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24-09-98 12:31 FROW:PEP TEAM HM TREASURY! Tor
HM Treasury ParliamentIStreet Hf O40
London SWfP 3G SEP 1998 F
Sori
———
FAX MESSAGE FROM ADAM SHARPLES
PUBLIC-ENTERPRISE PARTNERSHIPS TEAM
Tel No: 0171 270 4640
Fax No:)
CHARIS NICHOLSOW :
To: PAIR BABALU sees Fax NOE Coe!
TO? -ASABEA.. AREER Mion FAX NOt vee
Tot cA RIGETAC. SMH Massseseseee Fax Not sv!
TOS seesee FAKES. ARQ ORecerressereres Fax No: ....4
TO: 1. GEO Z AYA sorseee Fax Not Xe nasnensanns
To: MOM ATHAN, EVANS... Fax No: ses
GeorGe McCoRKebl.
Department/Building
EE ee
Number of pages (including this one) ...........
MESSAGE :
pAPers PerewitH FoR al poon Neesine
28 sersemeer.,
. Uyou have rocolved this fox In error, ploaso call back on tha numbor above and thon dostroy this matorla!. Ploaso
troat our Information with tho same confldontiality with which you would oxpoct us to troat yours,
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PADATAMenpGraham.sspd
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j 7 “ Parliament Strect *
HM Treasury London SWIP 3AG
Adam Sharples
Head of Public Enterprise Li
Partnerships Team adam.sharpley ~
Sarah Graham
DSS
Adelphi Building
1/11 John Adams Street ;
London . 24 September 1998
Deer Sonls
BA/POCL - MEETING OF WORKING GROUP
The second meeting of the Working Group will be at noon on Friday, 25 September in room
32G at the Treasury.. We'll lay on some sandwiches.
KPMG have been appointed to work with Graham Corbett, particularly on assessing Pathway's
financial projections, and appraising proposals put forward by the parties. KPMG will also be
helping with the analysis of fallback options, and Chris Nicholson, who will be leading this
strand of the work, will be attending our meeting on Friday.
I suggest we structure the meeting around;
vos e-~-> the work progtaiime on fallback ‘Options “Gou are circulating a paper);
. progress in negotiations; and
’ other issues, including legal advice.
lattach a list of participants in the Working Group (please let me know if, any of these details
are wrong); and a slightly revised note of our fi itst meeting, which picks up some amendments
you asked for.
Copies go to the attached list.
.Yours sincere] ly,
GRO
* ADAM SHARPLES
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, rs
- Horizon Working Group Members
HM TREASURY Phone Fax
Adam Sharples Public Enterprise I
(Chair) Partnerships Team
Adrian Montague
Private Finance Panel
Joseph Halligan Social Security Team
‘Sarah Mullen Public Enterprise
(Secretariat) Partnerships Team
Elizabeth Hambley Treasury Lawyer
DSS ; ;
Sarah Graham Special Project
DTI
David Sibbick Director Post
Isabel Anderson Post Office
cITU :
Jeremy Crump
CABINET OFFICE
Chris Wood* Cabinet Office
Geoff Mulgan Policy Unit
Post Office
Jonathan Evans POCL
BA :
George McCorkell
ADVISERS
KPMG
Chris Nicholson
* Papers only
PDATAthWe.wnd
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HORIZON WORKING GROUP MEETING: 17 SEPTEMBER 1998
Present:
HMT DSS DTI . eu
Adam Sharples (chair) Sarah Graham David Sibbick Mark Gladwyn
Adrian Montague ~ Ruth Calder Isabel Anderson
Ross Newby a .10 Polic
Sarah Mullen : : . Geoff Mulgan
Stuart Culverhouse
Papers: Chief Secretary's letter of 10 September to Alastair Darling
Peter Mandelson’s letter of 14 September to the Chief Secretary
Alastair Darling’s letter of 14 September to the Chief Secretary
Chief Secretary’s letter of 15 September to Keith Todd at ICL
Keith Todd’s letter of 16 September to the Chief Secretary
Adam Sharples’ letter of 16 September to Sarah Graham
Sarah Graham’s Jetter of 17 September to Adam Sharples
Agenda:
(1) The purpose of the Working Group and membership
(2) The negotiation process
(3) DTI’s programme of work- --- <==
(4) Fallback options and appointment of consultants
(5) Legal Advice
Action points:
+» POCL and BA to be invited to join the Working Group
. DTI/DSS to ask POCL and BA to consider who might act as their joint representative
in the negotiation fits .
