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19-APR-1999 18731 FRUM DSS PLLILY kr, HUELPHL (UW 241d
RESTRICTED -
COMMERCIAL & POLICY
FAX COVER SHEET
To: Ron Powell
FAX No:
Location:
No of pages (including this sheet): 16
From: Sarah Graham
Date: 19 April 1999
Phcne:
Fax:
PFI\, Special Project
Room 535 North West
The Adelphi
1-11 John Adam Street
London
WC2N 6HT
Message:
19-APR-1999
To:
10:31
FROM DSS POLICY GRP»
ADELPHI
TO 21415
RESTRICTED - COMMERCIAL & POLICY
Secretary of State
From: Sarah Graham PFD Sp Proj
Date:
Copies:
16 April 1999
MoS
Special Adviser
Permanent Secretary
Peter Mathison, CE/BA
George McCorkell, CE/ITSA
Jonathan Tross, DPM
Marilynne Morgan, Sol
Stephen Hickey, PFD
Vince Gaskell, BA Proj Dir
Ron Powell, Sol
Hamish Sandison, Bird & Bird
BA/POCL AUTOMATION PROJECT: TOWARDS AN AGREED ROUTE
FORWARD
and recommends:
© termination of the contracts with ICL Pathway,
course of a negotiated settlement to work out
¢ the alternative option that they have been exploring with ICL, POCL and
ourselves (B1), has turned out too expensive at £700 million upv more than the
option to continue with the Benefit Payment Card;
continuing with the Benefit Payment Card is not a realistic option, given its
history and continuing delays, in addition to the “dysfunctional” contractual
arrangements between the three parties;
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Briefing put forward by HMT officials to the Chief Secretary, in preparation
for Monday’s meeting with Ministerial colleagues.
Update on latest developments; and, in the light of those, initial thoughts on
how to approach the meeting.
The attached briefing note from Treasury officials to the Chief Secretary suggests
but leaving the way open in the
an outcome broadly on the lines of
App/Apr99/SOS1604.doc
19-APR-1999
Current position:
2.
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10:31 FROM DSS PULICY GkPs RUELFHI tu 214i> reworae
our “fourth way” ie POCL and ICL retaining the bones of the Horizon
infrastructure; abandoning the Benefit Payment Card elements and moving
forward as quickly as practicable to a banking solution along with a move to
ACT as the norm for benefit payments. Under this route forward the overall
objective could be achieved either with or without ICL. HMT view, with which
we concur, is that ICL/POCL are unlikely to produce a cost-effective outcome
on “the fourth way” unless against a background of termination.
As a result of this paper, POCL/ICL appear at the last minute to have revisited
Option B1. And are expected to produce figures over the weekend which will result
in making this option look very different from the £700 million negative npv. At
the same time, HMT say the costs of termination are beginning to look higher than
originally thought ~ although we have had no opportunity yet to see these figures
and assess their validity. Again, work is being done by KPMG on these over the
weekend. Finally, it has become clear that Stephen Byers does not consider
termination an option. Hence perhaps the last minute spurt to make a real effort to
make B1 work.
3. Against this backdrop, HMT’s paper to the Chief Secretary is being put forward
only as a draft to give him something to read over the weekend. They are expecting
to have a revised paper on Monday.
DSS/BA position:
4. Our key objectives are:
¢ to avoid getting drawn into a solution around the Benefit Payment Card, simply
because there hasn’t been enough time to sort out a better alternative;
and
« to find a way of avoiding getting into a conflict that we cannot win with DTI.
Key issues on the BPC continuation option are:
¢ No deal has been agreed for moving forward on the Benefit Payment Card:
many commercial and contractual issues remain outstanding, most crucially
for us around acceptance;
¢ ICL will now probably not accept it without significantly more money than the
deal they appeared willing to accept before Christmas, unacceptable constraints
on DSS/BA and possibly POCL;
« Recent difficulties around testing and further slippage since the November
Corbett discussions de not bode well for timely delivery and risks significant
additional costs further down the line, whatever agreed now;
App/Apr99/SOS 1604.doc
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19-APR-1999 18:32 FROM DSS POL!7Y GRP, ADELPHI TO 21415 P8471?
© There are real issues about justifying further Government expenditure on the
project as it stands, given its history (the NAO are due to start work on a VFM
Teport as soon as Ministers reach a decision).
