Group became Fujitsu and not separate businesses, so it was clear to me in July 2000 that an independent float of ICL was not going to happen and it seemed appropriate for me to resign.

Mr Beer: Was that resignation therefore connected to the failed desire to float ICL on the stock market, which was itself caused by the loss of hundreds of millions of pounds of revenue from the loss of the benefits card –

Keith Todd: No.

Mr Beer: – element of Pathway?

Keith Todd: No.

Mr Beer: Was it because of your oversight of the Pathway Project that Fujitsu held you accountable as the CEO?

Keith Todd: No. No.

Mr Beer: I think at the point at which you departed, there was no replacement for you, was there?

Keith Todd: No. Richard Christou acted –

Mr Beer: On a temporary basis?

Keith Todd: – on a temporary basis and then, I believe, subsequently took over.

Mr Beer: Moving the chronology on, I think you were one of the people that attended a meeting with the then Prime Minister, Tony Blair, on 12 April 1999. Can we look at a record of what happened at that meeting, CBO00000059.

Keith Todd: Mr Beer, can I make one additional point, just in relation to your last question?

Mr Beer: Yes.

Keith Todd: Is that okay? I don’t know what exhibit number it is but, going on the point of Mr Sekizawa’s note to me after the settlement, I just want to put on record here that questioning – at the time when we settled the dispute, Sekizawa San sent a personal note, which I got approval from Fujitsu to release, you may have been able to insist upon it, because it set out his view very, very clearly as to my involvement in this project, his view about the government situation, and so anything I can say that people in this room or listening outside of this room can say, you could just sit back and say “Oh, well he would say that, wouldn’t he”. But, you know, I put that forward to you as the chairman of Fujitsu’s view to me, thanking me for my efforts to bring this to a conclusion and accepting the fact that Fujitsu wanted to take the position they did, which was to resolve the matter so we could all move forward.

Mr Beer: As you have raised that and I think, in fairness to you, we should look at it. It is WITN03380121.

WITN0330121. I will try it again, I think it is my error: WITN03880121.

Thank you. Is this the document you were referring to?

Keith Todd: Yes, it is.

Mr Beer: It has disappeared.

Keith Todd: It was.

Mr Beer: Thank you. You can see that it is dated 1 June 1999, addressed to you “For your eyes only”:

“Thank you for your mail dated 28 May 1999. I would also like to take this opportunity to express my sincere appreciation to you personally for finalising the new agreement with the Post Office.”

So just to orientate ourselves, this is after the Benefits Agency had pulled out, the DSS has pulled out and an agreement has been reached with the Post Office for a design and build contract, essentially:

“I am in line with you that I too am fiercely enraged with the UK Government that you had to spend so much of your time, effort and costs in vain, all because of the irresponsibility of their departments, blaming it on each other. Although ICL is not much to blame regarding the failures of the project in the past, the fact is the actual impact on our performance is significant.”

What did you understand that to mean: “the actual impact on our performance is significant”?

Keith Todd: We took a provision for £180 million as a result of this project.

Mr Beer: The “£180 million hit”, I think you describe it as?

Keith Todd: Yes, hit, yes.

Mr Beer: “I am thankful to you for understanding and respecting Fujitsu’s decision. Instead of arguing with the government now, and risking additional time, effort and costs, it will be more beneficial for the Fujitsu Group to tolerantly negotiate with the government, and keep our chance to try [and] recover the past debt with our own efforts.”

On that, did you understand “keep our chance to try to recover the past with our own efforts” to be under the context that you did agree with Post Office Counters Limited?

Keith Todd: Post Office and the wider ICL: let us use our energy on constructive things rather than fighting old battles.

Mr Beer: Well, the reason I ask that is in the next paragraph he says:

“This new agreement will give us this chance.”

Ie he is linking with –

Keith Todd: Yes.

Mr Beer: – the chance to recover the £180 million with the signing of the new agreement. He continues:

“However, we still have as much tasks as we did in order to achieve our project goal. We must learn from our experiences and thus gather all of the strengths within the Fujitsu Group to overwhelm our challenges, and achieve profit for ICL in the total project.

“As a result, this should be an outstanding infrastructure for the UK Government and the Post Office. I look forward to your further success.

“Best regards … Sekizawa”?

Keith Todd: Thank you, and just for completeness and you don’t need to show them unless you want to, but the other two letters from Sir Michael Butler, the chairman of Pathway are part of my evidence, as is Sir David Hancock, who was an advisor, expressing similar views.

Sorry, I took you off your questions.

Mr Beer: Yes, CBO00000059 we were on. Can we go forwards to page 5 of this clip, please. This should be a letter dated 12 April 1999 from the late Jeremy Heywood, then the Prime Minister’s – the then Prime Minister’s then principal private secretary and it is addressed to “Dear Ros”, she was a senior civil servant in Her Majesty’s Treasury:

“The Prime Minister was grateful for the Chief Secretary’s useful minute … the Prime Minister duly met [some people including you] … the Prime Minister opened by thanking [Mr] Naruto for the sensitive way in which Fujitsu had handled the closure of their semi-conductor plant in his constituency.”

It is right, isn’t it, that Fujitsu had a large footprint –

Keith Todd: Yes.

Mr Beer: – in the Prime Minister’s very own constituency?

Keith Todd: Newton Aycliffe?

Mr Beer: “Naruto in turn thanked the Prime Minister for the help that Fujitsu had been given by local agencies in the North East – 479 out of 550 employees had now found new jobs.”

Then this:

“Turning to the Horizon project, Naruto a said that he was very grateful for the work Steve Robson had done in recent weeks. He understood that ICL were now close to agreement with the DSS and [post Office Counters Limited] on a new way forward. ICL were fully committed to supporting the UK Government. He wanted to ask the Prime Minister to give Steve Robson complete authority to bring the current discussions to a successful resolution. On 23 April the Fujitsu Board would meet to decide whether to support the new project. He personally looked forward to securing a positive outcome. But he sincerely wished to get a legally binding agreement before the 23 April meeting. Fujitsu was spending £5 to £10 million a month on the existing project. Nearly £300 million had been invested so far. Sums of this magnitude could not simply be ignored.”

Then your contribution is noted. You added:

“… that more progress had been made in the last 6 weeks than in the previous 9-12 months.”

Was that true, that the parties had made more progress in a six week period than they had in a year?

Keith Todd: My comment was in relation to coming together with a project and commercial agreement that was acceptable. Some of the preliminary work that had happened with I think his name was Adrian Montague, obviously the Corbett piece of work which didn’t get to a conclusion, but Steve Robson, I do recall as being pragmatic – I think I referred to that word – and enabled – as I recall, it was in the Treasury, was able to facilitate the agreement which ended up getting signed.

Mr Beer: So the “more progress in six weeks than in the previous 9-12 months” is a reference to – to what specifically?

Keith Todd: The contract and commercial agreement on a project and a commercial way forward.

Mr Beer: Okay, not the project generally?

Keith Todd: No.

Mr Beer: “The project now in prospect was fully deliverable.”

This, of course, was before the Benefits Agency had pulled out?

Keith Todd: It was just before, yes.

Mr Beer: Yes, we’re here at April 1999.

Keith Todd: Yes.

Mr Beer: It wasn’t until May 1999 that they pulled out. Was that right, that the project was fully deliverable in April 1999?

Keith Todd: I made that statement so yes, it must have been – the answer is yes. The challenges were better understood, in that we had had several weeks and months of being able to brief relevant parties and as we know, the following month, I think it was in May, the proposal came forth on a restructure of the project.

Mr Beer: Can you now recall that you – that the basis on which you came to the assessment that you were confident that the project – despite all the difficulties that had occurred – was fully deliverable? What material were you using to reach that view expressed to the Prime Minister?

