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To: ci: Sir Michael Scholar
SECRETARY OF STATE _} separate ve Macdonald CGBPS
MR MCCARTNEY }copi er
}eopies Mrs Britton PORT
Mr Fraser IBB
From: Mr Sklaroff COM
DAVID SIBBICK Mr Hosker FRM
Dr Hopkins ci
Mr Osbofne Legal C
Mr ner PORT
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ste Mr Whitehead CGBPS 1
14 April 1999
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BA/POCL AUTOMATION PRO. :/HORIZON: UPDATE
Update
(Ma Gege* Ms Anderson CGBPS1
is-4. Mr Corry SpAdv
. Ms Moore SpAdv
1. Steve Robson convened a meeting earlier today of the public sector interests in
the Horizon programme in order to take stock of the emerging results of the various
strands of work that have been pursued over the past few weeks, as a prelude to
preparing a report for Ministers’ weekend boxes and a final decision on the way
forward for the project in the early part of next week. The headline conclusion is
that Option B is likely to cost in NPV terms some £700 million more than Option
A, for a project which contains in practice little additional functionality or
contribution towards wider Government objectives. This very large disparity
makes it, in Steve Robson's words, a "no-brainer". Option A itself is increasingly
seen as dysfunctional and unworkable thanks to BA (and DSS) implacable
opposition to it - though it remains POCL's preferred way forward despite the
difficulties. These conclusions appear to leave the public sector parties staring the
termination option in the face.
2. The Benefits Agency then suggested that it might be worth considering a variant
of Option Bzero. Under this, the public sector would agree to purchase the basic
Horizon infrastructure, but without the commitment of the earlier version of this
option to purchase later either the benefit payment card or the smartcard
enabled benefit account. The public sector side would, however commission ICL to
supply the infrastructure with the addition of OBCS (order book control system) which
can substantially reduce entitlement fraud with the existing paper-based method of
benefit payment and which would provide an additional revenue stream for ICL. The
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Benefits Agency would then continue with the present paper-based system for a
limited period while POCL developed front-end banking deals with the major
commercial banks. At the end of that period the Benefits Agency would migrate
recipients as speedily as possible to ACT, and POCL would have to take its chances on
the proportion of new bank account holders who would choose to access their bank
accounts at a post office. Post Office Counters agreed to look urgently at this option
but the latest information I have from them is that they are likely to reject it as a worse
option for them than termination followed by starting again with an infrastructure
tailored specifically to on-line banking facilities.
3. I saw Steve Robson separately after the meeting to stress three points. First,
DTI Ministers would be deeply concerned at the effects of termination on ICL and on
our wider relations with Fujitsu. This concern appeared to be shared by No10 and by
the FCO. Second, Ministers would need to be very clear that we had not loaded on to
Option B costs which under Option A would equally rest with the public sector. For
example, if the risk of repudiation fraud was equally great under either option, we
needed to be sure that it had received equal treatment in both sets of figures (POCL
have estimated it at £20 million a year in their figures; it is unclear what if any
provision is made for it under Option A). Third, if Ministers had decided that for
social reasons the country needed a counters network of a certain size and
configuration, and were committed to subsidising its maintenance, the true marginal
cost to the public sector as a whole of putting additional business through the network
was likely to be very low, and probably cheaper than other available channels. In such
circumstances it would make sense for the Government to decide centrally to conduct
a high proportion of its business through POCL. If Ministers accepted this view, it
might not be unreasonable to allocate a forecast revenue stream from this work to
Option B, thereby narrowing the gap between it and Option A.
4. Steve Robson agreed that each of the three options - A, B and termination -
looked thoroughly unappetising, and he doubted whether the latest BA suggestion.
could satisfy both ICL and POCL. Whilst further work on the numbers might reveal
some double-counting or under-counting as between the options, he doubted whether
we would find anything that would fundamentally alter the relationship between
Options A and B. As for future revenues from Government business, the greatest
potential probably lay with the delivery of electronic Government which at this stage
was insufficiently developed and too uncertain a prospect to materially influence the
numbers. These assessments have since been echoed in discussions this afternoon
with the Treasury team working on the detailed figures, and with POCL.
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Comment
5. POCL and ICL have worked well together in defining and developing an
alternative (to the benefit payment card) way forward (though there are still a number
of important issues on which agreement has not yet been reached). Sadly the costings
appear to show that Option B is very expensive and offers in practical terms little
extra, especially in the short term, in return for the prohibitive additional cost. In past
negotiations ICL have pitched their initial demands very high, but have then been
prepared to reduce them substantially in subsequent negotiations. This time, because
of the 23 April deadline, there is virtually no time left for successive rounds of
negotiation. Work to try to find a solution will doubtless intensify as the parties edge
towards the abyss, but at the present moment the prospects do not look encouraging.
6. I will report further as the situation develops over the next few critical days.
DAVID SIBBICK
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