The alternative:
5. There must be a way of achieving the objectives that Ministers set Steve Robson and
his team to take forward: we believe there is (our suggested B3/“fourth way”); the
only question is whether we need termination as the strategy against which to
achieve that.
6. You may wish therefore rather to emphasise that there is a way forward which could
consist of:
* cancelling the Benefit Payment Card ~ nobody wants it not even POCL.: all
POCL want is the funding stream:
¢ — rolling out the infrastructure, both to give POCL (and sub post masters) the
visible early automation that that brings; also the chance of paying something to
ICL to buy us more time and to keep them in the frame;
® providing a further discussion pericd - either on the lines of “the fourth way”
or some other version eg a proposal put forward by POCL.
Next steps:
7. We will arrange for you to receive any revised version of the HMT Paper on
Monday as soon as possible. And further handling thoughts.
8. Af you wish to discuss any of this over the weekend, Vince Gaskell, Hamish
Sandison and I will all make sure that we are available.
MRS. SARAH GRAHAM
PFD Special Projects
App/Apr99/SOS1604.doc
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ireasury
: . DRAFT REPORT —__
} WITHQT PREJUDICE - COMMERCIAL IN CONFIDENCE
History
The BenefitsAgencg/Post Office Counters Ltd automation project (known as the “
Horizon” project)
following objective:
orised by a magnetic strip card (the “benefit payment card”,
an via the current paper-based system. The aims were to
hryent fipud (costing over £100m a year); to provide
would be ai
BPC) rather
eliminate e¢:
id ahtomal PO Counters to make their current (paper-based)
efficient, to help them win new business.
I
ure revenge stream from POCL’s biggest customer (both via
from BA fnd footfall income from other transactions with
ers) into the next decade.
to provide a
direct inco:
benefit custo}
the prospec f al autorgated platform has also enabled POCL to begin to
ercial vision for the period when income from BA reduced.
This is tq provide “hetwotk banking” services as an agent for the major high
street banks, and to develop a “citizen smartcard” providing eléctronic
mieraction betwee: ppc and government. \
J
let to ICL Pathway after a competitive tender in
May 1996, with a view tox lete roll out by October 1998.
Ww! izon unde,
Tt soon became clear that tg complexity of the project had been underestimated
and there was a final repjan.@f the project in February 1997. However there were
further delays, and in Noyember 1997 ICL. Pathway was placed formally in breach
of contract by both mr after a key contractual milestone was missed.
BA subsequently issued a leg@l “cure” notice, which (in the view of their lawyers)
allows them to take steps inate their contracts with ICL Pathway.
is
years behind schedule. New deadlines have been
ntly missed. BA and POCL attribute the cause of
Tespects and this has been endorsed by external
The project is now
set at various times and
the delays to ICL in all mi
a7
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Treasury
DRAFT REPORT
WITHOUT PR HCE - COMMERCIAL IN CONFIDENCE
Teviews. Pathway has respondgd by blaming the public sector for the delays and
has sought extensions of the cgmtract and price increases to recoup its costs.
pl and policy reviews have been carried out by
d. Following a technica] report by independent
pwed that the Horizon infrastructure was viable and
or parties began negotiating with ICL Pathway to
deal. At the same time officials from DSS, HMT,
ontingency options.
A number of detailed techn
officials to find a way fo
experts in July 1998, which
future proof’, the public se
reach an acceptable commere!
DTI, BA and POCL reviewed,
jotiations (the so-called Corbett discussions) to
ceptable to Government for proceeding with the
were given further time-limited periods to move
ctor’s position and to make progress in their
to develop a public/private partnership, as a means
loss.
Following the failure of q
establisa a commercial basi
contract in October 1998, If
further towards the publi
discussions with the Post Offige
of enabling ICL to bear a la
on 9 December (and again on 18 December to
concessions) with their “last and final” offer. This
ic sectors’ position in NPV tems (including taking
ICL wrote to the Chief
make a number of further gy
moved further towards the
on more risk) and offered.
involved ICL taking on ane
present ‘value (NPV) terms.
Post Office) were still una
L’s acceptance testing proposals (agreea with the
table tc DSS/BA (in the light of recent experience
is seeking further reassurances to safeguard the
Office Chairman wrote to the (then) Scere of
en ICL and the public sector from their resources.
bridge the remaining gap be
contractual issues remain unresolved.
