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DEPARTMENT OF TRADE AND INDUSTRY
FOR THE URGENT ATTENTION OF:
. Sarah Mullen HMT -
Please circulate to HMT officials below:
Peter Schofield
Adrian Montague
Ross Newby
Joseph Halligan
~ Sarah Graham DSS
Geoff Mulgan - :
* No. 10 Policy Unit
~ Chris Wood Cub. Office
v Jeremy Crump CITU
Jonathan Evans POCL
Robert Ricks
HMT Legal Adviser
v Clive Osborne fox :
‘/DPTVLegal C3 : !
; v ‘George McCorkell BA fr I
NUMBER OF PAGES TO FOLLOW: © 11 - DATE: 14.12.98
FROM:. « ISABEL ANDERSON, POSTAL SERVICES DIRECTORATE
DEPARTMENT OF TRADE AND INDUSTRY
306 RED ZONE, 151 BUCKINGHAM PALACE ROAD
LONDON SW1W 9SS ;
GRO “+ FAXNO.
‘TEL NO.
HORIZON ; PROGRESS TRACKING GROUP
REPORT TO MINISTERS / PRESENTATIONAL ASPECTS ANNEX
Sarah and copy recipients,
Lattach a revised version of the paper on presentational aspects of Ministers’ decisions on the
Horizon project which secks to reflect comments received from copy recipients. It
incorporates in particular some changes in relation to issue of notice of termination and notice
of time of the essence.
Isabel Anderson
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ANNEX C
IORIZON - PROPOSED PRESENTATIONAL STRATEGY
L ‘This note sets out a presentational strategy, broadly agreed at official level
within the Horizon working group, for each of a number of possible scenarios
which will depend on the decision reached by Ministers on the future of the
Horizon project and on [CL’s reaction to it. The scenarios covered are:
I. Existing contract re-negotiated to continue the project in its entirety.
IL. Notice of time of the essence issued. : D
ILL. ‘Negotiated settlement with all parties exiting contracts. .
IV.- Negotiated settlement with ICL providing banking facility instead of benefit
- payment card. TT
V. Decision by HMG to terminate contracts.
VI. Withdrawal by ICL with apparent intention to litigate.
2. As a precursor to termination, POCL/BA will serve ICI. with some form of
notice of termination, If notice of termination is issued we suggest that this should
be accompanied by a Ministerial statement (ScenarioV). We suggest that in the
case of notice of time of the essence being issued requiring ICL to complete the
_ contract at a given date this should not be accompanied by publicity (although lines
‘to take if news of its use emergos are given - Scenario 11).
3. Koy concerns in the event of a failure of the project will be to reassure
subpostmasters about the future of their businesses, and to reassure benefit ©
recipients that they will continue to be able to collect their benefits at post offices.
It will also be important to convey the message to the IT industry and Japanese
inward investors that the Government has acted in-good faith, If the project
continues in its current form, there is also a strong case for putting on the record
the Government's support for it given the concerns generated by speculation about
its future over the last year.” ,
4, ‘We propose that in all the scenarios listed above oxcept Scenario IT an oral
statement should be made in the House of Commons by the appropriate Minister
The precise tone of responses will depend partly on the stance adopted by ICL:
Draft Ministerial statements are given at Appendix A. Question and Answer
briefing is at Appendix B. :
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APPENDIX A
DRAFT MINISTERIAL STATEMENTS
SCENARIO I: Existing contract renegotiated to continue the project in its
entirety.
Madam Speaker, with permission I should like to make a short statement about the
project, known as Horizon, to automate the payment of social security benefits and
a range of other services provided ut post offices. .We have been concerned at the
serious delays to this project, undertaken jointly by the Benefits Agency and Post
Office Counters Ltd under the Private Finance Initiative and with ICL Pathway as
the private sector partner, and we have therefore been monitoring its progress
carefully. Iam today able to tell the House that we are satisfied that a sound basis
for taking the project forward to a satisfactory completion has been found. Under
these revised arrangements, all post offices will be automated by-autumn 2001, I
“very much hope that this statement will put an end to recent months of damaging
speculation in certain sections of the press about the future of the project, and allow
those charged with its implementation to focus their energies on the task in hand
without further distraction.