Keith Todd: I would have had the information at that time from the – you know, from the project team. What we needed to do was to resolve the commercial issues around the project and we at no time expected what happened in May, which was the Benefits Agency to be withdrawn. That was a surprise to us. We were not also expecting that the contract would change from PFI.

Mr Beer: Can we look please at BEIS0000275. This is, again, slightly difficult to read. It is an internal email from a Katherine Hathaway to six or so recipients at the top. Katherine Hathaway, a civil servant in the Department of Trade and Industry to a series of other civil servants, dated 11 May 1999 and we will see in due course that it refers to a meeting that she had the previous day, so 10 May 1999. If we scroll down please, it says:

“I met with George Hall yesterday …”

Keith Todd: George Hall was the Government affairs advisor to me and the company. He worked full-time for us.

Mr Beer: Was he an ICL director?

Keith Todd: Not a director, no.

Mr Beer: But he was an ICL employee?

Keith Todd: Employee, yes, yes.

Mr Beer: “I met with George Hall yesterday to discuss a number of things including our forthcoming awayday, the Information Age Partnership meeting and a more general update on all things ICL.


“We spent the first 30 minutes discussing Horizon during which George confirmed that he knew that Ministers were split between cancelling the project and option B1 (version 2) – he also knew exactly where that split lay, ie [her Majesty’s Treasury/DSS] on the one hand versus the others. When asked how the deadline of 23 April had been extended he admitted it was only because ICL were fudging their financial reporting with potentially disastrous results as far as the directors were concerned.

“He confirmed that Keith Todd will lose his job should Horizon go down and that Fujitsu will divest themselves of ICL which will be broken up and the Services side will probably go to Siemens along with some other Fujitsu interests on the hardware side. Siemens are known to be interested in acquiring a services business and are already in discussion with Fujitsu.”

Presumably Mr Hall would be authorised by you to have meetings like this to try and influence and persuade the Government?

Keith Todd: I would – he was a senior representative that I relied on a lot, until I saw this document and was horrified by the language which he – was used. I had not seen that. He was not authorised to say we were fudging the accounts because we never have, never will, never would. As I said in my statement, the only thing I think he could have been misinterpreting is some reference to the discussion about changing the accounting date, but that’s not fudging the accounts. There was never a question of fudging the accounts. I take exception to that, so I do not – obviously this is a minute that she has written. I have not been allowed to speak to George about it and haven’t spoken to him, appropriately, but I find it ridiculous, the statement. And bold language “Keith is going to lose his job”, well, you saw a note back from Sekizawa. At no time did I have any concerns about my role, my job, but we have discussed that earlier.

Mr Beer: So assuming Ms Hathaway, the civil servant, is able to take an accurate note of what happened, you wouldn’t know –

Keith Todd: I’m not –

Mr Beer: – why Mr Hall was saying to government –

Keith Todd: No.

Mr Beer: – that there had been any fudging of ICL’s financial reporting?

Keith Todd: No, and I’m – I have no idea whether this – did it say whether it was a phone call or a casual conversation.

Mr Beer: No met, “I met with George Hall yesterday”.

Keith Todd: Yes, so I –

Mr Beer: And he spent the first 30 minutes discussing Horizon.

Keith Todd: He certainly had no authority to use language he used as minuted here because it’s inaccurate, in my opinion.

Mr Beer: If you can help us, “ICL were fudging their financial reporting with potentially disastrous results, as far as the directors were concerned”, that sentence. If ICL were fudging their accounts, and I know you said they weren’t –

Keith Todd: Categorically not.

Mr Beer: – what would the disastrous results for the directors be?

Keith Todd: Well, it just wouldn’t happen.

Mr Beer: But the sentence here what would be the link?

Keith Todd: With respect, you need to ask Mr Hall what he was talking about. I do not know. I have not been allowed to speak to him to say “What were you talking about?” It’s –

Mr Beer: He is reported to have said –

Keith Todd: My apologies, it’s just – yes.

Mr Beer: – you would lose your job if Horizon went down and Fujitsu would divest itself of ICL. Now, the latter part of that, looking at the documents we have seen already, is an accurate statement, there was a risk of that happening?

Keith Todd: Well, it had to be acknowledged as a risk. I remind you in the context of all these individual elements of it, that we were taking on a number of significant institutions in this country to try and get some considered, rational mediation to an answer and we had had several months to years of little progress, so we were taking a robust position, as I have mentioned several times today and, undoubtedly, Mr Hall would have been taking a similar briefing but, at no time – and there was no substance to those statements that are written down here.

Mr Beer: You have said, Mr Todd, a number of times that “we took a robust position” and Mr Hall may have received such a briefing. Is that code for saying “the position may have been overstated as part of the negotiating process”, ie the consequences to Fujitsu and for you may have been overstated or overdramatised in order to make a point?

Keith Todd: I think all aspects needed to be laid out in terms of the potential consequence. It was part of a transparent, measured communication to all the parties and, whilst the outcome resulted in a multi-million loss for ICL on my watch, under my stewardship, settling the matter to be able to move on was the right decision and I have no disagreement with the action we took with my colleagues in ICL and Fujitsu to settle and move on.

Mr Beer: You have mentioned approaching this in a measured and balanced way. Can we look at HMT00000013, please. This is a minute dated 13 May 1999, again circulating within government, so this is not something that you would have seen at the time. So just putting it in context, Mr Hall met, two days before this, with Katherine Hathaway on 10 May. Her minute was dated 11 May and we’re now on to 13 May, and this is:

“A brief record of our three meetings with ICL in the last 24 hours – yesterday morning and evening, and this evening. ICL were represented by Keith Todd, Richard Christou and (for the first meeting) George Hall.”

Then just scroll down, please. It is recorded:

“2. By the time of the second meeting, ICL (Todd in particular) were clearly quite worked up. We therefore allowed them to do most of the talking.

“3. The key points to record are as follows:

“The President and Deputy Chairman of Fujitsu are coming to London tomorrow to discuss the project with ICL. The provision they will need to make for the sunk costs of the [Benefit Payment Card] will shift Fujitsu into the red for 1998;

“ICL’s view is that Fujitsu would not respond to this provision in a rational way. The response is likely to be cut their losses and sue, rather than pursue what has the potential for being an attractive deal under [that’s option B3].”

Then over the page please:

“Fujitsu have asked to see the [Prime Minister] tomorrow whatever the situation – whether we are close to a deal or not;

“Todd and Christou said that the only way to avoid the provision in the accounts would be for the Government to sign a legally binding agreement …”

Then moving on to the next bullet point:

“a clear condition from ICL is that the public sector pick up the full sunk costs incurred by ICL – ie as if we were terminating for convenience.”

So you delivered the message in that paragraph 3, I think; is that right?

Keith Todd: Sorry, which paragraph?

Mr Beer: Just go back, so “The key points to record are as follows”, that’s what you were saying?

Keith Todd: Sorry, that suite of things.

Mr Beer: Yes, the suite of things under the sub-bullet points. You say that – or you said that provision will need to be made for the sunk costs of the benefit payment card and that will shift Fujitsu into the red for 1998. Is that right: it would move Fujitsu itself into the red?

Keith Todd: Yes, I wouldn’t have recalled that without seeing the document but I assume that is correct.

Mr Beer: So serious not just for ICL Pathway but for Fujitsu itself?

Keith Todd: No, there were other challenges in the world and the technology world at the time. Fujitsu historically had made several billion dollars a year, so, you know, it would have just been for that particular year.

