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Rt Hon lan McCartney MP
Minister of State
Department of
Trade and Industry
1 Vigtoria Strect
London
SWIHOET
To Members of the Horizon Working Group;
Stuart Sweetman / Dave Miller POCL
Derek Hodgson / John Baldwin CWU
Terry Deegan / Tony Harris CMA
Colin Baker / John Peberdy NFSP
17 June 1999 I
HORIZON WORKING GROUP i
Lam sorry for the delay in circulating the minutes of the Horizon Working Group, held
on 8 June, but these are now enclosed.
As artanged, the next meeting is on Tuesday 22 June 10.30 - 11.30 am, at the DTT
Conference Centre {the entrance is to the left of the main building entrance), 1 Victoria
Street, London. Please could you ask your offices to confirm who will be attending.
Many thanks,
Yours sincerely,
Geoff Moore
Assistant Private Secretary
du
Deparment of Trade aed Indoutry
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NOTE OF A MEETING OF THE HORIZON WO iG GROUP
199:
DTI. VICTO} ST, LONDO!
Present:
Tan McCartney MP, Minister of State, DTI (Chairman)
Frank Doran MP, Parliamentary Private Secretary to lan McCartney
Stuart Sweetman, Post Office Counters Ltd (POCL)
Dave Miller, POCL
Derek Hodgson, General Secretary, Communication Workers Union (CWU)
John Baldwin, CWU
Terry Deegan, General Secretary, Communication Managers’ Association (CMA)
Tony Harris, CMA
Colin Baker, General Secretary, National Federation of Subpostmasters (NFSP)
John Peberdy, NFSP
‘David Sibbick, Director, Posts, DTT
Isabel Anderson, Postal Services Directorate, DT!
Geoff Moore (notetaker), DTI, Assistant Private Secretary to Jan McCartney
Main points:
y Mr McCartney began by acknowledging that negotiations on the Horizon
project had been protracted and difficult, He hoped that, following the announcement
on 24 May, the Working Group could keep discussions on track for a successful
agreement by 16 July. The Group would bring toge:her the various strands and give
political accountability. From the Government's viewpoint there clearly needed to be
more effective monitoring and oversight of the project
2. Mr McCartney said it was important for the Working Group to receive full
government backing, which required there to be clarity about the work that was to be
undertaken. Mr McCartney said the Group members were all stakeholders in the
success of the project and would have equal status, although he was in the Chair
3, Mr McCartney asked whether those present agreed with the proposed agenda
for the meeting; that first he and then each party to the Group would outline their
views on the draft terms of reference, Mr Sweetman and Mr Miller would then give a
short presentation on the latest position on the negotiations with ICL and the Benefits
Agency (BA), and that finally, Mr McCartney would seek agreement on the future
work programme of the Working Group, The group agreed.
4. Mr McCartney then outlined the terms of reference that he proposed, as
circulated the day before;
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In selation to carrying forward the work on the POCL/ICL Horizon project:
* to oversee the negotiations between POCL and ICL which will develop the letter of
agreement signed between the parties on 24 May into a Codified Agreement
governing the contractual relationship under which the project will be taken
forward, together with the consequential arrangements between POCL and the
Benefits Agency; and to facilitate solutions to any problems which may arise;
* to oversee, to contribute actively to, and to facilitate solutions where problems
arise, the completion of the development phases of the Horizon project, and in
particular the smooth and timely roll-out of the system to all offices within the post
office network, and the subsequent satisfactory migration of benefit payments from
the present paper-based methods to more modern, ACT-based, methods of payment
also accessible through post offices; and
* to contribute through ideas, contacts and other practical measures, to maximising
the commercial potential of the Horizon infrastructure and the future viability of the
post office network as a whole.
5. Mr Sweetman said that he welcomed Mr McCartney's introductory remarks
and would not seek to alter the terms of reference.
6. Mr Baker said that he did have a fundamental point to raise. The wording of
the second term of reference “methods of payment also accessible through post i
offices” would send the wrong signal to post office staff and subpostmasters. Where I
was the long-term protection for the network? I
7. Mr Hodgson said that although no-one would doubt Mr McCartney’s
commitment to the network, the Government did not come out of the progress on the
project so far in 4 good light. It was well known that Ministers had sometimes held
differmg views. The Working Group seemed to be a genuine exercise, but he was
concerned that its work might be undermined by the interests of other Departments,
He would also like to be clear on whether option B3 precluded the development of the
smart card, or whether the work of the Group was in practice bound by constraints
that the whole Group may not be aware of.
8, Mr Deegan also paid tribute to the commitment of Mr McCartney and the DTT
team and was fully supportive of the Minister's desire to see successful automation,
There was clearly a huge gap to plug in terms of supporting the network financially,
and same creative ideas were neéded. He believed that the creation of the Working
Group would help to provide reassurance that there was now a determination to see
the project brought to a successful conclusion. There were two issues to be addressed:
automation. and developing a sufficient volume of business to keep POCL viable. The
Working Group could be a valuable platform for encouraging new Government
business, especially electronic Government.
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9. Mr McCartney said he would respond to all these points, He emphasised the
need to concentrate on what was on the table - option B3, and to achieve a positive
outcome on this. The Group was constituted as it was - without, for example, other
Government Departments - to keep the Group focused, and the ‘grit out of the oyster’.
