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BA/POCL AUTOMATION: FINAL REPORT TO MINISTERS APRIL
1999
Conclusion
Treasury officials are strongly of the view that termination of the
contract with ICL in order to pursue an alternative solution offers the
only way forward. It offers a clean break; it simplifies the commercial
relationship between POCL and ICL should they find something to
salvage (if that is a sensible and affordable way forward); it removes BA
from the contract and - in the face of likely further delays and difficulties
with delivering option A - it offers better value for money. There will be
some very difficult presentational issues to be tackled, but HMT/DSS
believe these are manageable;
Trying to revert to Option A is not viable. Treasury officials judge that
relationships within the project are now too dysfunctional to give
Ministers any comfort that the project will be delivered. Furthermore it is
unclear that ICL will be prepared to continue with the project on this
basis;
The considerable additional cost of option B cannot be justified.
Additional revenues from option B to offset the costs (to the extent that
they materialise) could similarly be realised from pursuing alternative
options. Treasury officials therefore recommend that this option is
rejected. This view is strongly reinforced by POCL’s unwillingness to
bear any of the funding gap for Option B on the strength of the potential
future revenue streams, and their apparent preference for termination
over Option B1;
under all options, there is a clear need to properly incentivise POCL and
its management to reduce network cost, sharpen their business strategy
and aggressively pursue new business. A radical reform is required.
History
The BenefitsAgency/Post Office Counters Ltd automation project
(known as the “Horizon” project) has a long and troubled history. It was
initiated in 1993 with the following objectives:
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to provide a more secure and efficient way of paying benefits. Benefits
would be authorised by a magnetic strip card (the “benefit payment
card”, BPC) rather than via the current paper-based system. The aims
were to eliminate encashment fraud (costing over £100m a year); to
provide DSS/BA with the means to account fully for their programme
expenditure; and to reduce administration costs (but only marginally).
to modernise and automate PO Counters to make their current (paper-
based) business more efficient, and to help them win new business.
to provide a secure revenue stream from POCL’s biggest customer (both
via direct income from BA and footfall income from other transactions
with benefit customers) into the next decade.
the prospects of an automated platform has also enabled POCL to begin
to develop a commercial vision for the period when income from BA
reduced. This is to provide “network banking” services as an agent for
the major high street banks; and to develop a “citizen smartcard”
providing electronic interaction between the public and government.
pss A private finance contract was let to ICL Pathway after a competitive
tender in May 1996, with a view to complete roll out by October 1998.
Why is Hori 1 Rear
3 It soon became clear that the complexity of the project had been
underestimated and there was a final replan of the project in February 1997.
However further delays ensued, and in November 1997 ICL Pathway was
placed formally in breach of contract by both POCL and BA after a key
contractual milestone was missed. BA subsequently issued a legal “cure”
notice, which (in the view of their lawyers) allows them to take steps to
terminate their contracts with ICL Pathway.
4. The project is now running three years behind schedule. New deadlines
have been set at various times and consistently missed by ICL. BA and POCL
attribute the cause of the delays to ICL in all material respects and this has been
endorsed by external reviews (including a very recent confidential report which
has concluded that the fundamental cause of problems is that ICL have failed
throughout the process to analyse and then address POCL and BA’s detailed
requirements). Pathway has responded by blaming the public sector for the
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delays and has sought extensions of the contract and price increases to recoup
its costs.
os A number of detailed technical and policy reviews have been carried out
by officials to find a way forward. Following a technical report by independent
experts in July 1998, which showed that the Horizon infrastructure was viable
and “future proof”, the public sector parties began negotiating with ICL
Pathway to reach an acceptable commercial deal. At the same time officials
from DSS, HMT, DTI, BA and POCL reviewed contingency options.
