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Sender... Sibbick Dayid
Recipient
Davis Derek- CB
Halls Steve
Leese Nigel - CGBPS
MacDonald Alastair
Whitehead Mike
Wright Jan - CGBPS
Subject...
Sent. 02/11/1999 11:53
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02/11/1999 12:42 v ard
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HORIZON
I appreciate that we have already over-briefed you for your meeting this
afternoon with Neville Bain and John Roberts, and that I risk compounding the
mischief by offering yet more. My excuse for doing so is that the Post Office
appears to have put forward an agenda for the meeting which gives it ample
opportunity to whinge about the perceived inadequacies of Government in general
and the DTI in particular. You may therefore find it useful to have an example
to bat back to them.
This concerns the spat between POCL and the Benefits Agency over the payment for
the order book control service (OBCS) and the minimum payment or "floor" levels
that BA will pay to POCL if the volumes of traditional paper-based benefit
payments drop below a pre-determined level between now and 2005. In short, the
Post Office had demanded from BA a payment calculated on the basis that the
total cost of Horizon over the contract period would be roughly £1 billion; that
OBCS would represent, initially at least, around one-third of the total volume
of transactions likely to be handled by Horizon; and that BA should therefore
pay something in excess of £300 million over the contract period. BA refused to
raise its offer above £110 million, the amount it had agreed to pay when it was
expected that the benefit payment card would be the major user (and source of
revenue for POCL) of Horizon. BA also withdrew any commitment to a floor
payment .
I told the Post Office on more than one occasion before the summer that I
regarded its demand as untenable and one which Ministers would not be willing to
support. The Government was contributing £480 million towards the cost of the
Horizon project, and what POCL was therefore entitled to claim from the Benefits
Agency was one-third of £1 billion less £480 million - that is around £170
million. There was no way, I told the Post Office, that Ministers would
tolerate the Government being charged twice over for the same product which was
what, in effect, POCL was asking for. The difference between the two sides on
my formula is around £60 million as opposed to a gap of more than £200 million
on the Post Office's basis.
My understanding had been that POCL had since been negotiating with BA on the
basis of a revised bid, but that BA was continuing to be completely
intransigent. However, it emerged a short while ago that it was POCL who were
being intransigent: they had not moved from their original demands. I told them
again that we would not support them on that basis and so far as we were
concerned its position was untenable. They have since had one further meeting
with BA at which they indicated that they would be prepared to reduce their bid
to something around the level I had suggested if in return BA would agree to
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reinstate the floor payment. BA has indicated that it is willing to see whether
a way through can be found on that basis and I understand another meeting is to
be held shortly.
y may like to use the opportunity to make clear to the Post Office that if it
vs our help it needs to listen to what we have to say and put itself in a
position where our Ministers can go in to bat with their opposite numbers in the
Treasury or DSS with right on their side. In this instance the Post Office has
put itself in the position where getting a satisfactory solution will now be
more difficult than might otherwise have been the case because attitudes have
hardened against what was rightly seen as an indefensible stance over a long
period of time by POCL.
David