BEIS0000371
BEIS0000371
RESTRICTED - POLICY & COMMERCIAL
To: ci: Mr McCartney*
Sir Michael Scholar
SECRETARY OF STATE Mr Macdonald*
Mr Baker CGBPS*
From: Mr Sibbick CGBPS1(o/r)*
Mrs Britton PORT
ISABEL ANDERSON Dr Sklaroff COM
CGBPS1 Mr Fraser IBB
Dr Hopkins CII
Mr Osborne Legal C
Mr Corry Sp Adv
25 March 1999
* (with attachments)
HORIZON: TELEPHONE CONVERSATION WITH KEITH TODD, CHIEF
EXECUTIVE ICL ON FRIDAY 26 MARCH 1999
Issue
1. You have agreed to speak on the telephone to Keith Todd, Chief Executive
of ICL at 11.00 am tomorrow, Friday 26 March. Points to make are given at Annex
A.
Background
2. We believe the purpose of Keith Todd’s call is primarily to talk to you about
ICL’s concerns on achieving sufficient progress in the current negotiations on the
option now favoured by Ministers (dumping the benefit payment card and migrating
benefit recipients instead to a smartcard-based post office bank account accessible
only at post offices), and to suggest that the Government commits itself to
contracting with ICL for delivery of a core system with no magnetic swipe card and
no Post Office smartcard prior to defining the precise way forward.
3. ICL claim that they need to satisfy their auditors (Price Waterhouse-Coopers)
and those of Fujitsu (KPMG) by 1 April that there is an ongoing project. If they
cannot satisfy the auditors, they will be faced with scoring a massive provision in
their accounts (around £250 million) which will make ICL insolvent.
Argument
4. Keith Todd’s letter to you of today (at Annex B) highlights the difference in
proposals being put forward by ICL and POCL/ Benefits Agency on the definition
of Option B. It is evident that ICL want to shape the proposal in order for it to make
commercial sense at least in the short term for them in a way which would resemble
the benefit payment card route (largely directed by the technological direction the
ICL26M.DOC
BE!IS0000371
BEIS0000371
RESTRICTED - POLICY & COMMERCIAL
project has taken). This is far too restrictive in terms of the commercial prospects it
would offer POCL, whose future business strategy has at its heart their ambitions to
act as a front-end for a number of commercial banks and would be unwelcome to
DSS since it would do little to further the Government’s wider social objectives on
universal banking.
5; Your two letters of 18 and 19 February (at Annex C) made it clear that a
number of specific conditions needed to be addressed satisfactorily by all the parties
if option B was to be demonstrated to be a viable way forward.
Progress to date
6. A whole series of discussions on the technical, commercial and financial
aspects of the new option are being conducted with a good level of co-operation by
all the parties concerned at a variety of different levels. Steve Robson is leading the
process on the Government's behalf, a copy of a recent letter from him to ICL is
attached at Annex D. Whilst all the parties clearly understand that ICL has a short
term imperative driven by Fujitsu and the auditors to have an assurance on the
future of the project, there is little in the way of assurance that can be given until the
process has progressed further. To commit to the basic infrastructure in the way
ICL propose (under Option B Zero) would carry with it a commitment to purchase
either Option A or Option B almost regardless of the terms. This would clearly put
the public sector side in an immensely weak negotiating position with ICL.
7. Whilst progress is being made it is far from clear that an agreement will be
possible which will meet the commercial and financial requirements of all the
parties given the different perspectives of the parties. However, all the parties are
motivated to achieve a solution.
Line to take
8. We suggest that you listen to ICL's concerns, making it clear that the
Government is not yet in a position to commit itself while detailed discussions are
continuing. Annex A gives points to make.
ISABEL ANDERSON
ICL26M.DOC