6. 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 1998, ICL were given further time-limited periods to
move further towards the public sector’s position and to make progress in their
discussions with the Post Office to develop a public/private partnership, as a
means of enabling ICL to bear a larger loss.
ue ICL wrote to the Chief Secretary on 9 December (and again on 18
December to make a number of further small concessions) with their “last and
final” offer. This moved further towards the public sector’s position in NPV
terms (including taking on more risk) and offered the required Fujitsu
guarantees on funding. The offer involved ICL taking on an expected loss on
the BPC project of £126 million in net present value (NPV) terms. ICL’s
acceptance testing proposals (agreed with the Post Office) were still
unacceptable to DSS/BA (in the light of recent experience with NIRS 2,
Alistair Darling is seeking further reassurances to safeguard the delivery of
benefits). In the areas of both risk and acceptance testing, the ICL proposals
represent a reduction against the terms agreed in the original contracts. The
Post Office Chairman wrote to the (then) Secretary of State for Trade and
Industry stating that the PO Board endorsed the deal and would bridge the
remaining gap between ICL and the public sector from their resources. A
number of other commercial and contractual issues remain unresolved.
8. However, Ministers were still unhappy with ICL’s offer. Given ICL’s
failure to deliver, they sought a solution which might be better matched to meet
Government’s wider objectives. After an initial set of discussions between
Steve Robson (HMT) and ICL, the Prime Minister agreed (Jeremy Heywood’s
letter of 1 March) that the public sector parties - under Steve Robson’s
chairmanship - should take forward negotiations with ICL on an alternative
option which would allow BA to move to payment of benefit by ACT whilst
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retaining footfall in Post Offices, and would retain ICL in the partnership.
9. This report sets out the three options now available to take the project
forward:
Option A: accept ICL’s offer of 9/18 December (subject to resolution of
acceptance testing) and continue with the project, including the benefit
payment card;
Option B1: indicate to ICL and POCL that the alternative solution which
removes the benefit payment card is acceptable, subject to final
agreement to contractual details;
Option 3: terminate the contract with ICL and pursue an alternative
solution involving the payment of benefits into conventional bank
accounts across PO counters.
We have considered the value for money of each option for the public sector as
a whole. The results of KPMG’s modelling of the NPV impact on the public
sector for each option is at Annex A.
10. I Taken at face value the figures suggest that Option A remains the best
value for money option in NPV terms. But the figures assume it is delivered to
the cost and timescale set in December. Deliverability in practice heavily
depends on whether Option A is still a realistic option, in terms of whether it
could be implemented against the background of the current client-supplier
relationship involving three parties - BA, POCL and ICL; and the failures to
date on the part of ICL.
11. On technical viability, as noted above, the report of the independent
panel last summer concluded that Option A is technically viable and “future
proof”, and should be successfully delivered, assuming firm management of the
project and commitment and goodwill on all sides. That is probably still the
case now (although DSS/BA would disagree). But since the report there have
been further problems with testing and plans have slipped. ICL have already
missed the first milestone in the timetable agreed in the course of the Corbett
negotiations; and BA point to faults that emerged in the latest testing of the
Model Office as an indication of further delays of at least six months: and the
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roll out will now cut across the sensitive Millenium period. For their part, ICL
have expressed concern at what they see as delays to the multi-benefits element
of BA’s CAPS system, which is an essential part of the successful
implementation of Option A - although BA/DSS say this is totally unfounded.
12. The impact of a further delay on the NPV of the project has been
modelled. BA estimate (although ICL and POCL do not agree) that the latest
difficulties could delay roll out by a further 6-7 months. This would worsen the
NPV of option A significantly - by £110m NPV. DSS/BA argue that the NPV
could worsen further once acceptance testing is resolved to their satisfaction.
13. Treasury officials are principally concerned about the relationship
between the parties. The Benefit Payment Card project was always a
compromise between the objectives of BA and POCL. As currently
formulated, it offers considerably more to POCL than it does to BA:
- for POCL it locks in revenue from the BA, and the accompanying
footfall, while POCL develop their long term vision - to be a provider of
network banking services working as an agent to clearing banks as bank
branch networks are shrunk;
- for BA it offers reductions in fraud (though much of this could be
achieved through other means), but delays the move to ACT which will
significantly reduce the administrative costs and risks involved in paying
benefits.