Mr Beer: Over the page, please, the passage under the second bullet point, which says:

“Todd and Christou said that the only way to avoid the provision in the accounts would be for the Government to sign a legally binding agreement …”

Do you think that’s the reference back to what Mr Hall may have been referring to about fudging the accounts, ie provision had yet been made in the accounts for the loss?

Keith Todd: No, no, and I don’t – I’m not going to – assume the minutes are accurate, I have to assume the minutes are accurate because I do not recall that particular request. But seeing it in the document the other day, it seems completely unreasonable to have something signed – I mean, it wasn’t ever going to happen so I don’t quite understand how it was that way. There was one other document that I saw that didn’t – well, anyway, let me not open that up.

Mr Beer: Can we turn to BEIS0000317, please. This is part of a briefing note to the Secretary of State. It is dated 3 June 1999 and it is in readiness for a meeting with the President of Fujitsu and the vice chairman of Fujitsu and chairman of ICL that was going to take place on 13 June 1999. Can we look at the second page, please. Paragraph 1 records the meeting that we have just looked at:

“At that meeting, Mr Sekizawa stressed that unless an unconditional agreement could be signed by 17 May, Fujitsu would have to accept a £306 million provision in their consolidated group accounts.”

Then reading on three sentences, or three lines from the end of paragraph 2:

“The damage to ICL and the prospects of its floatation next year would be substantial. You [that’s the Secretary of State] undertook that the Government would convey its decision to Fujitsu within that timescale.”

Then paragraph 4:

“In the tense negotiations over the following days we know that it was your letter to Keith Todd of 21 May …”

That’s the Secretary of State’s letter to you:

“… confirming the Government’s wish to proceed with the project, and later the personal appeal to Mr Naruto by the Deputy Ambassador on your behalf that persuaded Fujitsu not to abandon the negotiations.”

Again, we see the link between the damage to ICL by the loss of the project, and damage to its floatation made in that second paragraph – is that right – as a point being made to government?

Keith Todd: That is what it said.

Mr Beer: We have seen a number of times now a link drawn here between the successful progression of the deal and the floatation of the company, you agree?

Keith Todd: There have been several references to it and several other aspects, but there have been several references to the float, I agree.

Mr Beer: In your witness statement, if we turn that up, please, at page 52, so that’s WITN03880100, page 52, and paragraph 154, you say, six or seven lines from the bottom:

“Although I noted in my call to the UK Ambassador to Japan that the failure of Horizon may ‘undermine’ the floatation of ICL, ICL had many successful projects already and the status of the Pathway project was not a deciding factor in whether or not to float the company.”

Is that correct?

Keith Todd: In my view, that is correct. We have not mentioned in this conversation today we had struck, during this period we are talking about a strategic deal with Microsoft that was expanding this business. We had made a number of investments into the new emerging internet world that were proving to be very positive and successful. The world was transforming from the old technology world to the new. I had taken ICL to become a services company, now Fujitsu Services, all of which were, you know, significant attributes of a business with recurring revenue that would be capable of being floated.

Clearly, if we had had a legal dispute, as I said earlier, with the government on a major project, that would have very directly impacted the float and could potentially have killed it, but the fact that we resolved the problem in the May-July 1999 period meant that, as we went into 2000, subject to the earlier point of market conditions and our other performance, the float was still on and you will find that in other documents, in terms of public discussions and even internal discussions, so –

Mr Beer: If it’s right that ICL had many other successful projects and the status of the project, Pathway, was not a critical factor in deciding whether or not to float the company, why do we see it mentioned five times in all of the documents that I have mentioned, seemingly as a lever to persuade government to take some action?

Keith Todd: I think the central levers were the importance of getting the Post Office infrastructure modernised before the Benefits Agency withdrew the works to improve fraud prevention in DSS. Float was one factor. You have drawn significant attention to it. In my opinion, it was – it was a factor in our life and there are always two variables: 1, when; and the other one is if the float would take place.

It was my opinion that, once we had settled, in July 1999, that we, with strong performance through 2020 (sic) – float was still achievable at a significant valuation above that which Fujitsu had invested.

Mr Beer: Turning to the relationship between ICL and Post Office after July 1999, you rely in your statement very significantly on the nature of the PFI contract that was initially struck to explain the difficulties between POCL and BA, on the one hand, and ICL, on the other, and the impact that those relationships had on the successful delivery of the project before July 1999.

After the Benefits Agency withdrew, this contract was a more familiar contract for build and the provision of services; is that right?

Keith Todd: That’s correct.

Mr Beer: With the purchase of services by POCL from ICL as the contractor for the payment of money?

Keith Todd: That’s correct. And – yes, that’s correct.

Mr Beer: There was no PFI arrangement after May 1999 and so the PFI arrangement that previously existed, would you agree, could provide no rational for – or explanation for anything which arose in either the direct contractual relationship between ICL and POCL, or what happened thereafter?

Keith Todd: There was a period of decommissioning with the DSS that I recall happening, but no major impact.

Mr Beer: Can I turn to the importance and significance of Acceptance. It is fair to say, in summary, that in your statement you place a lot of stall by Acceptance, with a capital A, correct?

Keith Todd: Yes, there was a clear Acceptance procedure that had been agreed between the parties.

Mr Beer: In summary, you say that because POCL must have been satisfied with the functionality – or POCL must have been satisfied with the functionality and reliability of Horizon because there were detailed provisions agreed between the parties as to what constituted Acceptance and what did not, and POCL decided to proceed with the rollout of the contract?

Keith Todd: That’s correct, there was a period of delay for reviewing the documents between, I think, August and September 19 – yes, 1999, in which a number of issues were being addressed, but the point – I think I make it in my statement – is the final decision to roll out rested with POCL.

Mr Beer: So, essentially, you’re saying we’ve got the detailed provisions as to Acceptance by the customer, they did decide to roll out. In the light of the detailed provisions as to Acceptance and the decision to roll out, a decision that rested with them, they must have been satisfied with the functionality and reliability of the system?

Keith Todd: They accepted the system with the view to national rollout.

Mr Beer: Under the post PFI arrangement, payments received by ICL were contingent upon Acceptance, weren’t they?

Keith Todd: There was one payment that was tied to Acceptance, as I recall.

Mr Beer: £68 million?

Keith Todd: Yes.

Mr Beer: So there was a financial incentive on ICL to ensure that the client accepted, through the Acceptance process, the rollout of Horizon?

Keith Todd: There was a payment due that was not in our control that was dependent on POCL, Post Office Counters Limited, accepting the project, but they had the sole right, as I recall, to decide. It’s not uncommon to have, if there’s long delay, a de facto Acceptance but I don’t recall that being in this case.

Mr Beer: Can we look, please, at POL00039912. You will see that these are notes, draft notes “From a meeting to discuss Acceptance” in December 1998 and those present from ICL are Mr Coombs and Mr Dicks, names that you will be familiar with?

Keith Todd: Yes.

Mr Beer: In paragraph 1, it is recorded under the heading “Acceptance Procedures” that:

“Mr Coombs confirmed that ICL were asking for Acceptance (in terms of both cessation of termination rights related to Acceptance and start of income guarantees) after the final runs of end-to-end and model office and before live trial of NR2 child benefit.”

Can you see that?

Keith Todd: Yes, I can, but this – can we just go back to the date.

Mr Beer: Yes, 1999 – December 1998, rather?

Keith Todd: 1998, so this is before the resale of the contract?

Mr Beer: Yes.

Keith Todd: So we’re all –

Mr Beer: Yes, we understand where we are.

Keith Todd: Yes.

Mr Beer: Would you agree that what is being recorded there, at this time, is a request by ICL to accept the system without any live trials?

