ic
__-1G-SEP-1998 12:18 FROM BIRD & BIRD
FAX TRANSMISSION
To: POCL
Atten\Reft Pat Kelsey, Head of Contracts
cc: Joc Ashton, PO Legal Services
Andrew Davies, Project Mentors
Sarah Graham, DSS
George McCorkell, BA
Dave Miller, Horizon
Ron Powell, DSS
Mena Reno, Horizon
David Sibbick, DTI
From: Hamish Sandison
Matter: BPOCL-001
AccountNo: BPOCL-001
Date: 18 September 1998
Number of pages (including this page) :
‘Note: This fax is intended for the named addressee only. It contains informution which may be confidential and
which may also be privileged. Unless you are the named addresses (or; authorised to receive for the addressee)
you may nat copy or use it, or discfose it to anyone clsc, If you have received it in error please notify us
immediately so that we cen arrange for its retum, To do so, or if you have eny querics, plcase telephone 0171
415 6000.
Message:
Please see attached.
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3. I attach an outline negotiating brief. 1 stress that it is only an outline, and that
further work is required to put flesh on the bones. However, I hope that it will serve
to move our discussions forward.
4, If my outline is acceptable, and subject to any comments you may have, L a
believe the next steps that must be taken in order to produce a detailed negotiating
brief are: ; ,
(1) “to secure the agreement of BA and POCL [DQ: and the DTI? HMT?
PU? George Corbett 7] to the outline negotiating brief.
(2) ‘to invite George McCorkell (for BA), Mena Rego (for POCL) and
yourself (for the joint BA/POCL Programme), to contribute.more
detail in their respective areas on the substantive issues; and ;
_(3) to achieve an agreed common position between the public sector
lawyers on the legal parameters for the negotiation (I understand that a
meeting of the public sector lawyers under Elizabeth Hambley’s
chairmanship has already been proposed for this purpose).
Steps (1) and (3) can of course proceed in parallel.
Ss. Until this detailed negotiating brief is agreed by both BA and POCL, I would
strongly advise both of. my public sector clients not to commence substantive
“negotiations with ICL.
ROB BPOCLOOPMEMO'KELSEY.MS17
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PDRAFT/18,09.98}
OUTLINE NEGOTIATING BRIEF
INTRODUCTION
1. Describe the purpose and scope of the negotiating brief: to set out the substance of the
agreed public sector position and the process for canrying it forward.
A. SUBSTANTIVE ISSUES
2, Summarise remit for negotiations as set out in paragraph 3 of Stephen Byers’ letter and
attached terms of reference (10 September 1998):
. To establish whether there is a commercial basis for proceeding with the project
which is acceptable to the parties;
. To resolve outstanding differences on project implementation and timetable; and
° To identify any further action which would need to be taken to ensure successful
delivery of the project [DQ; Is this an issue for the negotiating strand or for the
working group?] : :
3.. Reaffirm the agreed legal basis for negotiation, namely, that:
. ICL is in breach; ’
. the public sector parties are entitled to terminate and claim damages; and
. the public sector parties reserve the right to terminate and claim damages if a
commercially acceptable basis for proceeding cannot be agreed between all the
parties, . .
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4, Set out the agreed legal parameters for negotiations: as recognised in Stephen Byers’
etter to ICL Pathway (15 September 1998), any adjustment to the contracts must be compatible
with procurement law. In particular, as emphasised in Alistair Darling’s letter to Stephen Byers’
{September 1998): . ‘
. the contract cannot safely be carried on beyond 2007;
. the prices cannot be significantly increased [DN: Consider appending agreed
statement of the procurement law position} :
5. Set out agreed commercial parameters for negotiations:
. the contract must provide a firm date after which BA will have no further
commitment to using the benefit payment card (see Stephen Byers’ letter to ICL
dated 15 September 1998 at paragraph 4);
. the DSS’s ability to migrate to an ACT-based system, in preparation for the end
of card usage by contract end date, must be transparent to ICL (see Alistair
Darling's letter to Stephen Byers dated September 1998 and Stephen Byers’
letter to ICL dated 15 September 1998 at paragraph 4, second bullet);
. {DQ: Anything else?]
6. Set out any areas where minsters/public sector parties are prepared to compromise and
the degree of compromise they will accept, For example:
. More money for additional services?