14. Graham Corbett recognised this in his report, and the problems this
caused to the incentives on the parties. He advised that, if Ministers proceed
with the project, the contractual arrangements should be simplified leaving ICL
with a direct relationship with POCL alone (and BA in turn contracting with
POCL), once the automation platform has been rolled out.
15. The key issue now is whether Corbett’s recommendations would still be
enough, and whether we could in fact see the project through to successful roll
out. Treasury officials do not believe they are. The project will not succeed
against the background of dysfunctional relationships between the parties.
Crucial to this we believe is the view of ICL, given that, under the terms of the
PFI deal, ICL bear the risk if the project is not successfully delivered (i.e they
receive no payment from BA and POCL until then). Initial indications are that
Ministers would be hard pressed to persuade ICL to continue with the project
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under the current contractual relationships. To trigger payment, ICL have to
satisfy both POCL and BA that the system is performing. Since December,
there have been further disagreements. POCL had deferred the final run of
testing by 2 months to allow ICL to fix the major problems. BA are not yet
satisfied that all problems have yet been identified or resolved: the routine
testing has thrown up a number of new faults in the system. ICL and POCL
contest this view. ICL have indicated to us that they would now be reluctant to
continue to invest in the Benefit Payment Card while the risk remains that
POCL and particularly BA would not in the end accept it.
16. Treasury officials therefore believe there is a very strong risk that, even
if Ministers decide in favour of Option A and can persuade BA to accept it,
they will not be able to persuade ICL to continue with the project. In addition,
Treasury officials judge that relationships within the project are now so
dysfunctional that Ministers could take little comfort that Option A as currently
configured would be delivered.
The alternative option
17. The objective of the discussions led by Steve Robson was to try to find a
solution which removed the Benefit Payment Card from the project and moved
directly to a system in which benefits were paid via ACT while seeking to
maintain post office footfall revenue at a similar level to that achieved with the
BPC, and which introduced more quickly a smartcard that could form the
vehicle for Modern Government services. Of the options examined by the
parties, the most promising method of achieving these objectives (known as
Option B1) was as follows:
. the Benefit Payment Card is cancelled;
POCL (or a specially-formed subsidiary) would provide simple “benefit
accounts” into which benefits were paid via ACT and withdrawn in cash
using a smartcard at post offices (if necessary POCL would seek
authorisation under the Banking Act);
these accounts would not offer other conventional account services (e.g.
transfer of credit from another account, withdrawal at ATMs) and would
appear to the benefit recipient very similar to the benefit payment card;
BA would transfer benefits to POCL via the BACs system - in the same
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s is currently done for benefit recipients who receive payment by
AC
POCL would contract with ICL (i) to deliver and operate the IT
infrastructure required, and to manage the smartcards, using the existing
Horizon infrastructure; and (ii) to administer the accounts;
ICL would sub-contract with a bank (e.g. Girobank) the scope relating to
administration of the accounts;
POCL’s aspirations to become an agent for the banks (“network
banking”) would be developed in parallel, as under option A.
Progress with Option B1
18. Good progress was made to work up Option B1. In a matter of weeks,
this new concept was developed into a technical specification, and in turn
translated into a fully worked up draft heads of agreement which is now close
to being ready for signature - although there are a number of commercial and
contractual issues to be resolved.
19. However, the major problem with Option B1 is the cost. Working on
information provided by the parties, KPMG have modelled the NPVs of Option
B1 to compare it with the Benefit Payment Card (Option A). The results reveal
that Option B1 is estimated to be between £700m and £870m NPV lower than
Option A (the higher figure reflects ICL and POCL’s current “base” position -
i.e. the assumption in their draft heads of agreement - that the new system
could not be rolled out until July 2002). This is against an overall NPV of
Option B1 of only £399m to £570m.