Keith Todd: I don’t recall that. I have seen references to that but, as I recall it, Acceptance principles for national rollout were reset as part of the contract reset in July 1999.

Mr Beer: Sorry, can you say that again, please.

Keith Todd: So I’m saying that the Acceptance criteria that were in existence when national rollout was decided, I believe were set in the July 1999 contract reset.

Mr Beer: Yes.

Keith Todd: Not in 1998.

Mr Beer: You’re correct. In terms of the Acceptance process, can you recall discussions in the board about decisions to lower the bar on what constituted Acceptance in a second and then third supplemental agreement?

Keith Todd: I have no recollection of those discussions at the time. The project team, supported by Mr Christou, as I recall it, did the – and I think Mr Oppenheim was also key to the reset of the contract, day-to-day. I’m not distancing myself from that, I’m just saying that in terms of – my detailed knowledge of every conversation is limited because I was only involved in a few of those conversations and obviously involved with the final sign off of that. So your question was, “was I aware of any” –

Mr Beer: “Lowering of the bar”, as I put it.

Keith Todd: I don’t recall any conversations about that.

Mr Beer: If you don’t I won’t ask you detailed questions then about the second and third supplemental agreements.

Can we just then look, please, at the knowledge within Post Office Counters Limited about some of the things that they did or didn’t know at the time of the acceptance decision. Can we look at FUJ00080690. This is a review of the EPOSS PinICL task force. Ignore the date in the top right-hand side, 14 May 2001. That’s, I think, an artifact of either printing or some other process that’s been applied to this document because one can see from the abstract that the document reports:

“… on the activities of the EPOSS PinICL task force which was in place between 19 August and 18 September 1998 to reduce to manageable levels the EPOSS PinICLs outstanding at that time.”

You can see the distribution list includes Terry Austin. Do you remember what his role was at that time, so August/September 1998?

Keith Todd: I don’t specifically. Either operations or maybe QA.

Mr Beer: And Mr Bennett, Mark Bennett, at that time?

Keith Todd: No.

Mr Beer: And D McDonnell – I think that is David McDonnell, Dave McDonnell?

Keith Todd: No.

Mr Beer: You don’t remember his role in September 1998?

Keith Todd: No, you would need to, as you are going to, talk to Mr Bennett, not – John Bennett.

Mr Beer: We can see the authors of it. Do you recognise the name that’s Jan Holmes and the D McDonnell is David McDonnell?

Keith Todd: I don’t recall, no and I don’t recall seeing this specific report –

Mr Beer: At the time?

Keith Todd: At the time.

Mr Beer: No, I haven’t got any material that suggests that it was passed to you.

Can we look please at page 7 of this document please at the heading “EPOSS code” and the authors point out:

“It is clear that senior members of the Task Force are extremely concerned about the quality of code in the EPOSS product. Earlier this year the EPOSS code was reengineered by Escher and the expectation is that the work carried out in Boston was to a high standard and of good quality. Since then many hundreds of PinICL fixes have been applied to the code and the fear is that code decay will, assuming it hasn’t already, cause the product to become unstable. This presents a situation where there is no guarantee that a PinICL fix or additional functionality can be made without adversely [affecting] another part of the system.

“However, a more worrying concern from the Programme’s perspective should be the reliance on the EPOSS product in its current state as a basis for planning and delivery.”

Then secondly, at page 17 of the PDF please, at paragraph 7.3 at the bottom:

“Although parts of the EPOSS code are well written, significant sections are a combination of poor technical design, bad programming and ill-thought out bug fixes. The negative impact of these factors will continue and spread as long as the PinICL fixing culture continues. This is partly due to the nature/size of the bug-fixing task and partly due to the quality and professionalism of certain individuals within the team.”

And then he gives some code examples – they give some code examples.

Was information of this type, of raising serious concerns with the EPOSS code, drawn to the board’s attention so far as you are aware?

Keith Todd: I don’t have any recollection of what you just covered.

Mr Beer: Would you expect, under the revised arrangements for a design and build contract, for this kind of information to be revealed to the client?

Keith Todd: In the contents we have just discussed, I apologise but I don’t have all the individuals calibrated. I would have expected that the team would have taken a view as to what was being resolved, what was fixed, yes, by the time that we signed the new contract. But you may get more insight from my colleagues.

Mr Beer: Would you, looking at this information here, expect it to be revealed to the client?

Keith Todd: I would want to do a thorough review of it, what its saying, what remedial actions were taken and then assess the consequences of it. It clearly needs – you know, it would need to be fixed.

Mr Beer: So it would need to be fixed not necessarily revealed to the client?

Keith Todd: If there was any risk to the programme delivery, it should be revealed to the client.

Mr Beer: You mean the timing of the programme delivery, or do you mean the quality of what was delivered, the reliability and integrity of what was delivered?

Keith Todd: I think if there was any doubts on the reliability and integrity of what was being delivered, it should be declared to the customer. I was just reflecting on the fact when code is written, even with good developers, it’s not uncommon to find, through peer review or unit testing or systems testing, issues which then get fixed. The customer doesn’t – I think it’s a poor use of the customer’s time when those sort of processes are occurring but, if there was any question on the integrity of the system, then it should be declared.

Mr Beer: And, in your position, I don’t think you will know one way or the other whether this information was revealed to Post Office Counters Limited?

Keith Todd: As I said, I have no knowledge of this.

Mr Beer: Thank you. In the time allowed, they are the only questions that I would ask, save for this: are there any reflections or broader statements that you would wish to make in the light of what we now know as to the consequences of the system that was designed and delivered under your watch?

Keith Todd: Quite clearly and in my statement – and we have talked about it today – signing a contract with two customers. As I reflect on the whole question, even over this last weekend, with the intense battle that went on to try and get some common sense, in my opinion – you know, hindsight is wonderful but maybe it would be better had we not bid for the contract.

Do I think that ICL Pathway, ICL Group, Fujitsu have the skills – had the skills to implement this project? Absolutely. Was it a complex project? Yes, it was. The nature of these Inquiries are always focused on the – and appropriately focused on the things that went wrong. What I have no understanding of is what actually, other than as a user of the Post Office, where many more services are provided, I have always liked to think that some of those came from this project.

I mean, the overriding thing, and I think we referred to this earlier on, there can be no comfort but absolute complete sympathy with the victims of the events that have actually occurred over the last 22 years.

Mr Beer: Thank you, Mr Todd. As I say, they are the questions that I ask for the moment.

Sir, could we take the afternoon break before you may hear questions from Mr Stein, Mr Henry and possibly Ms Patrick?

Sir, we can’t hear you, you are on mute?

Sir Wyn Williams: Certainly we will take our break. What’s the time now?

Mr Beer: 3.30.

Sir Wyn Williams: It is 3.30.

Mr Beer: It is half past in England, sir.

Sir Wyn Williams: Have we got any idea how long any further questioning is to be? I say that because I want to say now that I would be reluctant to expect Mr Todd either to go much beyond 4.30 or to return tomorrow, so that people need to understand that their questioning needs to be fitted in to the remaining period this afternoon I think.

Mr Beer: Sir, I think that’s understood and I see both Mr Henry and Mr Stein nodding. I’d calibrated the questions I had asked accordingly to allow a reasonable time before 4.30 for such questions to be asked.

Sir Wyn Williams: That’s fine. All right then. I will see you again then at 3.45, if that’s sufficient time for the others.

Mr Beer: Thank you very much, sir.

(3.30 pm)

(Short Break)

(3.46 pm)

Questioned by Mr Stein

Mr Stein: Sir, can you hear and see me?

Sir Wyn Williams: I can hear you and no doubt now I can see you as well.

Mr Stein: I’m very grateful.