° {DQ: Any other ideas?]
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7. Other currently outstanding issues: these must be resolved as part of any overall
settement with ICL. They include:
° ForBA: see Pat Kelscy’s letter to me dated 15 September 1998 {copy attached];
. “For POCL;
. The counterspace dispute;
. * [DQ: Any other outstanding issues?].
B. PROCESS
8. Reconfirm that negotiations will be conducted in accordance with the terms of the
standstill agreement. This means (inter alia) that:
. Negotiations are without prejudice;
. Negotiations are confidential;
. No party will sue any other party while negotiations are continuing.
9. Establish the timetable for concluding negotiations and reporting back to ministers, i.e.,
no more than one month,
10. Describe role of the adviser (“troubleshooter”): see terms of reference attached to
Stephen Byers’ letter to ICL dated 15 September 1998.
11. Specify membership, roles and responsibilities of the public sector negotiating term: see
attachment,
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[DRAFT/ 18.09.98]
Membership, Roles and Responsibilities of the Negotiating Tcam
Role Individual Responsibilities
Adviser (“Troubleshooter”) I Graham Corbett To facilitate discussions and
report to ministers. via the -
Chief Secretary to the
Treasury
Lead Negotiator [to be advised] Leads negotiations on behalf
of both public sector parties
Lead Legal Advisor Joint Programme Lawyer _I Represents legal interests of
(Hamish Sandison) ~{ joint contracting authorities
Lead Negotiator (BA) [to be advised] Leads negotiations for BA
DSS Representative [to be advised] Represents DSS’ interests
Lead Negotiator (POCL) [to be advised] Leads negotiations for
: POCL
DTI Representative [to be advised] Represents DT1’s interests
BA Legal Advisor [to be advised) Represents BA’s legal
I interests
POCL Legal Advisor [to be advised] Represents POCL’s legal
interests
Contracts Manager Joint Head of Contracts" To provide technical
(Pat Kelsey) support from the joint
contract management tcam
NOTES:
1 ‘The Joint Programme Lawyer would expect to be supported by one assistant solicitor (for
drafting) and one trainee solicitor (for note taking).
2. Other team members would expect to call in specialist support as required.
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benefits Benefits Agency and
FPO: : Post Office Counters Ltd
; : Third Floor es
j OFFIC _ Tertninal House
$2 Grosvenor Gardens.
London SWIW AB:
telephone 0171 200 5400 (switchboard)
0171 2005424 (direct line)
Sacsimile 0171 7300775
Direct Fas
Hamish Sandison
Bird & Bird
Fetter Lane : .
London : 15th September, 1998
Dear flee sh,
Commercial and Contractual Issues
We discussed your conversation with George McCorkell who xequested that I write to him about.
outstanding commercial and contractual issues. I produced a DSS specific paper on 16 July‘and I
have been asked to send a copy to you. The document is attached and I should be grateful if you
would provide a copy for George McCorkell at the meeting I understand you are having tomorrow.
I think it is important that we do not forget the POCL issues and would want to discuss how we
factor these in. I think it is important also to share the paper work-with both Authorities. I await
your comments.
Joint Contracts Manager
nd
2 An iixuratiss Agonte of Docusant?: fem otter Goumers ta Begin in Engl
tf eepaeunent of Sorel Securliy Pearce pert anid aa
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RESTRICTED COMMERCIAL/MANAGEMENT
COMMERCIAL AND CONTRACTUAL ISSUES
a
LI
12.
1,3.
2.
. 24
211
22.
2.2.1.
INTRODUCTION
There are outstanding commercial and contractual issues which need to be addressed
during any negotiations on the continuation of this programme. These-are listed
below with the information known to the Joint Contracts Team. There have been no
discussions with sponsors on any negotiation brief to be used.
In addition’ information is provided on the revenue guarantees in the Related
Agreements and the factors that may affect them..
This paper is written in respect of DSS only.
COMMERCIAL ISSUES
CCNL0S ;
There are two issues outstanding from CCN105:
= CAPS dates;
Contractual arrangements state that should CAPS fail to meet its milestones,
resulting in delay to Pathway obligations, the end of the contract will be
extended on a day for day basis. The CAPS dates in question are around direct
interface testing on CAPS 2.2 and 3.0, These dates have been and remain in
dispute. In addition, Pathway do not now accept that there has to be a
consequential delay in delivery of their obligations.