A number of other commerq
appy with ICL’s offer. They sought a i
is to meet Government’s wider objectives. After an
ween Steve Robson (HMT) and ICL, thd Prime
ood’s letter of 1 March) that the publid sector
p chairmanship - should take forward negatiations
bn.
However, Ministers were sii
which might be better maty
initial set of discussions.
Minister agreed (Jeremy
parties - under Steve Robs
with ICL on an alternative o
The alternative option
The objective was to try hd a solution which removed the Benefit eo
I
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‘ sleas
DRAFT REPORT .
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
Card from the projeqt and mofed directly to a system in which benefits were paid
via ACT while maintaining post office footfall revenue, and which introduced
more quickly a smagtcard 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;
if necessary POCL (or probably a specially-formed subsidiary) would seek
authorisation under thggBanking Act,
would provide simple “benefit accounts” into Which
'T and withdrawn in cash using a smartcard at post
FOCL or its subsidia
benefits were paid vj
offices;
offer other conventional account services (e.g.
genother account, withdrawal at ATMs) asd would
ient very similar to the benefit payment card;
these accounts wo
transfer of credit fram
appear to the benefi
s to POCL via the BACs system - in the same way
nefit recipients who receive payment by ACT;
BA would transfer be
as is currently done
icL would deliver
q operate the infrastructure required, and would
manage the smartcarg i
g the existing Horizon infrastructure,
ICL would contract bank (c.g. Girobank) to administer the accounts;
fecome an agent for the banks (“network banking”)
arallel, as under option A.
POCL’s aspirations
would be developed i
Progress with Option B1
Good progress was made I
concept was developed int¢
into a fully worked up dra
signatur::,
Fk up Option B!. In a matter of weeks, this new
ailed technical specification, and in tum translated
ds of agreement which is now virtually ready for
ption B1 is the cost. orkid on information
have modelled the NPVs of Option B1 to compare
‘d (Option A). The results, attached in detail at
However, the problem
providec by the parties,
it with the Benefit Payme
a
wv
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a I Teasury 1
DRAFT REPORT
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
Annex A, suggest that Option B1 could be £700m NPV more than Option A (and
could be even greater, if we a t ICL and POCL’s position that the system could
not be rolled out until July
The main reasons for the differences in costs arc as follows:
by abandoning the benefit payment card we save around £100m NPV;
but this is more than offset by additional costs, which are (in NPVs):
foregone savings to BA from abandoning the BPC and continuing
with paper-bas@ii systems for longer - £240m;
costs to BA from moving to ACT earlier than under the BPC - £265m
(note that BA ike significant administrative savings (circa £400m
pa) from the mage to ACT but this simply a transfer payment to
POCL, which o be compensated in this option);
providing a smagggard rather than a magnetic stripe card - £70m;
banking operatiogs costs of some £240m (a large element of these
costs will be.subgict to competitive tender - however Girobank have
provided an estingte which is higher than this).
Rdditional benefits to the public sector which are
less might still leave B1 offering value for money:
ard more quickly than Option A; and B] also
tionships which provide better incentives for the
ich would simplify the decision-making process,
be likely to be delivered successfully.
Against these costs there a
harder to quantify, but never
Option Bl brings in a sm
introduces new contractua
parties to act together, a
thereby making the projec
There are also new numba erging that suggest that option B1 may offer POCL
and ICL significantly ter potential to eam new revenues from
government.direct” servica npared to option A - due to earlier delivery of the
smartcard. These figures 4 jot firm, and will be worked up further over the
weekend We will need to q der them further on Monday.
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-APR-1999 10:35 9 FRUM DSS PULILY bry HUeLrni 1U e140 ewes
° mm ireasury
DRAFT REPORT
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
ive to what was on the tabie sas December. it socks unaffordable, Treasury
ials therefor commends jon B1 is ruled o
Should we reyert to Option A (Benefit Payment Card)?
This depends on whether Option A is a realistic option, both in terms of whether it
is a viable on technical groubds, and whether it could be implemented against the
background of the current client-supplier relationship involving three parties - BA,
POCL and ICL. k
On the technical viability, ag noted above, the report of the independent panel last
summer concluded that mn A is technically viable and “future proof”, and
should be successfully deliy assuming firm management of the project and
commitment and goodwill on-all sides. That is probably still the case now. But
since the report there ha further problems with testing and plans have
slipped. ICL have already the first milestone in the timetable agreed in the
course of the Corbett negotiatighs; and BA point to faults that emerged ir. the latest
testing of the Model Office agg indication of further delays of at least six months.
