POL00031181
POL00031181
POR(94) 49
POST OFFICE BOARD
AUTOMATION AT LONDON POST OFFICES
INTRODUCTION
i ‘This paper seeks Board authority for POCL to enter into an agreement with the Benefits Agency
(BA) under which POCL will invest £12.5m (ine. £9.7m capital} to provide automation at 1478
. The BA will effectively fund over £7m of this by advance payments as well
as paying nal quarterly fee for dhe enhanced service. The new s mn will validate
benefit payments to reduce fraud, but will also handle existing and future products for both BA.
and other clients as well as POCL’s own accounting and administration requirements
2 The proposal has a stand-alone retum of 18%. MaPEC reviewed the case at an earlier stage of
negotiation and confirmed that the project required Board approval because of its size and the need
to set it in its strategic context. S: then further negotiations resulted in a deal b: on
differently phased figures which have been vetted by the MaPEC secretariat, The Comunittee is
available to ¢ jer any detailed investment points on the aftemoon immediately following the
Board meeting, tld the Board so require. Thi process arises from the need to avoid the
associated with delay (see para. 13) and because the Benefits Agency is keen to combat fraud
at the carliest opportunity.
BACKGROUND
3 In the 1994-1999 Corporate Plan the Boar: ed the importance of technology to Post Office
Counters Ltd in securing improved service and efficiency for clients. and taking on new services. It
said “the ideal would be to take the needs of the Benefits Agency (BA) as a starting point, and to
4 © com ¢ terminal which could be used for other existi
potential clients”.
4 Tn tandem with dev h BA aimed at automation of the full
networ benefit payments at all 1478
post of : r them by reducing
“instrament high concen This provides POCL
with a uni ¢ the visi tical
to the success of the commercial vision, with wide potent and handle
existing produ Part ofthe net most of the out dl by the
Benefits Agence est for authori at with the
strategy, acce ay likely s platform une it
was replaced in no: being implemented
under the terms of F ce IniUative the cqnpment would be sold on to the private
sector partner as part of the package.
THE PROPOSAL
5 Stic swipe
equired in future.
amounting (0 7% of
st 1993. The proposal will a!
port this oudet capability. These will
the additional workload
1% of serving positions, by Aug
communications and data distnbutios
cd on the existing (T facie
(The exist
during I
so provide the
ices required to sup
am for r
no IN STRICT 2ST CONF! DEN
POL00031181
POL00031181
IN ST
2 PC-based
development’s 5 strategic fit with any furure
opportun to S, usiy
equipment whi
rational ss
Bprove informal ¢
sed
widely guard
7.
jon is a potential market for development of new
bed for national
g further devel
nto these s
products wi s s
high visibility with opinion formes
experiences of running t . F position U
potential future private sector partners, None of the substantial strategic benefits im this and
previous paragraphs have been quant: fies
for which a cautious stand-alone
fogic advantages, Lond
vis a potential 4
which will he}
The main features of the offer
service, an annual fee for its operation. bonus payments for completion on-time or early + and
penalties for late delivery and fiilure to meet agreed service standards. Details are in Append
The incentives and penalties } been reviewed with /T and with external consulta
considered to be in fine with normal p @ of opera
In addition to income from BA, POC in x ue be able to mi
Automated Payments project. (See 4
applications } Provid }
nepical expenditure on the
s and oth
‘pataeraph 3, the
¢ due to be installed in Lond
{ using them), would not be required, as their functions would
tainals being installed under dus proposal,
majority of the tery
{with British Gas as the
integrated into the new ger
se ter
in outlets and only minor changes in
ecount crror corrcetion werk equivalent to 3 or 4
centre by 1999 offset by increased he!