20. The main reasons for the differences in cost of option B1 relative to
option A are as follows:
. by abandoning the benefit payment card we save around +£100m NPV
(mainly reduced ICL costs);
but this is more than offset by additional costs, which are (in NPVs):
° foregone administrative savings to BA from abandoning the BPC
and continuing with paper-based systems for longer: -£190m;
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costs to BA brought forward from moving to ACT earlier than
under the BPC: -£265m:
these reflect steady state costs of around £80m p.a.
associated with ACT (largely driven by £50m p.a. cost of
reviewing claimants to address entitlement fraud) which are
not incurred under paper-based or BPC options; plus some
upfront costs associated with moving to ACT as the primary
means of payment which peak at around £35m;
from BA’s perspective these additional costs are more than
offset by the savings made from reduced payments to ICL of
£372m NPV and reduced payments to POCL of £973m
NPV;
but from the public sector’s perspective, these savings are in
large part a transfer payment since POCL and ICL have a
large fixed cost base, and therefore must replace around
70% of their income in order to achieve an overall NPV
equivalent to option A.
providing a smartcard rather than a magnetic stripe card: -£70m;
banking operation costs incurred by POCL and ICL of around
-£240m (a large element of these costs will be subject to
competitive tender - however Girobank (who may not be
interested in the business) have provided an estimate which is
higher than this).
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22. Against these costs there are additional benefits to the public sector
which are harder to quantify, but nevertheless might still leave B1 offering
value for money:
Option B1 brings in a smartcard more quickly than Option A as currently
configured; and
B1 also introduces new contractual relationships which provide better
incentives for the parties to act together, and which would simplify the
decision-making process, thereby making the project more likely to be
delivered successfully.
23. DTI and POCL have been considering possible revenue streams from
pursuing this option which might offset the additional £700-£870m cost,
although we haven’t yet seen a paper summarising their views.
24. When considering the figures that emerge from DTI/POCL, the
following should be noted:
these revenues arise from (a) the automation of PO Counters and (b) the
development of a smartcard. To that extent, they are available, although
to different timescales, under any option that delivers these two elements
- which in principle could be Option A or an alternative, non-ICL
solution, if these options could be made to work;
POCL themselves see this revenue stream as a future source of income to
replace declining revenue streams from traditional sources . They do not
have sufficient confidence in these revenue flows to fund the cost of
rolling out the system - and are therefore not prepared to pay any of the
costs of roll out - a position they have consistently held.
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26. Given the position on Option B1, and the doubts over whether Option A
can actually be delivered, Treasury officials believe that termination of the
contract with ICL to pursue an alternative strategy is the best way forward for
the public-sector collectively. Obviously, this option is not one that any of the
public-sector parties welcomes and indeed we have all expended substantial
efforts to explore the alternative options presented here and others.
27. Under this option, the current Horizon contract would be abandoned. In
order to retain footfall at post offices, BA would continue to pay beneficiaries
with the paper-based methods until such time that POCL had the capability to
offer customers an encashment service at post office counters. Once POCL has
this capability in place, then BA would commence a process of migration of
beneficiaries to ACT. As a separate and uncoupled effort, POCL would move-
up on their longer-term vision to offer simple financial transactions at post
office counters as an agent operating on behalf of banks and other financial
intermediaries. POCL would undertake a fresh effort to procure an automation
platform that could then be better tailored for the capabilities required to offer a
valued service to prospective partner banks, which neither Option A nor Option
B is optimised to do. DSS/BA would need a firm timetable for the migration of
benefit payments to ACT, and a contract with POCL that appropriately
incentivised POCL to meet this timetable.
28. On the face of our value-for-money analysis, this option looks to be of
the order of £270 million lower (ie, worse) NPV than Option A, but better
value for the public sector than Option B1. However, as already noted, these
figures take no account of the delivery problem with Option A . The
termination figures assume a settlement payment to ICL of £150m NPV. The
NPV of this option is very sensitive to the timing of BA’s move to payment by
ACT, which results in foregone administrative and fraud savings of around
£260m p.a. (although from POCL’s point of view, this would give them more
time to put in place their banking strategy and so would be less risky). The
lower value relative to Option A could be eroded by the further delay in
delivering the Project and, indeed as already noted, there is evidence to suggest
that further delay and loss of value to the public sector is likely to occur
(possibly of the order of up to a further £110m NPV for a six month delay).
