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——
FUJITSU
7 April 1999
Without Prejudice
Rt. Hon. Tony Blair MP.,
Prime Minister,
10 Downing Street,
London.
SWIA 2AA
I am sure you have been informed that Mr. Keith Todd, the Chief
Executive Officer of ICL, wrote to the Secretary of State for Trade and
Industry on 25" and 30" March to say that, unless the UK Government had
approved Heads of Agreement for the future of this project by close of business
on 31" March, he would tell the ICL ple Board, and thereafter Fujitsu (as ICL’s
shareholder), that work on the project should stop. Disappointingly, no such
agreement was reached and (following di ions with, and the support and
approval of, the ICL ple Board) Mr. Todd has made such a recommendation to
us. [am writing to let you know Fujitsu’s position in this iter so that you
may have time to consider the matter before you see Mr. Naruto (Vice
Chairman of Fujitsu, moreover Chairman of ICL) on 12" April.
ICL has made many proposals for a solution over the last year and a half,
none of which have yet been accepted. ICL’s proposal of 18" December 1998,
to carry on with the project under the current specification with the magnetic
stripe card, has neither been accepted or rejected.
However, following your appointment of Mr. Steve Robson of HM
Treasury to help us all to find a way forward, much progress has been made,
and I am very grateful to you for making this possible. After the work with
HM Treasury, over the last three months, three further proposals have been
identified — to provide the Post Office Counters core infrastructure (as now
specified in the project) together with a simple method of electronic payment
of benefits by ACT combined with the use of smart cards (known as “Option
B1”); to proceed as in Option B1, but to introduce into the system facilities for
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FUJITSU
Post Office Counters to provide a full retail banking service for benefit
recipients, in partnership with one or more commercial banks (known as
“Option B2”); and, finally, for ICL to provide only the core infrastructure
subject to full contractual cover, until a decision is taken to adopt Option BI or
Option B2 and the contract is then amended to take account of this (known as
“Option BO”).
I understand that some progress was made in a meeting which took
place on 31* March, and there is now a clear preference from all parties to
adopt Option B1, but there is still a further step to go. I am told that there are
some important issues still to be resolved before a firm decision for B1 can be
made by the Public Sector. Without such a firm decision, no final agreement
can be reached.
Fujitsu strongly recommends that all remaining issues be resolved and
that Option BI is adopted without delay. It is the simplest, quickest and
cheapest way to provide electronic payment of benefits through ACT and to
introduce many millions of smart cards to citizens so as to deliver the vision of
Modernising Government shown in the White Paper published on 31% March
1999.
Option B2 can be achieved, but it will take a long time for the Post
Office to specify its exact requirements and work out its relationship with its
chosen banking partners. ICL is very willing to work on this with the Post
Office. Option B2 would then become an extension to the current project, to
be implemented in due course, although, given the risks and uncertainties of
Option B2, ICL has told us that it thinks this extension should not be provided
on a PFI basis, but only on a system integration basis.
However, it is unfortunately the case that there is only a short time left
to reach final agreement on Option B1 and thus save this project.
Fujitsu’s position is that, unless there is a legally binding agreement for
the future of this project in place by 23rd April, when the Fujitsu Board
approves our 1998-99 consolidated group accounts, these accounts will have to
show a provision which will be the Yen equivalent of about £300 million. If
this occurs Fujitsu will be required by its shareholders and the market to
explain in detail why they have had to make such a huge provision, and what
the full impact is on their consolidated results and their future trading position.
In the circumstances, Fujitsu are not prepared to make such a provision
and still underwrite the continuing costs incurred by ICL on the development of
this system. It is not fair and reasonable, nor commercially sensible, for us to
suffer a provision of this magnitude and then continue to invest more money in
this project. Further, in any event, continued investment in a project where the
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Public Sector could not decide on a clear way forward cannot be in the best
interest of the British tax-payers, and, for this reason alone, it would be
irresponsible of us to continue without a resolution.
I very much hope therefore that the basis for a legally binding agreement,
adopting Option B1, will have been reached by the time you meet Mr. Naruto,
so that it is ready for signature in the week before the Fujitsu Board meeting.
know that ICL is working as hard as they can to make this happen.
However, as ICL will no longer continue to invest in this project,
can Fujitsu force ICL to invest money, without any binding agreement
obliged to inform you that, if no such agreement is reached, ICL will have no
choice but to implement its decision to stop work, and Fujitsu will accept ICL’s
decision. ICL have spent so much money for so long without a commercially
viable agreement that the matter will now have to be resolved by a proper
legally binding agreement.
ICL and Fujitsu would take such decisions with the greatest regret. The
BA/POCL system has the potential to provide the Post Office network of
branches in the UK with automated equipment that would provide a whole
range of services to the British public, reduce fraud and help the UK
Government to achieve its ambitions for Modernising Government explained in
the White Paper.
In conclusion, I would like to confirm my belief that a resolution of all
our problems on this project is within our grasp, and that, with hard work and
decisiveness from all parties over the next few days, a successful outcome is
entirely possible. I very much hope that this will be the case, and ICL and
Fujitsu will do all that is within their power to make this happen.
FUJITSU