oe CHIEF SECRETARY
Minister of State,
Cabinet Office. IREC.I 15 FEB 1999
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70 Whitehall,
Telephon
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Rod Clark Esq ‘
PPS/SoS for Social Security ‘ 7 eee mere
Department for Social Security I iPcp - CA [eco
Richmond House
79 Whitehall
London SW1A 2NS
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HORIZON
11 February 1999
Alistair Darling and Stephen Byers met Charles Falconer briefly today to
discuss a proposal for a possible way forward for the Horizon project.
Steve Robson and Peter Schofield were also present.
The proposal had been developed by Treasury officials reporting to Alan
Milburn and Charles Falconer. Ministers agreed that the paper circulated
at the meeting (copy attached) offered the prospect of gains for both the
Benefits Agency and the Post Office when compared to the existing
agreement with ICL.
It was agreed that Stephen Byers and Alistair Darling would give the
proposal further consideration. Both Ministers would write to the Chief
Secretary by 17:00 on Friday, 12 February to indicate whether they were
content for detailed negotiations with ICL to proceed on the basis set out
in the attached note.
I am copying this letter to PS/Stephen Byers, ®BAAtatn Milburn, Steve
Robson and Peter Schofield. No additional copies of this note or the
proposal should be made. Please limit circulation to a strict need to know
basis.
“STEPHEN WARD
Assistant Private Secretary
don _SW1A 24S
_GRO_I
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unlike with the BPC, there are no facilities for urgent payments or
payment to nominated proxy. BA would have to find alternative method
of offering these services;
- may provide a lower quality of service at Post Office counters than with
the BPC (e.g. PIN required, less help on queries).
Taking the proposal forward - negotiation strategy with ICL
12. In order to preserve our leverage on price with ICL, it would be vital to
keep the Government’s alternative options open (either to proceed with the
BPC or to pull the whole project) until the commercial terms for this new
approach have been agreed.
13. This will require a careful negotiating strategy with ICL. They will argue
that, as the Government has changed the specification, the Government should
pay ICI.’s sunk development costs for the BPC. ICL have already said that
they would want to split the contract in two, with the Horizon infrastructure,
excluding the BPC, rolled out and paid for first, and then a second set of
negotiations on the smartcard and the method of paying benefits. This would
need to be avoided, since it would leave ICL in the driving seat for negotiations
on the smartcard.
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BA/POCL AUTOMATION PROJECT
This note sets out a possible way forward for the Horizon project, following
discussions between Steve Robson (HMT) and Keith Todd (ICL). These
discussions were conducted on a without prejudice and confidential basis. ICL
accepted that the public sector parties reserve their rights and remedies with
respect to past breaches of contract by ICL Pathway. Both sides agreed that
they would not take pre-emptive legal action against any other party while
discussions are continuing.
The proposal
2 Under this proposal, the benefit payment card (BPC) would be removed
from the Horizon project. The Benefits Agency (BA) would move directly
from the existing order book system to payment of benefits through ACT.
3: Benefit recipients who currently receive their benefits via order books
would have a Post Office “benefit account” set up for them. BA would pay
benefits into the account via ACT, just as they would into any normal bank
account.
4. The Post Office benefit accounts would be simple, credit-only accounts.
They could be accessed at any Post Office using a smartcard, but at least
initially they would not be accessible at banks. The Post Office might enter
into a strategic partnership with a clearing bank to operate these accounts for
them. Subject to such arrangements being put in place by the Post Office, ICL
tell us that they could start to roll out a smartcard-based system into Post
Offices following national rollout of the core Horizon system (currently
assumed to be Spring 2001).
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5. Over time, the Post Office could develop the range of services which
were offered via the smartcard. It could also enter into negotiations with
clearing, banks to offer counter facilities, enabling the banks to shrink their
branch network.
6. The presumption would be that all order book recipients would be paid
via a Post Office benefit account, and the move from payment via order book to
payment into benefit accounts would be carried out automatically. However,
benefit recipients would at any point be free to ask the BA to pay their benefits
via ACT into a conventional bank account, just as they can now ask for a move
from an order book to ACT.
7. This approach should mean that a large proportion of benefit recipients
will continue to receive their benefits at post offices - either because they do
not already have a bank account, or because a post office is more convenient
for them, or just because of inertia. This means that POCL should have as
much certainty over future revenues as under the BPC.. It also ensures that the
smartcard has a large initial circulation, which will help the marketing of
smartcard-based services.
Impact on the various parties
Benefits Agency
Advantages:
- avoids having to develop and implement the IT infrastructure which is
required specifically for payment of benefits through the benefit payment
card (PAS/CMS/BES), although much of the development work has
already been done;
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- should allow earlier move to ACT than under original benefit payment
card project.
Disadvantages:
- delays move away from paper-based systems for paying benefits by
two years compared to BPC option.
Post Office
Advantages:
- should help to maintain footfall revenue;
- gets smartcard in circulation earlier than under BPC option, bringing
forward potential revenues from smartcard-based services.
Disadvantages:
- the cost of managing bank accounts and of the smartcard would be
borne by POCL;
- may not be consistent with POCL’s long term commercial strategy
which is to provide counter services to all the banks rather than to run its
own bank accounts.
ICL
Advantages:
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- removes BA from the contract, helping to clarify ICL’s relationship
with PO as its single client.
Disadvantages:
- ICL would want to recover the revenues they would have received for
BPC transactions;
- extra development work required for smartcard-based banking services.
Other advantages for Government:
- boost to Modern Government initiative - early introduction of
technology to support Modern Government services;
- boost to social exclusion agenda by providing simple banking facilities
to those currently without bank accounts.
Benefit recipients
Advantages:
- unlike the BPC option, provides a bank account to those currently
without one;
- compared to BPC and conventional ACT, provides a smartcard earlier
(although only an advantage if there are attractive smartcard-based
services available).
Disadvantages: