POL00089759
POL00089759
file angen
. 27 April 1999 DR NEVILLE BAIN
Chairman
The Rt Hon Stephen Byers MP
_ Secretary of Stat
Kew bheypbon 1
HORIZON
At its regular meeting today, the Board spent a good deal of time
reviewing the events of the past few weeks in relation to the Horizon
project. :
As I said to you in my letter dated 6 April, it has considerable concems
about the project from the viewpoint of Corporate Governance and in
addition still believes that Option A is the right way forward. It is
capable of evolving into the Smartcard and banking option, while
capturing early the benefits of the payment card. However, we do
understand why Ministers and ICL both believe now that this is not
- achievable. While we will work positively to see if there is a commercial
case that can be prepared under Option B1, we are pessimistic about
the outcome as it currently appears financially unsustainable.
The decision of the Fujitsu Board on Friday appears to give us a further
couple of weeks to try and do this. We will continue to work positively,
but the Board wanted me to set out clearly for you at this stage some of
our major concerns. Above all we see Option B1 as commercially
worse for the public sector than Option A by around £900m, but for us it
would create a project worsening our position by some £1.5 billion with
little or no guaranteed income. We are, therefore, looking to
Government to give us a firm commitment for income coming to us both
for the ‘bank account’ service at the heart of Option B1 and from the
‘Modernising Government’ White Paper. This would give us the best
chance of putting together a commercially viable project and meet the
Government's stated intention in the White Paper of automating POCL.
Option B1, as it stands at the moment, could not be supported by The
Post Office Board.
9193
POL00089759
POL00089759
moe
The tests the Board will apply to any proposal will be:
1.
Is the case a commercial one with fairly balanced risks? In other
words one that gives a positive NPV at an appropriate discount
rate. :
Can the funds be generated in such a way that they do not
prejudice other planned Post Office activities (which may have a
much better return)? .
What is the impact and timing of the costs on The Post Office and
POCL Profit & Loss accounts? In particular The Board will need
to consider if the proposal can be accommodated by Post Office
Counter Ltd without technically bankrupting this business.
We remain very keen to keep the project going and to automating Post
Office Counters, but not in a way that means it is asked to sign up for
substantial costs with no certainty around a revenue stream. No Board
could defend such an-action publicly.
Finally we all accept that this will be a difficult decision and the Board
has agreed that it will need to be taken by the whole Board. I hope that
the process over the next few weeks will include ‘in its timescales
thirty-six hours to enable me to consult all Board Members.
7
Yours sincerely,
Dr NEVILLE C BAIN
99193