requireny
Asad POCL reached pro
on 10 August. A key
ra POCL would make from the project. given that
fy a hurdle re P6%, BA have subseg
After intensiv
subject t
poist was BA's concer
Government departments need
obtained Ministerial approva
TIMING ISSUES & RISKS
BA's original plan was to procure an automial ted stop Ust service for Londoa on a compet
and they jaitated I i a February 1994. In addition
ing simpler technology similar to that used in the
ler technolo;
© been quicker
would not have met longer tere plans for benefit payin
had no additional beaefi ¢ for POCL. it
oF ifs
pment in London be
ict for benefit p:
pable of a wide r
sed with which POCL can
contimung cncashment fraud
siblichy committed to
Tn the course of negotiations. BA
undertaken dircetly by POCL
offices), and be base
counter Usnisactic
dehver the
level (currently £0
reducing,
smMENt
po
ppccrn at
areap. wineks dh
a
POL00031181
POL00031181
IN STRICT
overt ta their earlier
solutions. Delay im fins: he contract woul
s of agreement and forgoing the chance to
sls referred to in pura. 8 above.
Untd the contract for Alort2 is si
procurement options
lead to reap
The financial aspects o!
of Project Information is at Appendis 3
CONCLUSIONS
There are two separate
asons for proceeding with th
L , provides a significant improvement in the service which Counters can provide to the
Benefits Agency, The u i xcome from the BA will cover most
of the costs of providing th and with the addition of some smaller, well defined,
alone
2 res the strategic infrastructure
and earlier than would otherwise be
risks Qvhich arise from risk of delay and not achieving
redicted costs for equipment) but these are offs
nancial case to use the a
opportuni
benefit
d clients
ventual national system or by s
© alternative course
with POCL's lary
e not viablc, Doig noth r
put them in a poor position in the coming neg ONS OF
fs with BA-owned pont and lower finctionalits
will actively hi
7. By contrast, the development described in this paper
© systems infrastructure necded to support that
ed to the Board
ng would res
a) Note that the project is ¢
strategy for automation ut p re
Gs) al service
iy conditions I2 the expenditure of £12.9m ina
am £12 1
sition of counter
re and
ni as for the
idun the M25.
aciig computer equipment a
dat the appropriate level when options
Farnborough duri
have been evaluated
eiby offset bs
E fee of
Gv) Note
at this exper
BA whe will a
fun will be po
pay an addite
mi per annua
we
September 1994
CONFIDENCE,
POL00031181
POL00031181
IN SPRICTEST CONFIDENCE
Appendix 1
Summary of Financial Benefits and Costs
The Current Benefits Agency Offer
Payments by BA to POCT
« — £2m on signing,
. £2.2m when POCL awards iain supply contract
* £1.4m when the first fflces are live (estimated 12 Mav 1995)
© £lmon 28 August 1995
. £6 4m each mid quarter from August 1
. In addition BA will refund £2. Ins VAT
. increased in line with the RPI
red by POC
Banus Payments by BA te POCL
. Up to £0.6m for meeting and exceeding mstullation Umesca
Penalties payable by POCL to B. ‘
° per week bre ds evond 9 October capped at £2m1,
* ul polling: £0.2m p.a. cap.
. availability 5 from 1997/98. £0.2m pa cap.
. duc to improper use of the
with any losses dug to negligence.
trial action} to apply to all
equipment recoverable ff
ses Gneluding indu
Force majeure ¢
Non-BA Benefits
» ECCO# and APT San
* Provision of ECCO+ fin
7m
6 Agency Officcs (on a voluntary basis
POCL Costs for the System
PCS Thased tery
Office modifications and in:
+ Sofiware D.
* OF
INSTR
POL00031181
POL00031181
UCPEST CONFID)
Appendix 2
Glossary of Systems Referred to in the Paper
ECCO+
This system is in use in the 670 largest directly managed post offices, of which 179 are in the London area
covered by this proposal. It provides a terminal with a screen, keyboard with special keys for Counters’
products, magnetic stripe card swipe and receipt printer at each counter service position. The terminals are
used as electronic tills and all transactions are recorded on them. The system produces daily and/or weekly
umunaries for certain clients and prepares weekly cash accounts which are forwarded to the Chesterficid
accounting centre. In some offices, the ECCO+ termir also handle bill and pre-payment business, with
an add-on unit for processing smart cards where clients require this.