SCENARIO Tl: RESPONSE TO QUESTIONS ABOUT HMG SERVING
NOTICE OF TIME OF THE ESSENCE
The Horizon project, undertaken jointly by the Benefits Agency and Post Office ©
Counters Ltd under the Private Finance Initiative and with ICL Pathway as the
private scctor partner, has for some time now been in difficulty, suffering extensive
delays and-cost overruns. “The public sector parties I have after very careful
consideration served notice requiring ICL to complete the project by the end of the
notice period.
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The Government remains committed to the objectives of the project, namely :
~ the automation of the post office counters network, to match the ambitions we
have for it to. become a world beating model service; and to ensure ;
~ asimple, fraud-resistant, convenient and cost-effective way of delivering the
£billions of taxpayers money we pay out each year in benefit payments.
We remain fully committed both to the maintenance of a nationwide network of
post offices - we fully recognise the importance of post offices to the communitics
they serve - and to ensuring that all those who wish to do so will continue to be able
to draw their social security benefits in cash at post offices.
For the time being, there will be no change to the existing arrangements. Benefit
customers will continue to be able to collect their benefits in cash at post offices,
whilst those who hold a benefit payment card will still be able to use it..
SCENARIO III: Negotiated settlement with all partics exiting the contract
SCENARIO V:- Decision by HMG to terminate contracts
SCENARIO VI:_ Withdrawal by ICL :
Madam Speaker, with permission I should like to make a statement about the
project, known as Horizon, to automate the payment of social security benefits and
arange of other services provided at post offices. The House will be aware that the
project, undertaken, jointly by the Benefits Agency and Post Office Counters I.td
under the Private Finance Initiative and with ICL Pathway as the private sector
partner, has for some time now beon in difficulty, suffering extensive delays and
cost overruns. Despite the best offorts of the public sector, it has unfortunately not
been possible to establish an acceptable basis for continuing with the project
(which will now be discontinued] [and ICL have advised us of their intention to
- withdraw]. ,
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The Government wishes at this time to reaffirm that we remain fully committed
both to the maintenance of a nationwide network of post offices - we filly
recognise the importance of post offices to the communities they serve - and to
ensuring that all those who wish to do so will continue to be able to draw their 4
social security benefits in cash at post offices. .
_ We also remain committed to the objectives of the project, namely :
~' the automation of the post office counters network, to match the ambitions we
have for it to become a warld beating model service; and to ensure ,
- asimple, fraud-resistant, convenient and cost-effective way.of delivering the
£billions of taxpayers money we pay out cach year in benefit payments.
Post Office Counters will now need to consider urgently the options for securing a"
roplacement for Horizon. For the time being, however, there will be no change to”
the existing arrangements. Benefit customers will continue to be able to collect
their benefits in cash.at post offices, whilst those who hold a benefit payment card
will still-be able to-use it. _
optional additional
Becutise of the delays to the project, we have had to draw up some contingency.
plans, These have included exploring the potential to seize new opportunities to .
support our ambitions for tho Post Office as it moves to a new, commercially
competitive future and for a wider delivery service for benefit payments. -
So, in addition to being fully automated, the Government would like to see post
offices offering on-line banking services. in association with commercial banks”
extending the banking facilities already available at post offices.
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Increasing number of benefit customers are choosing to have their benefits paid
into bank accounts, We would like them to have the choice of collecting their cash
at post offices., We will work with the banks to provide everyone with a bank
account if they do not already have one, Post offices are convenient for most
people, and people in general, not just benefit recipients, will Lam sure welcome
the development of automated banking facilities at post offices.
