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Depurtuent of Trade and tndneiry
IAN McCARTNEY MINISTER OF STATE
ROOM 838, 1 VICTORIA STREET
LONDON, SW1H 0ET
PAGE: 81
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Ful,
FAX
MESSAGE/COVER SHEET
THIS MESSAGE IS FOR: Colin Baker & John Peberdy NFSP
FAX NO: GRO
FROM: “Geoff Moore
TEL:
FAX:
DATE: 29 June 1999
NO. OF PAGES TO FOLLOW: 5 more
IF YOU DO NOT RECEIVE ALL THE PAGES, PLEASE CONTACT ME
AS SOON AS POSSIBLE.
MESSAGE:
Minutes of last meeting of Horizon Working Group follow, and agenda for next
meeting on 7 July, DTI conference centre, 1 Victoria Street, 3pef. The meeting
after that will be 27 July at 6pm. OMA,
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NOTE OF A MEETING OF THE HORIZON WORKING GROUP
22 JUNE 1999
DTI, 1 VICTORIA ST, LONDON
Present:
Ian McCartney MP, Minister of State, DTI (Chairman)
Stuart Sweetman, Post Office Counters Ltd (POCL)
Dave Miller, POCL
Mena Rego, POCL
Derek Hodgson, General Secretary, Communication Workers Union (CWU)
Tony Kearns, CWU
Terry Deegan, General Secretary, Communication Managers? Association (CMA) i
Tony Harris, CMA {
Colin Baker, General Secretary, National Federation of Subpostmasters (NFSP)
John Peberdy, NFSP
David Sibbick, Director, Posts, DTI
Geoff Moore (notetaker), DTI, Assistant Private Secretary to lan McCartney (Tel no
Main points;
1 Mr McCartney apologised for the fact that the agenda for the meeting had not
been circulated in advance. In future, any papers would be circulated a week in
advance. It was confirmed that all present were content with the minutes of the
previous meeting held on 8 June.
2. Ms Rego then presented an update for the Group on POCL’s negotiations with
ICL, The terms of the letrer-of agreement on 24 May meant that the contract was now
largely a ‘given’, and there was now a process of codification rather than negotiation. I
3. Mr Hodgson argued that in fact there had been a fundamental change to the
situation - not least because this was now not a PFI project - so this should not be seen
as just a matter of codification. Mr Sweetman explained that this fiindamenta! change
had already been reflected in the 24 May agreement negotiated essentially between the
Treasury and ICL.
4. Ms Rego said that the emerging issues were (a) acceptance, some of the tests
in the BA/ ICL contract, and in the over-arching BA / ICL / POCL contract, would be
lost with the ending of those two contracts, but were nevertheless important means of
verifying aspects of the system which POCL would be buying, and therefore needed to
be retained, POCL agreed that tests relating to the later removal of the benefit payment
elements of the project (in the short-term these would simply be “walled-up” out of
harm’s way) could be put on one side and dealt with as management risk issues at a
tater date; (b) infrastructure baselining; the issue here was whether spare capacity on
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the system created by the removal of the benefit payment card could be used to
provide additional services without additional costs. There was a need to establish
exactly what POCL was buying. ICL have not allowed access to POCL so that they
could determine this and have insisted that it is not a contractual issue. They have
however indicated that they are willing to talk informally. POCL consider the issue to
be too important to the future commercial prospects of the project to rest on a purely
informal and unenforceable indication; (¢) roll-out; there were reservations about the
ability of both sides to achieve the roll-out plan, and this was being revised.
5. Mr Baker said that it was extremely important for the roll-out to be absolutely
tight; with so many planned per week (300) there would be risk of collapse, otherwise.
6. Mr McCartney said that the roll-out issue was crucial; he was emphatically not
prepared to accept getting away from the commitment to 2001. Slippage would make
the wider discussions on government usage of the network impossible If there were
problems with software, training etc then these should have been flagged up earlier,
and must now be resolved in a way that enabled the 2001 timetable to be recovered.
7. Ms Rego argued that it should not be assumed that POCL expected to miss the
date, Mr Miller emphasised that the intention was to hit 2001. Mr McCartney asked
for an urgent report on roll-out next wek so that it that could be circulated before the
next meeting and included on the agenda (action ; POCL),
8. Mr Deegan raised the issue of ongoing costs that POCL would incur, following
the £68m that would be paid for acceptance. Ms Rego said that there would be
ongoing running costs, which were largely fixed (ie not volume related), of around
£80m per year, On present projections, POCL could not afford the system. In addition, i
there would be further development costs. Mr Deegan asked whether as things stood I
the project was sufficiently advanced to begin to market it. Ms Rego said that better
information needed to be extracted from ICL first.
9. Mr Hodgson said he and possibly others in the Group were at a disadvantage in
not having seen the heads of agreement of 24 May (Mr Sweetman said that a summary
would be produced for the Group, which would of course be commercially
confidential; action ; POCL). Also, unlegs ‘son of the bpe was established there
would be difficulty in attracting enough business to make the system viable. What
work was being done on that?
10. Mr McCartney said the latter question was for discussion after the July
agreement. Even before the May agreement, footfall was a big issue. This was not a
new area.