OF course, there may be times when dialogue with other parties, including other
departments, the Benefits Agency and of course ICL would be necessary and the
Group as a whole could decide who to include im the discussions.
10 Mr McCartney said that there were issues such as the need for agreement
across Whitehall on the services that the network would be asked to provide, but the
critical role of the Group was to secure success of the automation platform - this was
the foundation for building new business relationships.
11, On Mr Baker's point about long-term security for the network, Mr McCartney
i pointed out that even the benefit payment card would have been a relatively short-term
solution, which was never envisaged to have a long-term future given the accelerating
trend for new benefit recipients to opt for ACT.
12 Mr Baker accepted Mr McCartney's point that the job now was to secure the
success of the platform, but argued that the Post Office should be flagged up in the
terms of reference as the preferred first port of call for benefit recipients.
43 Mr McCartney suggested that taking out the word “also” from the last line of
the second term of reference would address Mr Buker’s concerns, This was agreed and
the terms of reference were adopted as at annex A to this note.
14. Mr Sweetman then updated the Group on POCL’s discussions with ICL, After
signing the letter of intent on 24 May, since 1 June, POCL’s and ICL's representatives
(Slaughter & May and Hambrose respectively) had been discussing the way forward.
The aim of a legal agreement, building on the letter of intent of 24 May, the original
1996 agreements and the (approximately 100) contractual changes made to them in the
course of the last few years, was achievable, The nature. of the project was’ now very
different - it was not PFI any more (with the responsibilities that entailed for ICL) and
so POCL needed to be clear about what it was buying for its #550m. As far as POCL
was concerned, the PO Board’s meeting on 19 July was the date to aim for. ICL were
unlikely to have any difficulty with this three day extension of the deadline
15. Mr Miller outlined discussions that POCL was having with BA. The issues
included (a) the question of guaranteed payments, of which POCL was seeking
continuation beyond 2003 when payments transferred to ACT, (b) the price to be paid
to POCL by BA for the Order Book Control System - as the benefit payment card was
now out of the picture, the price should change, (c) POCL's liability for fraud, which
they sought to contain within a figure of not much above £200,000.
16, Mr Baker asked about the £550m that POCL had contracted to pay for the
project - where was this coming from? Mr Sweetman said the letter of intent was
complex but essentially POCL would pay £68m on their acceptance of the system, then
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four staged payments of £120m (all figures are not inclusive of VAT), with some
retentions payable in later years. Of the £550m, £480m would come from the
Government's agreement that POCL could liquidate this amount from accumulated
reserves and the rest from the PO’s budget, somehow. There would be further costs to
pay to ICL in the order of £400m to £500m. Mr Baker said the ‘somehow’ was what
wortied him, Mr Sweetman replied that that was POCL’s strategic challenge, since the
current business plan could not support this,
17. Mr Hodgson also challenged where the accumulated reserves were - POCL did
not have reserves. Mr Sweetman replied that these would come from Post Office
reserves, as agreed with Treasury. Mr Hodgson argued that this meant a loss to the
Post Office by losing the interest on the investments. Mr Sibbick confirmed that the
Government had agreed that the Post Office could spend £480 million from the £2
billion or sa of Post Office accumulated reserves on the project. Mr Hodgson pointed
out that there was clearly a sizeable funding gap for the project, but more importantly
for the Counters business as a whole, and Mr Sweetman confirmed that this was so
He handed a graph round to the Group members which showed POCL’s view of the
impact of option B3 on their projected ten year profit.
18, It was then agreed that the Group should focus on its future work, Mr
McCartney suguested dates for three firure meetings, to be held at } Victoria Strect.
These were subsequently contirmed as being:
© Tuesday 22 June 1999 at 10.30am - 11.30am, at which there would be a report-
back by POCL on discussions with !CL and BA, and broad agreement would be
sought on the way forward after July;
® Wednesday 7 July 1999 at 3pm - 4pm, at which the likely outcome of the i
negotiations would be reviewed; t
© and 27 July 1999 at 3.30pm - 4.30pm, at which agreement would be sought on the
milestones for the continuing Horizon programine.
‘Thereatter, the aim would be to have monthly meetings, Mr Moore would liaise with
all parties to set these meetings up.
19. ‘Notes of this and the other Working Group meetings would be circulated to the
participants by Mr Moore.
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ANNEX A
TERMS OF REFERENCE GF THE DTI, POCL, CWU, CMA AND NESP
HORIZON WORKING GROUP
Agreed 8 June 1999
In relation to carrying forward the work on the POCL/ICL Horizon project:
© to oversee the negotiations between POCL and ICL which will develop the letter of H
agreement signed between the parties on 24 May into a Codified Agreement
governing the contractual relationship under which the project will be taken
forward, together with the consequential arrangements between POCL and the I
Benefits Agency; and to facilitate solutions to any problems which may arise;
© to oversee, to contribute actively to, and to facilitate solutions where problems
arise, the completion of the development phases of the Horizon project, and in
particular the smooth and timely roll-out of the system to alt offices within the post
office network, and the subsequent satisfactory migration of benefit payments from
the present paper-based methods to more modern, ACT-based, methods of payment
accessible through post offices; and
* to contribute through ideas, contacts and other practical measures, to maximising j
the commercial potential of the Horizon infrastructure and the future viability of the
post office network as a whole.