. Ross Newby to brief GC on need to establish a joint BA/POCL position
. David Sibbick to draw up a specification for work on a transparent funding regime. for
. POCL and circulate
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. Sarah Graham to carry forward work on fallback options and circulate a paper before
:--government-parties were brokering rec
_ meetings as appropriate. Any necessary meetings with ICL would be kept separate.
4% ICL (Keith Todd) had responded, denying the breach of contract but accepting the
the next meeting of the group considering in more detail what work was required
. HMT to speak to Lord Falconer’s office to arrange a meeting of ihe lawyers
Date of next meeting: Friday 25 September (morning).
Discussion: ats
1) The purpose of the Working Group and membershii
1. Tt was agreed that the role of the group was two-fold:
° to pull together the various strands of work commissioned in the CST’s letter to
Alistair Darling in the short timescale available;
. to lead the work on the fallback options. with the help of consultants.
2. Membership of the group was discussed. Sarah Graham (SG) suggested that both BA
and POCL should be represented on the Group. On the one hand it was important to keep the
negotiation separate from the work of the group, and this might be difficult if they were
included. On the other hand there was presentational value, not to mention advantages in
terms of speed (since they would need to be closely involved in the work on fallback options),
with having them represented. It was important to overcome POCL’s view that they were
separate from government, It was therefore agreed that BA and POCL would be included in
the Working Group, but on the understanding that there may need to be some meetings
without them present (particularly towards the end of the process, when.the central~—- ~~: 77"
mendations to Ministers). Adam Sharples (AS) said
that it was for DSS and DTI to decide whether BA and POCL respectively saw copies of the
Report that went to Ministers. .
3. Other interested parties (e.g. SS and CI teams within HMT) would be invited to
(2) The negotiation process
4, AS summarised the state of play:
. Graham Corbett (GC) had been appointed as the independent adviser reporting
directly to the Chief Secretary. Ross Newby would be providing support;
* The Chief Secretary had written to {CL setting out the terms of the negotiation:
terms set out in the CST’s letter. The clock was therefore ticking on the month agreed
for negotiations to be concluded;
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. The first step would be a series of meetings with the individual parties in order to
. although this would be tight.
- discussion. He did not think, that Hamish or Richard Cristou would therefore be suitable. ICL.
establish the parties present view of the contractual position and their objectives for
the negotiation. Then GC would need to evaluate the strength of their positions,
5. There was then a long discussion about the role of the GC. The terms of reference for
CG's appointment were clear that the role of the independent adviser was to facilitate the
negotiations rather than act as negotiator himself. At the same time CG was directly
accountable to the Chief Sccretary and other Ministers, and was therefore was responsible for
ensuring thal the public sector achieved a satisfactory deal. In that sense GC was not neutral.
6. There were clearly differences of view between POCL and BA, and it would be
important to ensure that ICL did not exploit these differences in the negotiation. A united
public sector front was required. It was agreed that it would be for GC to bring BA and POCL
together to establish a joint negotiating position prior to any discussion with ICL, but that he
could not negotiate on their behalf with ICL. SG therefore suggested that someone should be
appointed to act as a spokesperson for the public sector (once the negotiating brief had been
established) and suggested that the programme lawyer Hamish Sandison would be suitable,
for the rcasons set out in her letter. In particular ICL had appointed Richard Cristou as their
lead negotiator who was a lawyer and had extensive experience in litigation. ,
7.. David Sibbick (DS) agreed that the negotiation should be two-sided, between
Government/public sector and ICL; and that a spokesperson was needed.