Mr Todd, good afternoon. My name is Sam Stein. I represent a number of subpostmasters, subpostmistresses and managers before this Inquiry.

I would like to ask you a question or some questions about the Fujitsu and Post Office contract and I’m going to take you directly to a document which is at FUJ00000087 and you will see there this is a particular page of the contract and the relevant part that I’m going to take you to now is under paragraph 4.1.6 and you will see there it says “Prosecution support”.

Now, just to familiarise yourself with this, I’m going to read it out. So this is part of the contract between Fujitsu and the Post Office, “Prosecution support”:

“Fujitsu services shall ensure that all relevant information produced by the Horizon Service Infrastructure at the request of Post Office shall be evidentially admissible (and, where relevant, capable of certification) in accordance with the requirements of the law in relation to criminal proceedings.”

Then the second part at 4.1.6 says this:

“At the direction of Post Office, audit trail and other information necessary to support live investigations and prosecutions shall be retained for the duration of the investigation and prosecution irrespective of the normal retention period of that information.”

So the first part, at 4.1.6, is about the provision of information to the Post Office in relation to criminal proceedings.

Can you help us, Mr Todd, understand what was Fujitsu’s understanding of the requirements of the law in relation to criminal proceedings?

Keith Todd: I’m afraid I’m not going to be able to assist. I don’t have a specific recall of this clause. The fact that the words here are talking about Fujitsu Services suggests that it is in a document that was post ICL Pathway – my time at ICL Pathway. But, putting that on one side, my observation on it is that it is – if it’s part of the contractual document, it would and should be complied with by the service provider.

Mr Stein: Can you recall whether there was any guidance or advice given to Fujitsu Pathway from an experienced criminal lawyer, as to what this meant by way of requirement?

Keith Todd: I have no recollection of that.

Mr Stein: Right. Who out of the team of people involved with this contract preparation and then operation of Horizon would have been in charge of this aspect of the Horizon systems services?

Keith Todd: Our – at the time I was involved, between the proposal stage and 2000 – July 2000, the legal head and commercial head was Richard Christou. I recall but I’m not sure I could name – I think there was some legal advice taken in relation to the contract originally, but we had an internal legal team as well, as using external counsel.

Mr Stein: Are you talking about the contract itself and advice in relation to contract law, or are you talking about this particular aspect of the contract which targets criminal prosecutions and the potential for Horizon Systems to give information –

Keith Todd: I have no recollection –

Mr Stein: Let me finish, would you, please?

Keith Todd: Sorry.

Mr Stein: And the potential for information to be given to the Post Office regarding criminal investigations. So which is it: contract law or advice in relation to criminal law?

Keith Todd: I don’t have any recollection of a conversation with any of my colleagues about, specifically, the criminal law aspects.

Mr Stein: Right, so Richard Christou was in charge of what aspect of things, that’s legal?

Keith Todd: Legal.

Mr Stein: So generally legal?

Keith Todd: All aspects of contract and where any expertise was not available, I would expect to – I would have expected to get external advice on any specialist area.

Mr Stein: Now, the operators of the Horizon System, do you recall whether they were ever informed of the relevant – this particular relevant section regarding prosecution support and what they needed to do to make sure that the Post Office was provided with information about the Horizon System?

Keith Todd: I have no specific recollection of a conversation about this particular clause, whether it was in the original contract or this one. As I said, this refers to Fujitsu Services and it would not have done in the original contract, but –

Mr Stein: The second part, if you can help us at all with this:

“At the direction of Post Office, audit trail and other information necessary to support live investigations/prosecutions shall be retained for the duration of the investigation and prosecution irrespective of the normal retention period of that information.”

Can you help with what was done to make sure that information was saved for the purposes of possible prosecutions/investigations?

Keith Todd: The system, as I recall, had audit trail and resilience built in to ensure that the data was retained. I have no specific recollection of any direct conversation with the ICL Pathway team about the retention period that you are referring to.

Mr Stein: Do you understand that, overall, these two paragraphs relate to the use of data from the Horizon System being put into the possible investigation of subpostmasters and whether or not they committed any offences? Do you understand that that’s what this is about?

Keith Todd: I do with your assistance, yes, and seeing this clause.

Mr Stein: Do you understand that, if this isn’t complied with and if the information isn’t being passed into the investigations properly about bugs, errors, difficulties with the systems, that innocent people could go to prison?

Keith Todd: Well, that clearly shouldn’t happen.

Mr Stein: No, we all agree it shouldn’t happen. It did happen, Mr Todd.

Keith Todd: Yes.

Mr Stein: Do you understand now the importance of this paragraph?

Keith Todd: I understood it when you first raised the importance of the paragraph. What I was addressing was your question about whether I knew how this was being addressed and I –

Mr Stein: Was it understood – going back, you mentioned a number of times things happened a long time ago. Was it understood how important this section was in the contract at the time the contracts were signed?

Keith Todd: I have to just repeat, I don’t recall any specific conversation about this particular clause and any deviation from what we would do in our other environments where we are dealing with – whether it’s retail systems or banking systems.

Mr Stein: Okay. Two last questions. From your particular level within the organisation, what do you recall being put in place to monitor the operation of this system?

Keith Todd: There was, within Pathway, monitoring of the services that were being delivered. I do not recall, if you’re referring back to this particular aspect, any particular application or service which was defined to ensure this was complied with.

Mr Stein: Lastly, we know that the Benefits Agency withdrew from the original tripartite contract, yes? We know that the Benefits Agency had a real interest in ensuring that their systems were not misused by way of fraud, you agree?

Keith Todd: Mm-hm.

Mr Stein: Can you just help us in relation to this particular part of the contract: was this particular part of the contract a hangover from the time of the Benefits Agency and their involvement? In other words, was this adapted from an original discussion in relation to the fraud requirements of the Benefits Agency or not?

Keith Todd: I have no knowledge, I’m afraid.

Mr Stein: Thank you very much.

Keith Todd: Thank you.

Questioned by Mr Henry

Mr Henry: Mr Todd, my name is Henry. A few questions. Could we please go up to FUJ00077834, please. This is your chief exec’s report in May 1997. Now, we know that the Labour landslide was on 2 May 1997 and this is dated 7 May and, by that time, you had already had a meeting with the Minister of state for Social Security.

Keith Todd: Yes.

Mr Henry: I suppose you don’t become a chief executive of a major company without being able to – well, without being able to cultivate power, would you agree?

Keith Todd: You have to engage with all stakeholders, political as well as business partners.

Mr Henry: Absolutely. Was this a sort of mending fences, building bridges and, therefore, getting new opportunities meeting?

Keith Todd: I recall having a progressive programme through both political regimes. I recall – nothing to do with this particular project – spending a Saturday with John Major and some of his colleagues around the future of the internet, so we had an extensive programme, as most of the technology providers in the UK did, to keep engaged with current government representatives, both on the Civil Service side as well as the political side.

Mr Henry: Thanks. I mean, the tone of the chief exec’s report is pretty positive. For example, “The opportunity” – political – paragraph 2:

“The opportunity to accelerate our reengineering proposition for DSS is improved.”

You also mention other opportunities, for example with the Department of Education, correct?

Keith Todd: Yes. If I may just take a brief moment for you. I referred to it earlier on. The transformation that was occurring in the 1990s, albeit we are talking 25 years ago, with the advent of new technologies was requiring organisations, both business as well as government and public sector, to look at their business processes and that there was a significant opportunity for businesses like ICL and our competitors.

Mr Henry: Thank you. Could we go to page 5, please, and I’m going to touch on this very briefly because Mr Beer has already taken you to this paragraph, 7.5. This is talking about delay and we notice, of course, paragraph 1, software bugs:

“We have advised the customer [second paragraph] that there could be a six week delay in the next release. The customer is appreciative of the open approach. Actions are in place to mitigate the consequence of delay, ie national rollout starting in January 1998 rather than November 1997.”