For their part, ICL have e: sed concern at what they see as delays to the
multi-benefits element of BA’§ CAPS system, which is an essential part of the
successful implementation piPption A - although BA/DSS say this is totally
unfounded.
ee
the NPV of the project has been modelled. BA
SCL do not agree) that the latest difficulties could
ths. This would worsen the NPV of option A by
The impact of a further dela
estimate (although ICL and
delay roll out by a further 6
around £200m NPV.
ly concerned about the relationship between the
d project was always a compromise between the
s currently formulated, it offers rather more to
Treasury officials are princj
parties. The Benefit Paym
objectives of BA and POC!
POCL than it does to BA:
- for POCL it locks in@@venue from the BA, and the accompanying footfall,
while POCL develo; ir long term vision - to be a provider of network
banking services working as agent to clearing banks as bank. branch
networks are shrunk;, i
- for BA it offers reduggjons in fraud (though much of this could be achieved
though other means), [delays the move to ACT which will help to reduce
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a7
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ad
ireasury
DRAFT REPORT ;
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
the administrative costs and risks involved in paying benefits.
Graham Corbett recdgnised this in his report, and the problems this caused to the
incentives on the parties. Hg advised that, if Ministers proceed with the project,
the contractual arrangem: should be simplified leaving ICL with a dircct
relationship with POCL alone (and BA in turn contracting with POCL), once the
automation platform been rolled out.
The key issue now is whether Corbett’s recommendations would still be enough,
and whether we could in fget see the project through to successful roll out.
Treasury officials do not belive they are. A project will not succeed against the
background of dysfunctional ##lationships between the parties. Crucial to this we
believe is the view of ICL, that, under the terms of the PFI deal, ICL bear the
risk if the project is not sucd¥ssfully delivered (i.e they receive no payment from
BA and POCL until then). Bnitial indications are that Ministers would be hard
pressed to persuade ICL to continue with the project. To trigger payment, ICL
have to have satisfied both POGL and BA that the system is performing; Since
December, there have beegyfurther disagreements. POCL had deferred the final
tun of testing by 2 months t allow ICL to fix the major problems. BA are not yet
satisfied that all problems haXe yet been identified, but this is contested by ICL and
POCL. ICL have indicated t@ us that they would now be reluctant to continue to
invest in the Benefit Pay: Card while the risk remains that PO(L and
particularly BA would not in @e end accept it.
should be abandoned
Termination
Given the costs of Option Bj and the question marks over whether Option Acan
actually be delivered, termigation may well be the best way forward ifor the
publi:-sictor collectively. Qbviously, this option is not one that anyjof the
public-scctor parties welcomas and indced we have all expended substant:al efforts
to explore the alternative opti@ns presented here and others. I
Under tie termination optiqj, the Horizon Project would be shandonad in its
entirety. In order to retain @potfall at post. offices, BA would continue. to pay
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Treasury \
. DRAFT REPORT . ;
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE i
ciaries with the paper-based methods until such time that POCL had the
bi
Ci lity to offer customers am encashment service at post office counters. Once
P has this capability iggtplace, then BA would commence a process of
ion of beneficiaries to“ACT. As a separate and uncoupled effort, POCL
move-up on their longer-term vision to offer simple financial transactions at
ffice counters as an agent operating on behalf of banks and other financial
indertake a fresh effort to procure an automation
tter tailored for the capabilities required to offer a
partner banks, which Option A is not anyway
need a firm timetable for the migration of benefit
post
intermediaries. POCL wo
platform that could then b
valued service to prospect
optimised to do. DSS/BA
payments to ACT.
-for-money analysis, termination looks to be of
‘ie, worse) NPV than Option A yet better value for
The NPV savings are further reduced, the later that
although from POCL’s point of view, this would
jplace their banking strategy and so would be less
tive to Option A could be eroded by the further
and, indeed as already noted, there is evidence to
pss of value to the public sector is likelv to occur
1 £200m NPV). {
From the standpoint of our
the order of [£X million fo
the public sector than Optio
BA rove to payment by A
give them more time to put
risky). But the lower value
delay in delivering the Proje
suggest that further delay a
(possibly of the order of a
re the public sector exercises its night to terminate
y it is that the public sector's case in litigation is
on should not be deterred indefinitely.
