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Fu: SU RIFSTRICTE) ~ POAICY & COMMERULAL
,-Bo1._.Marunouchi t-ohome, Chi
Vice Chairman
i
Sir David Wright KCMG LVO
Her Britannic Majesty's Ambassador
British Bmbessy Tokyo
No.1 Ichibancho, Cliiyoda-Ku
Tokyo 102-8381:
Japan
é
4" December 1998
Ber Sin Baneol
‘ BAJPOCL AUTOMATION PROJECT
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1
Known as the Horizdn projec, this is one of the largest and most complex IT projects in
Europe, Itis also one of the earliest attempts to use PFI for a large and complex Information
Technology project. ‘It was awarded to ICL in May 1996.
:
Horizon is designed tp automate the payment of DSS benefits via an IT network that links up
the Benefits Agency (which provides the payment authorisation) and the national network of
some 19000 post offices which pay out the benefits in cash to those eligible to receive them
(about 20 million pedple, in total). The intention ia to improve the quality of service while
reducing the cost of atiministration and virtually eliminating encasbment fraud. The Horizon
IT network will also enable the Post Office to modemise its counter services.
The project is running two years behind schedule and is heavily over budget. Because this is
a PFI project, the risk is being borne by ICL. However, ICL is in dispute with the project's
sponsors. In ICL’s ‘view, the sponsors were responsible for the many changes made to the
project's technical spécifications thus causing the bulk of the delays and the additional costs
which have ensued.
From the start, this project was not treated properly as a PFI by the two sponsors. A Project
Delivery Authority \(PDA) of more than 150 officials drawn from the two sponsoring
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Government Agencied was established whose sole task was to oversee every aspect of the
project. But the PDA had no authority to act without seeking prior permission ftom the
sponsors, thus adding fo the delays and costs of the project.
Following complaints/by ICL about the unnecessarily bureaucratic nature of the PDA, it was
abolished in the Autimn of 1997. But the project had already fallen behind schedule.
‘Those problems were: compounded by the inability of the DSS to supply us with the date
whieh we needed to énsure that the right benefits were being paid to the right people at the
right time. The original timeseale for the implementation of Horizon was based te tf
agreement of the Benefits Agency to provide us with all of this data in September 1997, by
later emerged that their programme to produce this data was running four to five years late
and that instead of supplying us with all of the data to enable us to create the necessary
databases for Horizon, we would only be given the data in phases. This has added
significantly to our delays and costs.
To date, ICL - suppoited by Fujitsu - has spent over £200 million. The system is up and
running in some 200 post offices. The cost of rolling out the complete system will involve
ICL and Fujitsu in raising a finther £600 million. But the commercial terms will need to
be revised to ensure that ICL can raise the necessary funding and, in due course, have some
expectation of recouping the money if has invested (and will continue to invest, assuming that
the project goes forward). Negotiations have been taking place for some months to try and
find a way forward. I :
At ICL's request, Treasury Minister Robinson set up a review panel in February, 1998 and this
reported constructively in mid-July. Five months later the Benefits Agency is still
obstructing a reasonable settlement, Meanwhile ICL has been investing £ 10 million a month.
Now Treasury Ministér Byers is accusing ICL of being in default and of making unreasonable
commercial demands.
!
We now know that th Benefits Agency has always been a reluctant parmer in this project; we
believe that many of the problems we have encountered have their roots in the Benefits
Agency's wish to findlanother way of distributing benefits eg via benking channels, in spite of
the Government's dedision to continue payments in cash via the post office network. This
has added to the getieral uncertainties surrounding the project, and casts doubt on the
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willingness of the pubic sector partners to negotiate with us in good faith.
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There has been an ex ¢ of letters between the Chief Secretary to the Treasury and Keith
Todd, CEO of ICL. isters have set a deadline - 9 December - by which time they wish to
see progress on finding 9 resolution. But it is clear that they still see ICL at fault and thus
the party which must ¢arry the bulk of the financial burden.
Fujiteu has been kept filly informed of the unhappy developments in this case. Fufitea will
continue to support Keith Todd and his management team. Fujitsu has already informed DTI
officials of this, Furl Fujitsu will continue to support ICL in good, well founded
PFI contracts such as the DTI ELGAR project. But ICL and Fujitsu will now be much more
carefull about PFT in fujure, given the developments in Horizon.
I
So far as the Horizon Project itself is concerned, Fujitsu are willing to support a reasonable
commercial solution. {But Fujiten will not provide or underwrite another £ 600m of costs
without a valid commercial case for doing 40. No management could justify such a decision
to its shareholders - as faust surely be obvious to all.
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FUJITSU
TOTAL P.a8