SCENARIO JV: Negotinted settlement - with ICL providing a banking.
facility instead of a bencfit payment card (when reached). :
Madam Speaker, with permission L should like to make a short statement about the
project, known as Horizon, to automate the payment of social security benefits and
arange of other services provided at post offices. Against the background of
serious delays to the project, which is being undertaken jointly by the Benefits
Agency and Post Office Counters Ltd under the Private Finance Initiative and with
ICL Pathway as the private sector partner, we have been reviewing with the
contracting parties the future direction of Horizon. 7
. Inthe light of developments in technology and the market place, and the continuing
trend amongst benefit recipients to elect to have their benefits paid into bank
accounts » which represents acost effective and fraud-resistant method of paying
benefits - we have decided not to proceed with the benefit payment card proposed
by the previous Government. Instead; the Horizon platform will be adapted so that
all post offices will be equipped to offer automated current account banking
facilities on behalf of ‘the commercial banks. This will mean that eventually, all
benefits can be paid into people's bank accounts, but people who wish to. do so will
still be able to draw their benefits in cash at a post office, but with the added
benefits of much greater flexibility and with access to a wide range of banking
facilities, What is more, we will work with the banks to help everyone get a bank
account, if they do not already have one.
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The terms of the contract with: ICL Pathway have therefore been renegotiated to
reflect this change of direction.
People in general, not just benefit recipients, will am sure welcome the _
development of automated banking facilities at post offices. For subpostmasters,
* this change will open up the prospects of a wide range of new business stemming
from the development of our policies on yniversal banking, and the potential for
offering a Single Government Account signalled by: the Prime Minister at the
Labour Party Conference to bring together in a simpler way the many transactions
Government has with each individual citizen.
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APPENDIX B
LINES TO TAKE IF EITHER ICL OR HMG DECIDE TO TERMINATE
JIORIZON PROJECT
IR CL TERMINATES ©
GOVERNMENT’S VIEWS ON ICL PULLING OUT OF HORIZON
PROJECT? : . :
. Regret that ICI. has felt unable to continue with the project despite the public
sector parties' best efforts to agree revised terms with them.
WHAT WENT WRONG? (IF {CL TERMINATES)
«+ This large and complex IT project became subject to extensive delays and I
cost-overruns, and the contracting parties were unable to agree an acceptable
commercial basis for continuing with it.
IF GOVERNMENT TERMINATES
WILY HAS. GOVERNMENT CANCELLED THE HORIZON PROJECT?
© Despite the public sector's best efforts it has unfortunately not proved possible to
reach agreement with ICL on commercial terms for continuing with the project.
IS IT TRUE THAT THERE JIAVE BEEN NEGOTIATIONS BETWEEN
THE PARTIES WHICH HAVE BROKEN DOWN?
» This is commercially confidential information upon which I cannot comment.
WAY FORWARD NOW?
© The Government remains fully coramitted to the objectives of the Horizon
- project to provide: :
~~ the auitomation of the post office counters network, to match the ambitions -
wo have for it to become a world beating model service, and
- asimple fraud-resistant way of delivering the £billions of taxpayers’ moncy
we pay out cach year in benefit payments
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© But the plans we inherited from our predecessors are not now the best way to
: achieve these objectives, given the delays that have now occurred in the project
they devised. - . :
I e We believe there is now a better way forward, available to meet the ambitions
I this Government has to handle its dealings.with people in a modem, convenient”
! and streamlined way. : .
¢ In particular, we want to look to solutions for the future.
© Our vision for the future is that +
- every post office will be automated, and will offer on-line banking services
in association with the commercial banks as well its current range of
services; . , ,
- people will have their benefits paid into bank.accounts and will be able to
collect their benefits in cash from post offices/shops /banks and a number of
other outlets whichover is the most convenient; :
- they will be able to do this because of the banking facilities that the Post
Office will install on its countérs; and because we will work with the banks
to provide everyone with a bank account, if they do not already have one.
¢ We will be achieving this massive change, moving us away from an antiquated
" system of paying benefits which has been around since the 1940s, by building a
partnership with the banks, the commercial world, the Post Office, Government
and people. : ome
© This approach will ‘open up the prospects of the kind of Single.Government
Account signalled by the Prime Minister at the Labour Party Conference, to
bring together in a simpler way the many transactions Government has with each
individual citizen. .
EFFECT ON POST OFFICES ?