APT
This Automated Pa: Terminal is
markets. It has a full alpha-numeric key
modern calculators} whi ch can dis;
card reader and can also coud and write to smart card
pre-payment meters The terminals are connected to a pl
telephone at the (T centre in Fa: ch fer consolidation a:
out of APTs to S000 offices is due to be completed
the London area which is at the end of the roll-out programme
a custor-bet minal for the bil payment ment
ourd and a small guid crystal display (similar to the displays on
up to 40 characters. The terminal includes a magnetic
sarge the smart keys used in some ublity
e and tras cted by
onwards tra The rolls
Fices are in
and Fee
Alert
‘This is a trial of a BA automated stop list currently
equipment is leased by BA front a company, H-TEC.
counter position has a bar-code reader and a box
be made after the bar-code on a b O0k bi
cables to a PC in the back of the ew hich ho
lists by telephone from their compu
st offices im Nerth London. The
who own the design and are the sole suppliers. Each
lights to indicate whether payment should
aned. This counter oguipment is connected by
the stop list. H-TE: fating of the stop
ter centre in Southampton
* manage the up
Alert2
This is the name used to
reasons, the name may be
(For trademark
ainst an automatic
functions
th a screen and
i ch as
est will have a specification
1 and transaction reonrds needed
estry shindards, bk
stop list using bar code { much more vors:
where these are already in es or * planned” TI
stomised keyboard sim
printerg and sir J ee EN required Unlike ECCO
with the processor speed, s ad disk ye for rotor
to support future product developme
interchangeable with similar equipment from many supplicrs. The updating stop lists and
transaction data will be oan by rf
Page S
ICTEST CONFIDE
POLO0031181
POL00031181
IN ST RGC (ot Udine viiivens —
Appendix 3
MPO)S4B
SUMMARY OF PROJECT INFORMATION
GENERAL
Project Titie: AUTOMATION AT LONDON POST OFFICES (ALPS) - PHASE 1
Project Sponsor RICHARD DYKES
Project Coutroller > PAUL BARRIS
EINANCIAL DATA. Caminita 2X Outturn £6
Capital 8709 9951
Noo-Recuring Reveoue 2608 2632
‘Total Authorised Sam 11317 11583
Frost Estimate 566 $79
Maxsionm Authorised Expenditure 11883 12162
Sunk Costs: Authorised
‘Unauthorised 176 176
Puture Casts 558 S75
SUM TO DETERMINE AUTHORITY LEVEL 12617 22913
FORECAST RESULTS
Net Present Value at 12% ~ Pre Tax £03k
~ Post Tax (E3505)
foternal Raie of Renmn —- Pre Tax, 1NT%
~ Post Tax 4ST%
Average ROCE 2ALG
EFFECTS ON TARGETS
t 1994-95 1995-96 1996-97 Cum 6yrs
Pre Tax Profit £m. 34L2 2918 (1.476) 0373
External Financing Limit £m 2.784 (3.564) O.841 1.218
RISK SNALYSIS
Analysis indicates there is an 90% chance of a negative NPV ata 12% TDR and on 63% chance at an
8% TDR. This is partly because of the skewed nature of dhe risk distributions and the way these are
treated in the risk analysis program. Nevertheless, there is undoubtedly whigh risk of « negative rem,
MANPOWER EFFECTS
There will be 0 change to aianpower mysirements
BEY TARGET DATES vi
Let Hardware Conuact January 1995
ALDS software user accepmance testing: March 1995
ECCO software user soceptance testing
First office to go live
Last office to go live August 1995
OPLIONS
Only the proposed option has been presented in 1 sd form in dhe financial Conces ¢. This is
hecanse only one technical route sat he ediate client requiremenr and the strat business
development route. The only odier opdoa {apart fom stam goo) is the so called RAG optaa which
prvolves the placing of special equipatent used oaly tor the Benefits Agency at each counter pasifion.
‘This optios is currently being trialled. The option makes a zero or marginally negative NPV as it is
paid for and owned by the Bencfits Agency and uses up valuable coumer space. It does not conmbute
to Counters long term stmategy and has therefore been rejected. :
eb
‘ONFIDENCE
owe eee IN STRIC'