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DEPARTMENT OF SOCIAL SECURITY
Richmond House, 79 Whitehall, Londan SW.1A 2NS ) Jos
GRO
Mr Macintyre CII Dr Hopkins CII
RESTRICTED COMMERCIAL 4M! Hosker Mr Sklaroff COM
Mr Osborne Legal C
i Mr Sibbick CGBPS_ — Mr Whitehead CGBPS
The Rt Hon Stephen Byers MP i.
Chief Secretary to the Treasury Ms Anderson ee ly & wan
Parliament Street :
London SW1P 3AG 11 December 1998
De, Meme, Mo tht dy
‘ woe
BA/POCL AUTOMATION PROJECT .
Keith Todd has written to me with a copy of the letter he sent you on
Wednesday setting out ICL's final offer in response to your letter of 20
November. I understand that this letter constitutes the essential components of
the proposed offer, on which ICL are not prepared to move further; and that this
letter is underpinned by 3 supporting papers on acceptance testing, funding, and
commercial proposals (le. pricing etc) on which they say they are willing to
negotiate the detail.
In preparation for our meeting on Monday, you and colleagues may find it
helpful to have my initial reactions to the proposals as I understand them.
The main element of the ICL offer which appears to be new, is Fujitsu
"support" for the £600 million that may be needed to fund the project over its
life. If this is to be of value, Fujitsu must be prepared to give a firm guarantee
that can he legally enforceable. Anything less would leave the Government
very vulnerable should the project fail for whatever reason. I would certainly
want to be clear about the nature of the Fujitsu commitment when making our
decision on Monday. We would also need to establish more clearly what the
implications of this support would be for the level of risk now being accepted
by ICL under this proposal.
CELEBRATING THE PAST
LOOKING Ta THE FUTURE ecycted Paper
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Secondly, this revised ICL offer does not make any significant change to the 9
November proposals, which we rejected, in the overall balance of expenditure
on the project between the public sector and ICL: ICL ate still taking a paper
loss of around £100 million, and the NPV of the public sector's additional
payments to ICL remain around £230 million - more than £100 million more
than was offered under Corbett. On these criteria, I cannot see that their final
offer represents a significant move towards the public sector position.
On the specific conditions that the proposals seem to involve, I could not agree
to the proposed approach to “acceptance testing". ICL. persist in asking for
acceptance on the basis of a laboratory test of the systems, as opposed to 4 live
tial - particularly important when for our customers it is the service that is the
crucial end product. In fact, the approach being suggested by ICL is almost
exactly that followed under the NIRS2 project, where the systam was fully
accepted in a test environment, but did not work in the field. ] am got prepared
to sign up to another NIRS2 experience! In any event, when we are talking
about a system which is affecting atound 15 million people, many of whom are
dependent on timely and accurate payment of their benefits for their livelihoods,
the political risks are huge if the system is not tested properly beforehand to
make sure it works. This is a risk I at not prepared to take.
In discussing on Monday how best to proceed and deciding our route forward,
it is worth noting that the project timetable has slipped yet again. The first
milestone to arrive since the timetable was last reviewed (as recently as October,
in the course of the Corbett discussions) is just about to be missed. There will
be knock-on effects on the overall delay to the project of at least 2-3 months,
but in practice likely more, given that by then we begin to bump up against the
Millennium, with the IT priorities that involves. This does not bode well for
the grasp that ICL have of a realistic timetable. The final implementation of the
project now looks unlikely to be achieved before the end of 2001; and by that
date we could already have made significant in-roads into our programme to
imtroduce an ACT-hased system - for example paying up to 50% of our 20
million customers by ACT and bank accounts, with related administration and
Programme savings, potentially reaching £200 million.
&
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Finally, we should remind ourselves of how much this Project has already cost
Government, and the total bill with which we will be faced if we accept the ICL
Proposals. My Department alone has estimated its foases to date at more than
£300 million: and in agreeing to consider Option 1 as proposed by Corbetr, we
are in effect foregoing £800 million savings in the welfare administration bill we
could otherwise have achieved over the next 10 years.