Do you think that the customer would have been quite so sanguine if they could foresee a delay to 1999/2000?

Keith Todd: No. Quite clearly, with the events that unfolded, those timetables were wrong.

Mr Henry: Did you have a policy under your watch of complete – and I’m not making any loaded comment against you – but of complete candour in your subordinates so that you were going to be given, as it were, a completely accurate picture?

Keith Todd: Well, I believe so. I’m – as many can attest, a very open person. I do not shoot messengers. I embrace messengers and deal with issues. Bad things happen in life, bad things happen in business, they need to be dealt with. I have not strayed from that principle from my days running 20,000 people to my days, these days, running, you know, 300 people. So I believe that they would tell me in appropriate candour.

Mr Henry: Because, obviously, that wasn’t an accurate prospectus. I’m not suggesting you were being dishonest but that wasn’t an accurate prospectus, was it?

Keith Todd: Well, the complexities – it’s almost – this process is like fast-forwarding 20-odd years, but even five years into a few hours. You know, you would need to do it frame by frame, you know, month by month. Things were evolving and being identified throughout this project and being dealt with. I said earlier the team were under a lot of pressure on a complex project, they were resilient and, to this day, I would say they were doing all they could do to ensure the project was a success for everybody. Things happened then that resulted in delay.

Mr Henry: Yes. Could we go now, please, to FUJ00075721. This is a follow-up meeting, or – well, it’s the following year as well. The minutes are on 6 July 1998, relating to a meeting on 3 July 1998 with the Minister, Frank Field. Mr Field’s opening remarks to you are recorded that he was keen to see you to talk about social banking. You are reported to have said – and this is actually composed by John Bennett, one of your staff:

“Keith’s opening remarks was that he was here to talk about the programme in the round and the key points were that the programme is deliverable, that it is critical to ICL as well as DSS, POCL and Government and that the infrastructure being built is essential for all aspects of fraud, welfare reform, the future of the Post Office and all aspects of better government.”

Do you think, on reflection, that that was an oversell?

Keith Todd: The – as I referred to earlier, at each stage where we bid for the contract, we believed that the proposal we put in were deliverable. At the reset, they were deliverable. It did require that we were able to bring together the constituents and with the benefit of hindsight, the statement was clearly overoptimistic in terms of our ability to bring all the parties together on the timeframe that we thought.

What happened subsequently is also tragic.

Mr Henry: Yes. I’m going to come now to page 2, paragraph 4.8, running immediately into paragraph 4.9. You had a conversation and Frank Field described the Post Office as a “dependency culture”; do you recall that?

Keith Todd: Not specifically.

Mr Henry: You don’t recall it specifically, but then this is reported:

“There was no strong reaction to our key comment that the progress to ACT was inevitable but would take time and had to be managed alongside re-engineering of the post office network.”

Of course, that is a reference, isn’t it, to retaining the BPC, retaining the benefit card system, or the Benefit Payment Card, correct?

Keith Todd: Yes, it was. There were –

Mr Henry: Could I just ask you, were you, as it were, side by side with the Post Office, complicit with them, prolonging, for as long as possible, the BPC, making haste slowly because that was in the Post Office’s best interests, as they perceived it, but also, of course, you had revenue per swipe, didn’t you?

Keith Todd: I certainly don’t recall that thought process at all. We had a customer, one of the customers, DSS, who were very keen, as we have discussed earlier, on the benefit cards basis. It made sense to us. It was the emergence of smartcards which we thought was the right way forward, but – you know, magnetic stripe. There had been a historic desire from DSS to go to straight bank transfer, but, you know, at the end of the day, it was the customer who had to dictate.

Mr Henry: So, with that in mind, could we come please to FUJ00075723. Of course, the problem is: which customer? You have identified that already, haven’t you?

Keith Todd: Yes, yes.

Mr Henry: Now, let’s go to that document. Could we go down to paragraph 5 please and we’ve got the following:

“Stuart Sweetman pointed out that what the Minister was looking for could be provided by POCL with automation of the branches (a not very veiled reference to Horizon but well put across). Stuart was backed up by Girobank [et cetera, et cetera]. Customers want control, want cash and get it now through the post office.”

Again, this is another meeting with Frank Field, 17 July 1998, minutes 20 July 1998. Did you regard Stuart Sweetman as an ally?

Keith Todd: Certainly not particularly, no. My recollection –

Mr Henry: From memory – from memory, was he on side?

Keith Todd: I think he was a competent businessman. I had no personal relationship with him. I knew him through business but, you know, I repeat, it’s going back a long time. Listening to many conversations, which are not minuted, about what is the best way for society to pay Social Security. At the end of the day, a lot of society that received benefits wanted cash still. The Post Office was the right way to go. The means to get there was a decision for the wider political environment and the – and, specifically, the Department of Social Security.

Mr Henry: But, obviously, you would have – either you directly or your representatives would have acute antennae as to who was on side and who was not?

Keith Todd: We would have a view and we did not – if you go back to the beginning of this, early days, we did not have – as far as I recall – any influence on Peter Lilley’s ideas about the benefits card. We reacted to that idea.

Mr Henry: I see. Could we turn over the page, go down to paragraph 8 please, and if we could just – yes, thank you so much.

If we go from the paragraph “Overall” which is the third one down. In brief POCL gets a tick; Girobank gets a tick; DSS gets a cross, because they’re now definitely anti-card; Sarah Graham, who was the secretary to Frank Field, his right arm, as it were, she gets a cross; and then at the end:

“We need to keep convincing David that the payment card is GOOD.”

Do you see that?

Keith Todd: Yes.

Mr Henry: The payment card – and David Sibbick, of course, wasn’t he at the Treasury? I might be wrong.

Keith Todd: I’m not certain but could be, could be.

Mr Henry: Don’t worry, we can find it. But the payment card, of course, had a particular remuneration to it, did it not?

Keith Todd: Yes, and this – sorry, I have forgotten the date of this particular document because the timescales are, I think, important in relation to this set of concepts. You know, we were focused on the “requirements”, quote, our customers had which was for the card, and so –

Mr Henry: Right. Could I – thank you very much, Mr Todd, I’m sorry, I’m trying to be brief because I have to finish by 4.15 because I have been told by my colleague that she is going to take ten minutes.

Keith Todd: Okay.

Mr Henry: Could we go, please, to POL00028525, please. This is 13 November 1998 and, by this time, you would agree, would you not – and obviously this is not your document, but it refers to you – by this time there was a massive deterioration in relations between your company, you, and others, in government and departments, correct?

Keith Todd: 13 November which year?

Mr Henry: 1998.

Keith Todd: Thank you. As I have said earlier, we took a robust position trying to get a positive answer for POCL, DSS and ICL Pathway.

Mr Henry: The point is, however, that the analysis that is referred to – and this is from the Treasury – that DTI/POCL has put to you, “completely ignores the transfer of risk that underlines ICL’s proposals”, and then I omit words:

“… with scant regard to the level of performance, significant price increases, payment in advance, acceptance of the project before it is fully trialled in any systematic form.”

And then “redrawing the project in terms of the contractual basis”, et cetera, et cetera, et cetera.

I mean, obviously a clear split in government, but it seems that –

Keith Todd: We were – sorry to interrupt you, but if I may, the challenge was finding a single principal person that could bring this together. We were constructive throughout the years we were engaged in these discussions. As I said earlier, working on the project, trying to find solutions but, until it was finally resolved in 1999, we had found great frustration through the inability to get a single unified, if I may call it, a government position.