The more time that elapses
for ICL’s breach the mora
weakened and therefore thi
\vage the Horizon automation platform for POCL
pility) as part of the settlement negotiations with
. This could improve the NPV of the termination
je that for the public sector to have any prospect of
price for any such infrastructure, it would be
ptractual right of the public sector to termihate for
ination, an attempt to negotiate a procurement of
froject that are valuable to POCL will flounder due
compensated: for the total costs it has incurred to
Which a large part of the effort relates to benefit
It may well prove possible
(without benefit payment @
ICL stemming from termin
option. Treasury officials b
paying a fair and reason
necessary first to invoke th
breach. In the absence of
those elements of the Hori
to ICL’s expectations of b¢
develop the infrastructure
payments)
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4 1 uty
.
DRAFT REPORT
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
icials and the Post Offi ’ take a difference view, set out below.
ation of the project id undoubtedly be a major blow to ICL. Just how
ould depend primarily on the stance taken by Fujitsu who have claimed that
Icad to the collapse of ICL. At the very least it would seriously jeopardise
3 plans for ICL’s floatation next year, and could lead Fujitsu to decide to
itself of the company., Even on a "least bad" scenario of an agreed
ition, the failure of the project would badly damage ICL’s reputation both
i d its future prospects. DTI officials are also
ination could have on our relations with Fujitsu.
ard investor in the UK, with well over £700m
e creation of around 20,000 jobs. Whatever the
int, termination would be seen in Tokyo as a major
breach of faith by the UK ent - a withdrawal from the project because we
had changed our minds on (@& policy but had sought to put the blame on ICL. It
also risks being seen in quarters as a vindictive retaliation by the UK
Goverment against Fujitsu for the latter’s closure of the Newton Aycliffe plant in
the Pume Minister’s constitgpney.
Fujitsu have been a major
invested in the last decade
justification from a UK si
Fronts Post Office viewpoigggtermination now would delay by at least two or three
years the availability of todern, on-line automated platform which POCL
desperately need if it is to reggin existing clients and to win new business. Loss of
the benefit payment card Horizon platform would be seen by the 18,000
sub postmasters as a deva: blow to their commercial prospects, and no matter
now ¢arefully managed the uncement, many would simply give up. The value
of pdst office franchises ld plummct, and replacement franchisees would
simply not be available. Thg@@@fects of these unplanned closures on the integrity of
the network as a whole can be guessed at this stage, but could be serious.
it to cause existing and prospective clients to
work as a delivery mechanism. Under any such
ination would rapidly escalate to a point af which
st of proceeding with either Option A or B.
They could well be s
re-evaluate the valuc of
scenario, the true costs of
they significantly exceede
of the view that despite the difficulties referred to
remains their preferred way forward. The assured
iod of years, the highest retention of footfall, and a
ion at ACT and network banking mcan that this
ospect of transition to a viable commercial future,
ent subsidy, and with the delivery of a unique
The Post Office remain
earlier in this report, Opti
revenue stream for a
smooth and controlled mi
option offers POCL the b
free from the need for G
a
or)
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Treasury
Bs DRAFT REPORT 4
4 WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
interface and channel of communication between Government and the citizen.
DTI officials also believe that the present unattractive profile of Option B may be
significantly softened once at assessment of the revenue stream which POCL could
expect from the commercial exploitation of the Horizon platform, based on work
which should produce at least preliminary conclusions over the coming weekend,
has been incorporated into the NPV calculations.
Finally, the delay which termination will cause to the availability of a modern
online automated platform gapable 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 ; or three years.
The Wav Forward - Termination
If you accept Treasury officials’ recommendation, which is shared by DSS/BA,
then the next steps are: a
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 willkgprobably not be surprised;
a
to set in train the necessary legal process to terminate the existing contracts -
we recommend that thepparties jointly issue a 3 month notice;
e
[for the Prime Minist@ to speak to the Chairman of Fujitsu to express his
regret but provide as guch comfort as possible in the circumstances that the
Government remains filly‘ committed to Japanese inward investment];
to seek to reach a negotiated settlement with ICL, possibly involving
salvaging some elementy of the project (but this would be for POCL to
negotiate with ICL);
to prepare to make a public statement on the future of the project to provide
reassurance to beng@fit customers and subpostmasters in the event that the
story breaks. 7
*
On a slightly longer times@aleywe suggest that:
WF
ow
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DRAFT REPORT ;
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
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;
linked to this timescale,
of benefit (which would at the limit be no later
der option A - ie 2005).
