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BA/POCL AUTOMATION: A WAY FORWARD
Background
The BA/POCL automation project (known as “Horizon”) has been under review
since the contractor, ICI. Pathway, was placed formally in breach of contract in
November 1997 by both POCL and BA, after a key contractual milestone was
missed. Following the failure of negotiations (the so-called Corbett discussions) to
establish a commercial basis acceptable to Government for proceeding with the
contract in October, ICL were given a further period of two weeks for them to
make progress in their discussions with the Post Office to develop a public/private
parmership as a means of enabling ICL to move further towards the public sector’s
position. ICL.’s proposal for the partnership was received on 9 November, along
with papers addressing commercial, contractual and financing issues. But Ministers
concluded that ICL.’s wider commercial proposals rev ealed insufficient movement
on their part, and involved a risk transfer that would have been entirely
unacceptable to the pubhe sector and would have effectively seen the public sector
underwriting the whole deal.
The Chiet Secretary therefore wrote to ICL on 20 November giving them a third
and final period until 9 December to make an offer which demonstrated that they
could secure adequate linancing to take the project forward without the public
sector bearing unacceptable risk; provided assurances that Fujitsu were standing
behind the project; and made an unequivocal move towards the public sector’s
position as proposed :n the earlier negotiations. Ministers also agreed that they
need to be na position to implement the fallback options quickly if an acceptable
deal could not be struck. The Chief Secretary therefore asked officials to prepare
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exit strategy to the same timescale, building on the work already completed on
the fallback options and including, presentational handling
ICL. wrote to the Chief Secretary on 9 December (and again on 18 December to
make a number of further small concessions) with a revised proposal which moved
further towards the public sectors’ position in NPV terms (including taking on
more risk) and offered the required Fujitsu guarantees on funding. The Post Office
have agreed to meet the NPV shortfall between [CL.’s offer and the public sector’s
position (agreed at Corbett). ICL have also written a paper setting out how Horizon
might contrt pute to the Government’s wider policy agenda Che Post Office and
ICL. have now reached agreement on all of the headline terms of the deal.
This note sets out the possible details of a way forward.
Way forward
The way forward would consist of two stages.
Stage I - stabilisation
Ministers would agree by 24 December:
to continue the programme with the Benefit Payment Card, with a
firm re-commitment to deliver the project on time by all parties;
to agree commercial terms with ICL on the basis of the 9 December
offer updated by Keith Todd’s letter of 18 December. (The NPV of
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the project to [CL is now estimated to be -£126m, with the public
sectors’ additional contribution at £221m NPV);
that POCL absorb the price increases proposed on BES and OBCS,
without passing the cost on to BA;
that BA honour commitments made to POCL under the Graham
Corbett discussions - based on Pau! Rich's letter covering draft heads
of agreement of 2 December;
that BA, POCL and ICL will need to agree how the approach to
acceptance testing, which has been agreed between ICL and POCL,
could be adapted to ensure that BA protect their interest in the system
being fully functional before acceptance:
that POCL sign off the draft Partnership heads of agreement already
agreed.
Stage 2 - broadening objectives.
& OD)
By the end of March 1999, with the commercial arrangements redrawn as above,
the parties will have an opportunity to see whether the programme can do more to
deliver the Government’s present policy objectives. Ministers will ask the Post
Office to take forward discussions between the parties in the context of the PPP
envisaged with ICL to explore what more could be done, with the agreement of all
parties, to further the following objectives:
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to pay social security benefits in a way that is as cheap, efficient,
fraud free and convenient as possible, consistent with plans for
welfare reform;
to help to maintain a nationwide network of post offices in order to
protect the accessibility of government services provided across PO
counters;
to support integrated delivery of existing and new government
services and information more generally taking full advantage of new
technology, streamlining Government's dealings with citizens;
to improve access to basic financial services, including banking
services, for poorer members of the community and the socially
excluded.
Stage 2 would not present an opportunity to undermine or reopen the commercial
fundamentals agreed in Stage 1. If it were to prove impossible to reach agreement,
then the project would go ahead on the basis of Stage I alone.
21 December 1998