29. The more time that elapses before the public sector exercises its right to
terminate for ICL’s breach the more likely it is that the public sector’s case in
litigation is weakened and therefore this option should not be deferred
indefinitely.
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30. It may well prove possible to salvage the Horizon automation platform
for POCL (without benefit payment capability) as part of the settlement
negotiations with ICL stemming from termination of the contract. This could
improve the NPV. Treasury officials believe that for the public sector to have
any prospect of paying a fair and reasonable price for any such infrastructure, it
would be necessary first to invoke the contractual right of the public sector to
terminate for breach. In the absence of termination, an attempt to negotiate a
procurement of those elements of the Horizon Project that are valuable to
POCL will flounder due to ICL’s expectations of being compensated for the
total costs it has incurred to develop the infrastructure (of which a large part of
the effort relates to benefit payments). And POCL have no real incentive to
pursue an alternative approach making use of the Horizon infrastructure
(whether some form of option B1 or an alternative) until option A is firmly off
the table.
31. Treasury officials recommend that the best way forward would be to
make a clean break and allow the contracts with ICL to be terminated, in order
{o pursue a strategy that better met the needs of the public sector at a reasonable
cost.
DTLand Post Office views
32. DTI officials and the Post Office do not agree that termination is the best
way forward, as set out below.
33. Termination of the project would undoubtedly be a major blow to ICL,
Just how great would depend primarily on the stance taken by Fujitsu who have
claimed that it could lead to the collapse of ICL. At the very least it would
seriously jeopardise Fujitsu’s plans for ICL’s floatation next year, and could
lead Fujitsu to decide to divest itself of the company. Even on a "least bad"
scenario of an agreed termination, the failure of the project would badly
damage ICL’s reputation both here and in export markets and its future
Prospects. DTI officials are also concerned about the effect that termination
could have on our relations with Fujitsu. Fujitsu have been a major inward
investor in the UK, with well over £700m invested in the last decade and the
creation of around 20,000 jobs. Whatever the justification from a UK
standpoint, termination would be seen in Tokyo as a major breach of faith by
the UK Government - a withdrawal from the project because we had changed
our minds on the policy but had sought to put the blame on ICL. It also risks
being seen in some quarters as a vindictive retaliation by the UK Government
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against Fujitsu for the latter’s closure of the Newton Aycliffe plant in the Prime
Minister’s constituency.
34, From a Post Office viewpoint termination now would delay by at least
two or three years the availability of the modern, on-line automated platform
which POCL desperately need if it is to retain existing clients and to win new
business. Loss of the benefit payment card and the Horizon platform would be
seen by the 18,000 sub postmasters as a devastating blow to their commercial
prospects, and no matter now carefully managed the announcement, many
would simply give up. The value of post office franchises would plummet, and
replacement franchisees would simply not be available. The effects of these
unplanned closures on the integrity of the network as a whole can only be
guessed at this stage, but could be serious.
35. They could well be sufficient to cause existing and prospective clients to
re-evaluate the value of the network as a delivery mechanism. Under any such
scenario, the true costs of termination would rapidly escalate to a point at
which they significantly exceeded the cost of proceeding with either Option A
or B.
36. The Post Office remain firmly of the view that despite the difficulties
referred to earlier in this report, Option A remains their preferred way forward.
The assured revenue stream for a further period of years, the highest retention
of footfall, and a smooth and controlled migration at ACT and network banking
mean that this option offers POCL the best prospect of transition to a viable
commercial future, free from the need for Government subsidy, and with the
delivery of a unique interface and channel of communication between
Government and the citizen.
37. DTI officials also believe that the present unattractive profile of Option
B1 may be significantly softened once an assessment of the revenue stream
which POCL could expect from the commercial exploitation of the Horizon
platform.