11, Mr McCartney said that as he understood the infrastructure issue, POCL was
saying that the baseline capacity of the system should be regarded as that which
obtained before the benefit payment card was removed, and that new services should
be added up to the limit of that capacity without extra charge, What was POCL’s
interpretation of ICL’s position?
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12. Mr Sweetman said that ICL weye’ refusing to accept any reference to this
capacity built into the contract. POC. ded the commercial certainty of this before
committing the initial payment of £65m to ICL. Mr McCartney asked for a report on
this for discussion at the next meeting, and asked POCL to pass on the Group’s
concern on this issue to ICL (action : POCL). Ms Rego confirmed that if the issue
was not resolved, it could adversely affect the agreement sought for July.
13 Mr Peberdy asked for clarification of the difference between ‘release
authorisation’ and ‘acceptance’, Mr Miller explained that acceptance is stemmed from
the satisfactory completion of a series of contractually predetermined tests, and
triggered payment to ICL. Release authorisation unlocked rollout of the system into
the field, and was based on overail “fitness for the purpose” of the system
I
14. The Group then turned to negotiations with the Benefits Agency. Ms Rego said ;
that BA had agreed to meet to discuss ‘their ACT plans post-2003. BA Ministers I
would receive a report on this by the end of June. BA had confirmed that they were t
willing to adapt their existing contracts with POCL to reflect the new circumstances
and to try to negotiate the necessary changes with the same timescales as the
POCLACL agreement. However it was clear from an initial meeting that BA and
POCL had differences over the assumptions used by KPMG in modelling the B3 i
option. There was a gap of over £400m. POCL was looking to BA to share some of
the pain Under the financial model of B3 by KPMG (Treasury’s advisors}, BA would
have @ positive Net Present Value of £1.9bn rather than £1.6bn under option A
However, POCL was only seeking around £133m. POCL was not clear whether it
could count on Ministerial support for their position against BA.
15 Mr McCartney asked for a report to him next week on where POCL stood on
the negotiations (action : POCL), He could then decide how to approach the issue on
a ministerial basis.
16 Mr Deegan asked whether there had been any discussion in the negotiations
about what BA would pay for continuing to use POCL services, 2003 was obviously a
key date in BA's eyes for transfer to ACT. Ms Rego explained that under ACT, BA
would pay the banks for delivering benefit payments to recipients’ bank accounts using ;
the BACS system It would then be for POCL to negotiate a fee with the banks for I
acting as their agent in allowing bank customers to access their bank accounts at post
offices. Ms Rego also reported that BA had not had serious discussions with the
banking community. Even so, they were assuming 50% transfer to ACT in 2003/4 and
50% jin 2004/5. Of course, some percentage of benefit claimants would be
‘unbankable’ and for these there would need to be some alternative means of payment
POCL would expect to bid for that work
7 Mr Hodgson asked if he heard correctly that BA would decide on post-2003
this month. Wouldn’t this mean the rug being pulled from under the Group's feet? Mr
McCartney said this simply meant that DSS Ministers had asked for a report from their
officials, Mr Sibbick assured Mr Hodgson that whatever the system that was in place,
there was a Ministerial commitment that whoever wanted to continue to draw benefits
in cash from PO counters would be able to do so. Mr Baker argued that the Group had
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an important role to play in preventing any action by BA to persuade benefit recipients
to move to ACT in advance of 2003,
18, Mr McCartney then reported to the Group that he had written to Ministerial
colleagues to tell them about the work of the Group, Jack Cunningham had given
suppost to an interdepartmental study of how the PO network should be funded to
replace the loss of BA revenue after 2003. He (Mr McCartney) had set out in graphic
detail the consequences of a significant reduction in Government usage of the network
This was designed to concentrate minds. He would report back to the Group next
meeting (action : Mr Sibbick) on the response to this letter.
19, Mr Sweetman asked whether it could be helpful to provide a brief to the Group
on thei ‘Government gateway’ plans. Mr McCartney agreed that it would, for
discussion at the meeting on 27 July (action ; POCL)
20 Tt was provisionally agreed that the next meetings would be 7 July at 3pm, and
27 July at 6pm.
End,
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HORIZON WORKING GROUP
THIRD MEETING 7 JULY 1999
AGENDA
1. Minutes of 2nd meeting 22 June 1999.
2. Report by the Post Office on PO/ICL negotiations including:
« the timescale for rollout given the problems with Wednesday cash balances at
_ sub-post offices, (4 ASRS
© obtaining from ICL the firmest possible assessment of the amount of spare
capacity in the Horizon infrastructure available for additional commercial
applications without additional payment; and
* acceptance testing. VER) 0 ets. Pre \ ‘ i
3. Discussion of next steps on PO/ICL negotiations.
4. Report by the Post Office on PO/BA negotiations including:
* payment for OBCS; and
« BA plans for migration to ACT,
5. Discussion of next steps on PO/BA negotiations.
6. Report by DTI on progress with establishing an interdepartmental study of POCL
funding issues.
7. Forward look (includes paper PO will table on Government Gateway ambitions).
Ox pMPuMEETO.200 "