Legal process
'L could not agree on the best way to achieve
gested were:
ow
Lawyers acting for DSS and
termination. The two options s
e
to serve a 3 month n Tminating the contract;
ay
tc serve notice making time of the essence - which would have to be a
teasonable period, and could be up to 9 months.
Ministers therefore agreed that the Treasury Solicitor should seek the advice of the
Law Officers last Decembes, His advice was that if Ministers unequivocal wish
was to terminate (i.e. to offf@ICL no prospect of delivering the existing contract)
then they should serve a 3 m@pnth notice terminating the contracts. This route is the
quickest route to terminati@n (although it involves additional legal hurdles and
carries a greater risk that lic sector parties would be held in breach of
contract and thus liable for ages). Lord Falconcr endorsed this view.
Serving notice would be ddpfe in Parallel with opening negotiations with [CL
about a settlement.
Presentational Strategy
ent will in
The handling of an announce: part depend on the reaction of ICL and
Fujitsu to the news that the Go) fore wishes to terminate. If ICL are prepared to
seek a negotiated settlement Ken part of dur negotiating leverage will be how
termination is presented publicly. If, however, they intend to litigate, then the
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19-APR-1999 18:39 FROM DSS POLICY GRP; ADELPHI TO 21415
Um .itaauly
DRAFT REPORT
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
Government will have no altenpative 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.
A kcy 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 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. Ministers will
need to stress:
the Gov ent remains fully committed to a nationwide network of post
offices } and fully recognises the importance of post offices the
communjties they serve;
the Govpmment 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 - for
examplejthe provision of banking services;
be no changejto the existing arrangements for the collection of
benefits fn cash at post offices.
it will also to reassure benefit recipients that they will
able to collegt their benefits at post offices, and to explain
r withdrawing} the BPC from the carly customers using it. In
portant to convey the message to the IT industry and Japanese
that the Government has acted in good faith.
The Governm
continue to b
arrangements
addition it be
inward investo
The Wa yard - fo)
If you decide that you do not want to terminate and wish to continue with Horizon
on the basis of ICL’s offer of Dpcember 18, then: 1
we would need to exploge urgently with ICL whether their offer still stood
and, in the light of loss of confidence in the public sector, what
reassurances they might gequire to proceed;
DSS/BA would have to urgently resolve its difficulties with ICL/POCL’s
proposals for acceptancejof the system and find a solution which provides
adequate reassurance forgGovernment that payments to beneficiaries will be
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19-APR-1999 18:39 FROM DSS POLICY GRP, ADELPHI TO 21415 Peapsae
. ] Teasury
bos
I DRAFT REPORT
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
‘safeguarded. You might want to consider appointing an independent adviser
<to aid this process;
I -
\the recent disagreement between BA and POCL/ICL about systems testing
‘and whether to delay the move to live trial would have to be resolved;
I
ithe parties would need to sign Heads of Agreement - although this would be
junlikely to be achieveable before the Fujitsu Board meeting on the 23 April:
{there are a significant number of outstanding commercial and contractual
issues that will need te be resolved;
Fujitsu that subject to gesolution of acceptance testing, the acceptability of
ance would therefore be able to give would be to tell
Fujitsu guarantees, of resolving outstanding issues their Dec 18 offer is
to steps to ensure that the risk of further delay was
is will fequire a commitment at the highest level in both BA
and POCL tojensur t the relevant personne! work constructively with
ICL to deliver project successfully - as well as financial
Ities fer ICL to deliver;
the Corbett report) to re: ture the contract with ICL after the system was
to removg BA, and make them a direct customer of POCL
However. Treasury
real assurance of sucé
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Dwpo00000027
19-APR-1999 10:48 FROM DSS POLICY oR pfDELPHI TO 21415 PL17/17
Ww
DRAFT REPORT
WITHOUT PREJUDICE - COMMERCIAL IN CONFIDENCE
iMPACT ON THE PUBLIC SECTOR
ing NPV option A option A (6 I option B1 I Termination I Termination
manth (ACT in (ACT in I
delay) 2002) 2004)
BA 1,123 2,104
paymertto I} (36) (S (315)
ICL (to
deliver a
loss of
£126m
o NPV)
POCL 179 2 (1,405)
total NPV 1,266 1, 566
to public.
sector
<
a7
TOTAL P.17