. Charging structure
This is covered in section 3 below.
Benefit migration
Pathway have raised issues about changes (originally presented over a year ago) to
the Department’s benefit migration plans. They point out that these refer to costs
incurred and do not allow for margin lost on scorecard revenues foregone. The areas
in dispute cover help desk, cards, and customer education. By far the largest cost is in
the area of customer education, in particular the Department’s requirements for
payment advice notices (PANs). The total costs claimed for all areas are between
£4.3 and £12.7 million, dependant upon chosen scenarios. These areas remain
unresolved, with the understanding that they would be concluded in the current
replan negotiations,
16 July 1998 Page 1 of3 Joint Contracts Team.
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23. Other areas ;
2.3.1. . There are several other areas that are likely to be significant in negotiations, although
we have not yet a defined sponsor position, nor formed a view of Pathway’s
commeroial stance - all sides would expect to cover them in any negotiation:
(@) Acceptance .
‘we need to be clear at what point we grant acceptance and forego termination
rights for failed acceptance;
(©) Guarantees
section 3 below sets out the current position, but there may be need or
opportunity to vary the levels and conditions related to guarantees dependant
upon the content of various releases. NB the guarantees are also affected by the
CCN105 dispute explained in section 3 below;
(©) Remedies and liabilities
there may be a need to vary these dependant upon the content of releases and
the effect of faults or deficiencies.
3. CHARGES AND GUARANTEES
3.1 Guarantees
3.1.1, This section sets out the position on DSS revenue guarantees as at the conclusion of
CCN105 (the current contracted position, assuming rollout starts in November 1997).
In calculating the figures, the following assumptions have been made:
+ thatall CAPS dates are met;
. DSS volumes never reach the point to exceed guarantees;
* consequential effects of POCL volumes aré not allowed for in the BES figures.
im = {948 98/9 I 99100 I 0/01 I 01/02 I 02/03 "I 03/04""T 04705
I PASICMS I 0.12 "12495 I S781 [64.65 I 5952 [53.75 I 48.29 I 42.94
PBES 0.54" [20.32 [32.34 [34-75 I 31-58 I 28.58 [25.75 I 22.50
Total O46” I 45.27 I 90.15 I 99.44 j S11 (ea3s F404 [65.84
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3.2, Factors that could affect charges
Provistons in the charging Schedule
@.
®)
RPI Indexation
The schedule allows for an increase in charges (both service point based and
guarantees) in the event that the RPI increases by more than 6% in any one
year. In this event the prices and guarantees are increased by half of the RPT
increase. The date of calculation is the last day of February. Hence if, on 28
February 1999, it is the case that the RPI has increased by 10% over the past 12
months, prices and guarantees beyond 1 March 1999 would be increased by
2%.
Benefit frequency changes
The schedule goes on to provide for the effect of changes to the frequency of
specific benefit periods. Under the calculation, if a weekly benefit becomes
paid four weekly, future volumes of that benefit are multiplied up by a factor of
3.7 in terms of the number of chargeable transactions. Hence ifa benefit is paid
less frequently there is a small reduction in charges (assuming consistent take
up), protecting Pathway’s planning assumptions. If it is paid more frequently,
the charges would increase by a much lower proportion than the actual volume
increase.
CCNI0S Charging interpretation
3.2.1. In concluding the consequential contractual amendments arising from CCN105, a
difference of interpretation of the effect on the charging schedule emerged. That
difference of opinion was acknowledged, documented but never resolved. The PDA
and Pathway produced a joint position paper to document the difference,
3.2.2. CCNIOS5 effectively changed the dates of start of rollout and end of contract by
approximately 4 months and 2 months respectively. The difference of opinion relates
to how the charging periods should be mapped onto the new planning dates.
Pathway assert that for example, the charging basis for the first period of steady
state service should remain the same, even though the dates of that period have
changed, .
The PDA asserted that the agreed charging basis.is fixed in time, and that as
events are delayed they move into different charging regimes,
3.2.3. The difference in the two views represents £7m for the DSS over the life of the
contracts.
P.10/18
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