8. Adrian Montague (AM) was strongly-of the opinion that the negotiation should not be
undertaken by legal representatives and should be firmly grounded in a commercial
could be told that they would have to find an alternative negotiator. AS suggested that-Adrian ~-- ~~~ - ~
Montague himself might-act in this role, although SG was concemed that he might be
unacceptable to POCL and BA given his previous role as chair of the Independent Panel and
that he had no “locus” to speak for the parties. Ross Newby (RN) said that whoever
Tepresented BA and POCL would need to have the authority to enter into a negotiation with
ICL: the deal would collapse if the parties did not “own” the solution. It was agreed that DSS
_ DTI would:ask POCL and BA to consider together who might best act in this role on their
chalf. mo :
9. RN agreed to brief GC on this discussion and the suggestion that he should in the first
instance establish a joint negotiating position between POCL and BA before negotiations
with ICL began. Ifa joint BA/POCL position could not be established then it would be
important to report this back to Ministers very early on in the process,
10. In the course of the discussion AM expressed his view that it would be impossible to
achieve a documented deal in one month, but that the aim should be to achieve broad heads of
agreement to a deal. A filly documented deal could probably be achieved in two months,
11. SG made the point that the outcome after one month must have sufficient “bite” for
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Ministers to be able to establish a reliable view of the VFM of continuation versus the
alternatives. and sign up to any decision to continue with confidence: a further round of
substantial negotiations with ICL would not be acceptable and was not what Ministers had
agreed. .
(3) DTI’s programme of work =
12.” DS reported that he had had an initial discussion with POCL (Jerry Cope) on the remit
given to DTI in the CST’s letter. POCL recognised that more work was required on the
fallback options and they were prepared.to co-operate fully. DS said that POCL felt they had
already strengthened the management of the project in the light of the previous review of the
project in 1997. In their view ICI. were content with POCL’s arrangements. POCL would also
gear up to set a timetable for taking forward banking services once it became clear where
things were going. It was pointed out that whatever the outcome of the negotiation POCL
needed to develop banking services quickly - there was no reason for delay.
13. AS said POCL had to recognise that there was a clear view that POCL’s management
of the project had heen complacent and ineffective, Ministers would need concrete assurances
by the end of the month that POCL could deliver. This included taking action to strengthen _
the management of the project as recommended by the Independent Panel’s report. POCL had
{o recognise that the project was not “‘in the bag”: Ministers would judge at the end of the
month whether going ahead would represent good VFM. -
14... DS also-said that POCL were taking forward work with McKinseys on developing
strategic partnerships. They were also considering what Work could be done to establish the
social value of the network. Geoff Mulgan (GM) said that he saw the necessary work as being
more for DTI. DTI needed to give some thought to transparent funding criteria for achieving a ee
the required managed decline of the network (either after.the end of the-contract if the project
--Went ahead or under the fallback options) which related payments to social goals. This could
be subject to competition. Jt was agreed that DS would draw up a specification for this work
for the Group to consider. DS also reported that POCL were giving thought to how they
would manage the transition from the benefit payment card to a smartcard.
(4) Fallback options and appointment of consultants
15. It was intended that consultants would be appointed (as part of the wider negotiation
tender) to provide assistance to the Working Group on fallback options. Their work would
. comprise four elements:
. the impact on the network of the loss of BA income and associated footfall;
* the viability of an early shift to ACT including thé impact on the banks;
. the timescale and costs of an alternative technology platform;
“. the viability of pursuing Horizon without the benefit payment card.
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16. It was likely that the consultants would be appointed next Monday. AS suggested that
the work on fallback options should be the focus of the next mecting of the group. It was
agreed that SG would carry forward the work on fallback options and circulate a paper before
the meeting setting out in more detail the main areas where further work was required and
how any additional advice required would be provided.
Legal Advice
17, GM said that Lord Falconer, the Minister Without Portfolio, had offered to assist with .
drawing together the legal aspects of the negotiation and establishing a Government view of
the legal constraints (he has a background in commercial Jaw), It was agreed that HMT would
contact his private office to arrange a meeting between the relevant lawyers. AS would also
speak to Elizabeth Hambley.
(6) Lines To Take
18.. — It.was agreed to continue the governments present holding line that officials were
keeping Ministers informed of progress on the project and discussions were continuing with
_ ICL to ensure the successful completion of the project. It was agreed that a more pro-active
announcement that there was a re-negotiation would be unhelpful, -and would increase
uncertainty (although it might be appropriate at a later stage in the negotiations),