© Post Office Counters will now need to consider urgently the options for securing
areplacement for Horizon, incorporating banking facilities but in the meantime it
will be business as usual for post offices up and down the country.
« The Government remains fully committed to the maintenance of a nationwide
network of post offices providing good local access. :
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e Fully recognise importance of post offices to communities they serve and
recognise the especially valuable role played by post offices in rural
communities, ; /
IMMEDIATE CONSEQUENCES FOR BENEFIT CUSTOMERS? we
¢ Those customers who presently use payment card will see no interruption of
their payments. -
¢ Vast majority of 18 million benefit customers will be unaffected.
COMPULSORY ACT?
« DSS will take steps to ensure that it gets the secure, convenient and cost
effective method of paying benefits which its customers need. This can be best
achieved by expanding the payment of benefits direct to bank accounts.
© Benefit recipients are increasingly opting to receive their benefits through their
bank accounts, but the Government will ensuro that all benefit recipients who
wish to do so can coritinue to collect their benefits in cash at post offices, by
working with the Post Office and banks to install suitable banking facilities.
REPLACEMENT FOR HORIZON?
© Government remains committed to offfering-benefit customers a convenient,
fraud-resistant and cost effective method of benefits payment and automation of
.the post office counters network, . .
© Government accepts it is important to future of Post Office Counters that
network has modern, automated oi-line platform for handling present and future
business. "ees : : :
¢ Disappointing to lose Horizon, but Post Office Counters will now need to
quickly consider alternative options which will help it to provide the services
which its clients and customers want. : .
RURAL NETWORK
© The Government recognises the particularly significant role post offices play in
rural communities, both in providing people with easy access to their benofit
payments and because of the close interdependence of the post office and the
village shop. co
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© Management of the network is the responsibility of Post Office management who
seek to cnsure that services continue to be ‘provided where possible. However,
when a subpostmaster resigns or retires it,is unfortunately not always possible to
recruit a replacement. : ‘ :
_ © However, the Post Office must also be sensitive to changes in shopping habits
and demographic trends. :
e When the Post Office are unable to retain a full time facility in such areas they
will seck to establish a part-tiine facility where possible.
POST OFFICE REVIEW?
¢ We recently announced a package of measures wliich will provide real.
commercial freedom within the public sector for the Post Office.
«© Post Office Counters has already for some time beon sceking to extend its ©
product range into a number of now areas, which has proved popular with
customers. We welcome this, Important that they continue to develop in ways
which will help underpin-the network.
IS THIS ANOTHER PFI FAILURE? Lo
© No. Tho Private Finance Initiative will continuc to provide successful basis for
public/private sector partnerships. : Loo
e Risks transferred under PFI to the private sector must not come back to public
sector. . :
WHAT DOEFS FAILURE MEAN FORICL’s PLANNED FLOTATIONATS
FUTURE? : ‘
© Decisions concerning the future of ICL are a imatter for ICL and its parent
company, Fujitsu. .
WHAT ARE IMPLICATIONS FOR INWARD INVESTMENT BY ICL’s
PAREN'T COMPANY, FUJITSU? , -
@ Lach project needs to be considered on its own merits. The Government greatly
values Fujitsu’s investment in the UK. ~ 5
10—
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IS TERMINATION OF THE PROJECT A REACTION TO FUSITSU :
CLOSING ITS SEMI CONDUCTOR PLANT IN THE NORTH EAST?
© There is absolutely no connection whatsoever between these two events. The
Government continues to work closely with Fujitsu to try to find a buyer for the +.
Newton Aycliffe semi-conductor plant. :
‘THIS TERMINATION SURELY INDICATES THAT THE GOVERNMENT
HAS NO FAITH IN ICL’s CAPABILITY IN RELATION TO PFL
PROJECTS. HOW DOES THAT SQUARE WITH THE RECENT AWARD
OF A MAJOR PFI CONTRACT BY THE DIL TO A CONSORTIUM LED
_BYICL?
© Termination of the Horizon project reflects simply the fact that the commercial
difficulties encountered on that particular project could not be resolved to the
satisfaction of all parties. There is no read-across to the DTI contract
whatsoeyer. .
a)
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