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The Rt Hon Alistair Darling MP
Secretary of State
Department of Social Security
Richmond House
79 Whitehall
LONDON
SW1A 2NS 10 September 1998
BENEFITS AGENCY/POST OFFICE COUNTERS AUTOMATION
PROJECT
When we met yesterday with Jack Cunningham, Peter Mandelson and Ian
McCartney to discuss this subject, I undertook to write setting out in more detail
how the recommended option in the Treasury/Policy Unit might be carried
forward, and the remit for the proposed “troubleshooter”.
2. I envisage three streams of work.
3. First, there must be a negotiation between the parties to the contract to
establish whether there is a commercial basis for proceeding which we can accept,
and to resolve outstanding differences on project implementation and timetable.
I would propose to write to ICL in the terms attached at Annex A to set the
framework for these negotiations. This framework must protect the position of the
public sector parties by clearly asserting that Pathway are in breach of contract.
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4. As agreed, we will need to appoint a troubleshooter to facilitate the process.
J attach at Annex B proposed terms of reference for the troubleshooter. I am
considering who might be a suitable appointment to this important position.
5. Second, I would look to Peter to take forward with the Post Office:
- plans to strengthen POCL’s management of the project:
- plans to give the management of POCL a much stronger commercial
focus;
- exploration of possible partnerships between POCL and the private
sector;
- a strategy for more transparent funding for POCL so we can be much
more rigorous in defining what social value added is being bought;
- consider possibilities for further development of the system to support
social banking and broader account-like services. (The Post Office
would need to involve CITU and consult BA on this last point.)
6. We would need to see sufficient results within the next month to be assured
that each of these elements can be delivered.
7. Third, we need to prepare fall-back options based on cancelling the card, and
cancelling the whole project. We will need sufficient analysis of these options to
allow us to judge whether the outcome of the negotiations offers the best value for
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money for the public sector as a whole. I think we will need to engage consultants
to advise on this point, looking at the data provided by POCL and BA.
8. This will involve intensive work over the next month or so. To make sure
the threads are properly tied together, I suggest an Interdepartmental Working
Group including the Policy Unit should be established.
9. I must look to you and to Peter to ensure that BA and POCL respectively
cooperate fully with this process and enter the negotiations constructively and in
good faith. They must also accept that if at the end of the process Ministers decide
to proceed with the project they must commit themselves wholeheartedly to its
success; equally if the vfm picture suggests an alternative route forward there will
be a similar commitment from both BA and POCL.
10. I When we have reports from these three streams of work we will clearly need
to meet again to agree the way forward.
11. I would be grateful to know urgently from you and from copy recipients
whether you are content to proceed on this basis.
12. Copies go to the Prime Minister, Jack Cunningham, Peter Mandelson,
Tan McCartney and Sir Richard Wilson.
STEPHEN BYERS
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DRAFT LETTER FROM CHIEF SECRETARY TO KEITH TODD, CHIEF
EXECUTIVE, ICL
BENEFITS AGENCY/POST OFFICE COUNTERS AUTOMATION
PROJECT
As you know, Ministers have been reviewing the future of this project in view of
the serious delays to the implementation timetable, and ICL Pathway’s failure to
deliver a key contractual milestone for which ICL Pathway has been placed in
breach of contract.
We remain seriously concerned by the slow rate of progress on this project which
was originally scheduled to be fully operational by October 1998. However, we
have decided to allow a period of one month for discussion between the parties to
see whether satisfactory commercial terms can be agreed for continuing the project,
outstanding differences on the timetable can be resolved, and a credible
programme for full implementation can be agreed.
To facilitate this process, I am proposing to appoint an adviser to work with the
parties towards finding a solution. He will report direct to me, and [ expect him
to be given full co-operation by all the parties. His terms of reference are attached.
To provide a satisfactory outcome, the conclusion of the discussions must meet a
number of basic criteria which include:
- any adjustment to the contracts must of course be compatible with
procurement law;
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- the contract must provide a firm date after which the Benefits Agency
will have no further commitment to using the benefit payment card.
There is one general point I must make to avoid any misunderstanding. ICL
Pathway entered into these contracts on PFI terms which entail accepting
significant risks. It should be clear at the outset, therefore, that the discussions are
not posited on an outcome which would ensure ICL Pathway a positive return on
the project.
A condition for opening discussion must be agreement that:
- no party will issue legal proceedings against any other party while
these discussions are being conducted;
- discussions will be conducted in strictest confidence and without
prejudice; and
- work on the project will continue in accordance with the existing
contracts while discussions are continuing .
I would be grateful if you would confirm by return that you are prepared to proceed
on the basis set out in this letter.
I am copying this letter to Alistair Darling and Peter Mandelson; and to
John Roberts and Peter Mathison.
STEPHEN BYERS
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DRAFT TERMS OF REFERENCE FOR “TROUBLESHOOTER”
General
The Government wishes to appoint an independent adviser to facilitate discussions
between the parties to the Benefits Agency/Post Office Counters automation
project (Benefits Agency (BA), Post Office Counters Limited (POCL) and ICL
Pathway (ICL)).
The adviser will report to Ministers via the Chief Secretary to the Treasury,
Stephen Byers.
The immediate objective will be to report to Ministers within one month on:
- whether there is a commercial basis for proceeding with the project
which is acceptable to the parties;
- whether there is in place a satisfactory implementation plan with a
detailed timetable for completing the project;
- any further action which would need to be taken to ensure successful
delivery of the project
The role of the adviser will be to:
- convene and chair discussions between the parties;
- commission papers and proposals from the parties;
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- independently appraise the parties’ claims and contributions;
- produce compromise proposals to assist the parties to identify
common ground;
- take such other action as he thinks fit to establish an acceptable basis
for continuation;
- ensure the parties provide information necessary for the analysis of
alternative options
The adviser will have no power to bind the parties, who will retain full authority
to agree or not agree any proposals made by the adviser or any other party.
If the project continues there is likely to be a continuing role for the adviser in
facilitating progress.