38. Finally, the delay which termination will cause to the availability of a
modern online automated platform capable of delivering front end banking
facilities on behalf of the commercial banks will, if serious damage to the Post
Office Counters Network is to be avoided, delay the move from present paper
based methods of paying benefits by at least two or three years.
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Reform of POCL
39. Treasury officials believe strongly that we should place little confidence
in the existing management of POCL to successfully achieve any of the options
outlined above, including the adoption of an effective strategy and new IT
project following termination. All would require radical reform to the
management of POCL. What we would have in mind would involve:
bringing in new management from outside of the Post Office.
They would be paid according to their success in growing the
POCL business. We would need to look at the scope for
strengthening POCL as a separate entity, with autonomy from the
Post Office board;
creating strong incentives for change within POCL in order to
protect the taxpayer - through restructuring of the funding of
POCL to provide incentives to deliver network banking and
electronic government services successfully.
This would represent radical reform. But we judge that this is the only way that
i ution
If you decide to pursue a non-ICL solution then the next steps are:
for Steve Robson to meet the Chairman of ICL to thank them for their
efforts to find an alternative way forward, but to break the news that
neither ICL’s December offer on continuation, nor the alternative option
are acceptable. They will probably not be surprised;
to seek to reach a negotiated settlement with ICL, possibly involving
salvaging some elements of the project (but this would be for POCL to
negotiate with ICL);
to set in train the necessary legal process to move towards termination of
the existing contracts either (preferably) by negotiating an agreed
termination or by serving notice of termination if ICL is not willing to
negotiate;
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for the Prime Minister to speak to the Chairman of Fujitsu to express his
regret but provide as much comfort as possible in the circumstances that
the Government remains fully committed to Japanese inward investment;
to prepare to make a public statement on the future of the project to
provide reassurance to benefit customers and subpostmasters in the event
that the story breaks.
On a slightly longer timescale, we suggest that:
restructuring of the management of POCL is taken forward;
POCL are given a clear and urgent timescale to work up their network
banking and citizen smartcard strategy and to decide what infrastructure
is necessary to deliver this - drawing on advice from the retailing and
banking industry;
DTI with HMT consider how POCL can best be incentivised to deliver
their worked-up strategy successfully and as quickly as possible (given
that the later BA move to ACT, the greater the foregone savings to the
public sector);
linked to this timescale, we provide BA with a firm end-date by which
time they will be allowed to move to ACT directly into bank accounts as
the primary means of payment of benefit (which would at the limit be no
later than currently envisaged under option A - ie 2005).
A “three-pronged approach” setting out possible objectives for a negotiated
settlement is suggested at Annex B.
Legal process
42. Lawyers acting for DSS and POCL could not agree on the best way to
achieve termination. The two options suggested were:
to serve a 3 month notice terminating the contract;
to serve notice making time of the essence - which would have to be a
reasonable period, and could be up to 9 months.
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43. Ministers therefore agreed that the Treasury Solicitor should seek the
advice of the Law Officers last December. His advice was that if Ministers
unequivocal wish was to terminate (i.e. to offer ICL no prospect of delivering
the existing contract) then they should serve a 3 month notice terminating the
contracts. This route is the quickest route to termination (although it involves
additional legal hurdles and carries a greater risk that the public sector parties
would be held in breach of contract and thus liable for damages). There is some
advantage in the light of recent developments in not serving notice immediately
to allow time for a negotiated termination. If this approach is adopted, it would
be important not to say publicly that the public sector parties have terminated
the contracts, as the form of public statement to be made about the reasons for
cancellation of the project will be a valuable bargaining chip in settlement
negotiations with ICL.
Presentational Strategy
44. The handling of an announcement will in part depend on the reaction of
ICL and Fujitsu to the news that continuation options are unacceptable. If ICL
are prepared to seek a negotiated settlement then part of our negotiating
leverage will be how termination is presented publicly. If, however, they intend
to litigate, then the Government will have no alternative but to make it clear
that termination was due to failures on the part of ICL to deliver to time or
budget- despite the best endeavours of the public sector to find a way forward.
45. A key concern in any event will be to reassure subpostmasters about the
future of their businesses. The Horizon project has, in the past, been portrayed -
by the Post Office, by Ministers and by the National Federation of
Subpostmasters - as the vital element to secure the commercial future of the
counters business. News that the project is to be scrapped will be a severe blow
to subpostmasters’ confidence, unless an alternative approach is outlined at the
same time. Ministers will therefore need to stress:
the Government remains fully committed to a nationwide network of
post offices - and fully recognises the importance of post offices to the
communities they serve;
the Government is equally committed to the automation of post office
counters, and the Post Office has already begun work to secure a
replacement, which will give it the potential to seize new opportunities -
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for example the provision of network banking services and electronic
government services;
there will be no change to the existing arrangements for the collection of
benefits in cash at post offices.
The Government will also want to reassure benefit recipients that they
will continue to be able to collect their benefits at post offices; and to explain
arrangements for withdrawing the BPC from the early customers using it. In
addition it will be important to convey the message to the IT industry and
Japanese inward investors that the Government has acted in good faith.
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WITHOUT PREJUDKRSSURJECT TO CONTRACT
COMMERCTAtHN CONFIDENCE
ANNEX A: IMPACT ON THE PUBLIC SECTOR
£mNPV_ I option A I option A I option BI I option Term’n of I Term’n of
(6 month I -ACT BI- ACT I ICL ICL
delay) from Sept I from July a contract
2001 2002 (ACT in
2003/04)
BA »123 1,005 2,108 1,805 2,08 1,23
payment (59) (395) (439) (150) (150)
to ICL!
POCL 1 (1,143) (966) (943) (619)
total NPV 570 399 994 468
to public
sector
‘For option A and B1 this assumes that ICL are compensated to ensure they achieve -
£126m NPV overall (offer of December 9/18). For Termination, the modelling assumes a
settlement to ICL of £150m NPV.
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WITHOUT PREJUDIC JBJECT TO CONTRACT
ANNEX B: Possible Elements of Termination and Settlement Strategy
ICL Settlement
Public-sector parties pursue a settlement with ICL involving:
A Procure the components of the Horizon that are valued by POCL as an
automation platform for their core products (excluding payment of benefits);
B Procure the OBCS elements of Horizon but exclude other elements relating to
the Benefit Payment Card;
Cc The procurement for the above from ICL would not be on the basis of ICL
taking transaction volume risk but instead on a fixed/variable fee with
performance incentives and penalties;
POCL Restructuring
POCL immediately commences a restructuring of its business:
A Management of POCL is strengthened and an incentive compensation
structure introduced to attract and retain a commercially-oriented talent base;
B As a high-priority precursor to enable BA’s migration to ACT, POCL obtains
the capability to offer a simple cash-back service to customers through an
existing commercially available system (such as Link or Switch);
Develops plans to rationalize the post office network with a view to obtaining
substantial reductions in running cost commencing in 01/02;
Develops a detailed plan (including schedule) to market its counter services to
prospective partner ban!
Develops a plan to aggressively exploit the opportunities presented by
Modernising Government through a Post Office branded smart-card and a
national network of automated Post Offices.
Benefits Agency Payments
A BA continues with orderbooks and the related payments to POCL until POCL
has achieved national roll-out of its basic automation infrastructure and
implemented the commercial arrangements necessary to offer customers cash
from a bank debit card;
BA develops a detailed plan for migrating beneficiaries over to ACT at retail
banks (including addressing the plan for dealing with those rejected as
unbankable, or incapacitated or otherwise unsuited for ACT) -- migration to be
launched when the POCL infrastructure to provide cash from bank debit cards
is in place;
BA will actively advise and reassure beneficiaries that they will be able to
obtain cash using their bank debit card at POCL and that there will be no
customer charge for obtaining cash in this way — transaction charges incurred
by POCL to the third-party clearing system will be reimbursed by BA (ie,
POCL incurs charge, not the customer, and BA reimburses POCL).