Mr Henry: This was all in response, wasn’t it, to a letter that you sent on 9 November. For that we can go to BEIS0000421, please. We have just seen that the DTI and POCL are, as it were, seemingly in your camp, notwithstanding this letter of 9 November and if we could get it up, BEIS – yes, thank you so much.

Could we go to “ICL Proposals”:

“No progress was made on other aspects, but at the last moment ICL came forward … with an immensely complex and comprehensive set of proposals for restructuring almost every element of the Horizon contractual basis.”

Then it refers to a diagramatic illustration.

Keith Todd: Yes.

Mr Henry: Over the page, please, the ministers’ reactions, so no doubt some of this would have fed back to you, “wholly unacceptable”, line 6:

“They saw the attempt to revise almost every aspect of the contract to ICL’s and Fujitsu’s advantage moving almost all liability and responsibility for funding the project”, et cetera, et cetera, et cetera.

Would you read the next few lines to yourself, please, up to “There were strong voices” –

Keith Todd: Sorry, from where?

Mr Henry: From “They saw the attempt”.

I will read it out aloud:

“They saw the attempt to revise almost every aspect of the contract to ICL’s and Fujitsu’s advantage, moving almost all liability and responsibility for funding the project’s financial deficit onto POCL, as deeply insensitive, and as demonstrating a refusal by ICL to accept responsibility for the serious delays to the project which have cost the public sector hundreds of millions of pounds in fraud and administrative savings forgone.”

Keith Todd: I don’t – sorry to interrupt you, but I don’t recall whose minutes these are but I think they are a misreflection of the positive engagement we were trying to make to put forward some ideas. We were open to discussion, but we had been – from my recollections – sort of blanked with being able to move forward, so we came forth with a set of propositions in order to try and instigate some engagement with us. That’s my recollection.

Mr Henry: I’ve got only one more document to deal with but, before we leave this, please, sir, could you go to page – I think it is page 4 and this is your contemporaneous view – forgive me, page 3. It is paragraph 9. If we keep that page up on the screen but I will read paragraph 9 to you verbatim:

“At both meetings Keith Todd expressed his disappointment, frustration and sense of shock that ministers still appeared to fundamentally misunderstand ICL’s position. ICL was in fact the aggrieved party, not the guilty party, yet ministers appeared determined to punish them. ICL had put forward a positive and helpful set of interlocking proposals designed to enable the project to move forward. The company had given up its ‘right’ to make a profit on a ten-year programme of work and was carrying – and would continue to carry – a considerable element of commercial risk. ICL had explained its position extensively to officials but had found it difficult to gain access to the relevant ministers. ICL could only conclude that officials had represented badly – or indeed had misrepresented – the company’s view to ministers”, et cetera, et cetera.

Then I’m going to omit words:

“The future of the project now lay between ICL and POCL, but at a meeting the previous evening, John Roberts had made it clear that he had been told by Government that he had no authority to negotiate further with ICL. Ministers should now empower John Roberts to negotiate a deal.”

So John Roberts spoke your language?

Keith Todd: I – John Roberts was his own man. I think you may have already seen John Roberts. He was his own man. He represented the Post Office. This project was important to the future of the Post Office. Separately, it was important to DSS for the benefits programme. There was no cabal. I think I refer in my own statement to the fact that it did feel there was more alignment with the Post Office, so when, our surprise, in May 1999 the suggestion was it was just the Post Office came out, we concluded that we should accept the loss and move on and work with the Post Office.

Mr Henry: But it seems from the last document that POCL – and I suppose the DTI as well – were prepared to put up with no live testing, transfer of risk, et cetera, et cetera –

Keith Todd: That is incorrect.

Mr Henry: Right, well, let’s go to the final document, please, that I wish to put to you, HMT and then I think it’s – oh, dear, I think it’s 0000030 and if I’m wrong it could even be 00000030.

Keith Todd: I’m happy for you to ask me the question. The document can come up.

Mr Henry: This is a HM Treasury document and it is an update for the Prime Minister and I think if we could get it up on screen, it is HMT and then I think it is 00000030 but I shall read it out verbatim, while we’re waiting for it to get up on screen, Mr Todd.

Thank you so much. Could you expand it to go to the bottom half of the page, please.

Certainly there was a meeting in April 1999. This is actually undated, but whether it took place before or after your meeting with the Prime Minister, in connection with Mr Naruto, I don’t know, but, anyway, three key points:

“ICL want unconditional agreement today … if they and Fujitsu are to avoid a provision in their accounts … unforeseen terms and conditions [if they come up] … the public sector would have no right to withdraw.”

That is basically making POCL a hostage to fortune, isn’t it?

Keith Todd: Yes, and I think it misrepresents completely what would have been said. I think it’s completely inappropriate to expect an unconditional agreement today, so –

Mr Henry: So the Prime Minister is being misled?

Keith Todd: No, no. I think that the way this has been documented is inaccurate from the conversation and I don’t know who was at this meeting, but if this is the meeting I was at that was not the way it was put across.

Mr Henry: I see:

“ICL are not prepared to allow part of the contractual payment to be dependent on the system performing satisfactorily when fully rolled out. This means that the Post Office could pay for a system which did not perform as necessary.”

True or false?

Keith Todd: It’s clearly –

Mr Henry: Clearly false?

Keith Todd: Yes, it’s nonsense.

Mr Henry: Then, finally, this:

“ICL are not prepared to give evidence of ownership of the assets involved, or to give perpetual licences for all the IPR …”

I presume that’s the intellectual property:

“This means the Post Office could find that, when the system is installed and operating, the IPR is owned by a third party. Such a third party would be in a strong position to drive a costly settlement with the Post Office.”

Who was the third party: Escher?

Keith Todd: No, no, no. The context of this, I think, is challenging. It sounds to me that this was part of a discussion/negotiation about alternatives where – when the revision of the contract was put in place and what would happen at the end of the contract and the ownership of the infrastructure, so I think it’s –

Mr Henry: But surely – I mean, Escher were the –

Keith Todd: Subcontractor.

Mr Henry: Yes, and they owned Riposte?

Keith Todd: Yes.

Mr Henry: I mean, is that not a reference to Escher and Riposte?

Keith Todd: Does it say that?

Mr Henry: “ICL are not prepared to give evidence of ownership of the assets involved, or to give perpetual licences for all the IPR.”

Keith Todd: I don’t know what it’s referring to. I’m sorry, I can’t help.

Mr Henry: All right.

Mr Todd, I represent five Core Participants. Three went to prison when they should not have done, one was wrongly prosecuted and another one was sued and bankrupted on a travesty. Do you have anything to say to them?

Keith Todd: That is appalling and I have immense sympathy and, as I have said today and in my statement, complete support for this process to get to the bottom of what actually happened, why that miscarriage of justice shouldn’t have occurred.


Questioned by Ms Patrick

Ms Patrick: Mr Todd, my name is Angela Patrick. I’m instructed, together with Mr Tim Moloney KC on behalf of 64 subpostmasters who were wrongly convicted and we’re instructed by Hudgells Solicitors.

I have a few questions. You have heard Mr Henry say that I gave my hand away and said I would be ten minutes. I think he has actually left me seven, so I’m going to try and be as quick as I possibly can.

Keith Todd: And I will be succinct.

Ms Patrick: But if there is anything you don’t understand – I’m Glaswegian – if I’m going too fast just tell me to stop and we will go a bit slower.

So Counsel to the Inquiry, Mr Beer, has raised the issue of the float and its significance. I don’t want to go back to that but I want to pick up something you said in your reply about the need for a strong performance. I’m going to read it back. You said:

“With strong performance through 2020, float was still achievable a significant valuation above that which Fujitsu had invested.”

You would stand by that, a strong performance –

Keith Todd: That’s what I said earlier.

Ms Patrick: – was important, wasn’t it?

Keith Todd: Yes.

Ms Patrick: Thank you. Others have looked at the period before May 1999 and how the relationships were affected by the negotiations and other witnesses who are to come will look at acceptance and the detail. I want to look at what came after May 1999 for some of the relationships you had with government and POCL.

I think you have confirmed today – and I think it is raised by Mr Henry just now – that even from early on in this process, ICL had an eye on future commercial opportunities or opportunities that might arise from Horizon; is that right?

Keith Todd: That’s correct.

Ms Patrick: Those included opportunities working with POCL, didn’t it?

Keith Todd: That’s correct.

Ms Patrick: If the Inquiry heard evidence that POCL and ICL were already looking into partnership opportunities and government tenders by the spring of 2000, would that fit with your recollection?

Keith Todd: As a broad statement, yes, and – or the strategic reason the infrastructure was being put in place, which was to provide a longevity to the Post Office infrastructure within the UK.

Ms Patrick: Okay. Can we just be absolutely clear – Frankie has this reference – it’s a document POL00021470, and we’re going to look at page 2, halfway down the page. I’m not pausing on the first page because this isn’t a document I would expect you to have seen. It’s the Post Office board minutes from April 2000, and if we can highlight point (vi) there, which begins “Horizon”, underlined:

“Horizon Roll-out continued with over 4,500 offices installed with the equipment. The Post Office was involved with ICL in a tender to provide electronic government services – – in which the automated Post Office network would play a leading role.”

So not your minutes, Mr Todd, but that would fit with your recollection that you were starting to look into new commercial opportunities arising off the back of Horizon in spring 2000?

Keith Todd: Yes, that’s correct. I don’t specifically remember but –

Ms Patrick: I don’t think we need to go to specifics, thank you.

So if we can move on, whatever had happened in 1998 and 1999, ICL had not ruled out a future government business opportunity being a possibility, had they?

Keith Todd: No. Throughout the history of the company, the government had been a big customer and we would have been looking to continue that relationship and expand that relation in the years subsequently.

Ms Patrick: Indeed, if we can – I’m going to look at a couple of examples. There are lots in the papers that are provided to the Inquiry but can we look at two. If we can look at BEIS0000263, please. I want to look at page 2, from about a third of the way down the page. This is not a document I would expect you to have seen, Mr Todd, it’s a document which is essentially a briefing for a meeting between yourself, Mr Akikusa and the Secretary of State for the Department of Trade and Industry, which took place on 3 November 1999, so 3 November 1999 just for chronology, going back to the really helpful chronology, that’s after Acceptance but before rollout.

Keith Todd: Before rollout, thank you.

Ms Patrick: We see there in the bullets, the briefing points that are being given for that meeting. First:

“Acknowledge that the Post Office has formally accepted ICL’s Horizon automation system. Emphasise the importance to the commercial success of the Post Office attached to ICL and the Post Office achieving roll-out of the system by the target date of March 2001. Ask for Mr Akikusa’s perspective on latest progress.”

Then we go on and there’s a thank you for the engagement with Newton Aycliffe, again we have heard of that today, and then we have gone on:

“Ask Fujitsu about their plans for developing their e-commerce capability and the impact of this in the UK.”

Now, despite acceptance having occurred there was here a continuing emphasis of the importance of the project staying on track, wasn’t there?

Keith Todd: Yes, there was. It was in all parties’ interests that the project was successful.

Ms Patrick: In fact, was it really crucial for ICL and for POCL that Horizon actually worked in practice?

Keith Todd: Yes.

Ms Patrick: And perhaps that it was not seen not to work?

Keith Todd: I’m not quite sure what you mean by that, but there was certainly in both organisations’ interest, as well as the national interest, as well as the Government, that the project was successful and what happened to your clients is, as I have said, tragic and inappropriate.

Ms Patrick: Okay. Can we look at another document. It’s another example from November 1999. It is BEIS0000260 please. Again, not a document you would have seen, Mr Todd. It’s a briefing, which unfortunately we don’t know if it’s a briefing for a meeting with an official, or a minister, but it’s a briefing prepared within the DTI and it is for a meeting with you on 8 November 1999 and I want us to look at – if it makes it any easier to read – bullet point 1 and it reads:

“ICL’s performance in major public sector IT projects - especially ELGAR and Horizon.”

Was ELGAR another project that you were involved in at ICL, Mr Todd?

Keith Todd: I recall the project name and I think it was to do with the DTI infrastructure.

Ms Patrick: Okay. As we go on:

“Keith Todd should be left with no doubts about the seriousness DTI attaches to ICL delivering on these.

“We know Horizon has been difficult for all parties. (It has damaged relations with Fujitsu, the largest single Japanese inward investor to the UK).

“DTI (and especially CII) as the ‘focus’ for the information age needs to be (and be seen as) an exemplar in its use of technology. There are alarming signs that the ELGAR project is in some continuing difficulty.”

Now, it’s not a document you would have seen.

Keith Todd: No.

Ms Patrick: But here you were, in November, on behalf of ICL and Fujitsu, meeting with either officials or ministers and continuing to try to cultivate a continuing relationship with government; is that fair?

Keith Todd: With all my customers, not just government.

Ms Patrick: At that stage, again after acceptance and after the negotiations in 1998 to 1999, from DTI’s perspective it appears the relationship with ICL is one that is going to continue; is that fair? DTI were still willing to have meetings with you and maintaining that relationship.

Keith Todd: Yes, that is my recollection because we conducted ourselves professionally and dealt with issues to the best of our abilities, as and when they occurred. Projects, as we discussed earlier, do have challenges and issues. That is no reason for what happened to your clients.

Ms Patrick: Indeed, but at this stage, from that minute it seems at least fair – and it was “Keith Todd should be left in no doubt about the seriousness DTI attaches to ICL delivering…” It was clear that those projects had to work, didn’t they?

Keith Todd: Yes.

Ms Patrick: And then if we go on again – to come back to the question I asked earlier, would any perceived failure of Horizon have impacted negatively on that commercial relationship with government?

Keith Todd: The failure of any major national project – and I will just be very brief – if you take the lottery we were involved in, it was a great success. If that had been a failure, that would have damaged the reputation. If Horizon had been a massive failure, it would damage the reputation. What happened to your clients is –

Ms Patrick: Let’s not look at what happened next.

In 1999 and 2000, if it became known that there were serious problems with Horizon, or if it was failing, that would have damaged your continuing commercial relationship with government; is that fair?

Keith Todd: If that was the case.

Ms Patrick: Thank you.

Keith Todd: Yes.

Sir Wyn Williams: Well, I think, Ms Patrick, you have actually had 11 minutes now, so I think unless there’s some truly burning point that must be made, I think that’s it for this afternoon.

Ms Patrick: Sir, I’m very grateful for your indulgence and I’m very happy to shut my laptop. Thank you very much.

Sir Wyn Williams: Fine, jolly good.

At the beginning – which now I have no doubt for you, Mr Todd, seems a long time ago – Mr Beer thanked you for making a witness statement and coming to give evidence and I repeat those thanks on behalf of the Inquiry.

Keith Todd: Thank you, sir.

Mr Beer: Thank you very much, sir, and that brings today’s business to an end. We’re back at 10.00 am tomorrow with Tony Oppenheim please.

Sir Wyn Williams: Yes, fine. Thank you all.

Mr Beer: Thank you.

(4.35 pm)

(The Inquiry adjourned until 10.00 am on Wednesday, 26 October 2022)