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POLB 15(4"")
POLB 15/64 — 15/67
I
POST OFFICE LIMITED I
(Company no. 2154540) I
(the ‘Company’)
Minutes of an Extraordinary Board meeting held at 4:00pm on Thursday 2 July 2015 at 20
Finsbury Street, London EC2Y 9AQ and by telephone conference
Present:
Alice Perkins Chairman
Richard Callard Non-Executive Director (by telephone)
Alisdair Cameron Chief Financial Officer
Tim Franklin Non-Executive Director (by telephone)
Neil McCausland Non-Executive Director (by telephone)
Paula Vennells Chief Executive
In Attendance: I
Alwen Lyons Company Secretary
David Hussey Transformation Director
Lesley Sewell Chief Information Officer
POLB 15/64 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 15/65 FUJITSU CONTRACT EXTENSION
(a) Alisdair Cameron spoke to the submitted paper. He explained that
the Board was being asked to approve an option to extend the
existing Fujitsu Horizon contract as contingency against delays in
the establishment of new Front Office services, protecting
continuity of operational service for the Company.
(b) He reported that the Front Office programme was due to complete
at the end of March 2017, at the same time that Fujitsu’s contract to
support Horizon was coming to an end. IBM, Computacenter and
Verizon had been appointed as the Company's key technology
partners, with the design phase underway. The scale and
complexity of the project was such however that the team believed
a contingency was necessary in case the project did not finish on
time. The concern was that not only was the project reliant upon
third party delivery, but that the Company also had to roll out the
new equipment and software across all of its 11500 branches. The
Business was changing the end to end way it did business and with
the experience of Sparrow sensitivities it needed to be positive that
the new systems were robust before rolling out.
(c) On 21 May 2015 the Board declined to agree a one year extension
at a value of £62m before re-evaluating all available options and
exploring whether any additional approaches might be available.
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The purpose of the present meeting was to consider those options
and in particular:
a view of the Fujitsu contingency;
the phased capital expenditure investment plan for Fujitsu;
the governance for releasing the spend;
clarification of the Fujitsu contract and the legal position;
the possible further incentivisation of IBM to help minimise
the Fujitsu costs.
(d) Alisdair Cameron advised that:
«there had been further negotiation with Fujitsu, the result of
which was the maximum potential spend had been reduced
to £57m, £24m of capital, £33m of run costs. The minimum
spend being £6.5m;
¢ there had been an extensive joint review of the required
capital investment resulting in an agreed slower schedule of
spend which would enables continuity of service in the
Belfast datacentres to March 2018. The revised schedule
was set out within the paper;
e the actual spend would be determined by the date the
Company decided whether to terminate the option. For
example, if the Company was sufficiently confident by June
2016 that it could exit on time, the cost would be £22.5m,
« the maximum spend assumed a full year of running to
March 2018.
(©) Alisdair Cameron onpl ined that by June 2016 the rollout should
tke in have been completa least 1000 branches with the new system
in place for at least ofte month end accounting period. This should
give the business a good understanding as to whether the IBM
system was working and reduce the need for the Fujitsu
contingency. The Board recognised that the reputational damage of
wholesale network failure and supported the need to test the
Z. system in the live environment Tus seele -
(f) The Board recognised the importance of this decision and asked
ACTION: the Business to set clear success criteria for the rollout programme
CFO to give confidence that the delivery was working before the FU
contract could be terminated.
(g) In respect of governance, the ard was advised that spend-would
be.approved-by the CFO and, 1@ CEO in. -3.month-stages-and-an
wadd be Ses powille update provided-to-the Board-in- October 2015, 1) bee #b)
en Ape mG spond we
thiaveo Merk 4 onto da (h) Internal and external legal teams had confirmed that Fujitsu had an
£6 por Lain, Mhorsbnen obligation to act and negotiate reasonably in agreeing the contents
“ \" of the exit strategy leading to an orderly and efficient transfer of
Mark Sud chose responsibilities and services to the next supplier. These obligations
Xeoad . did not compe! Fujitsu to extend the contract beyond the
contractual end date. An exit manager was working with Fujitsu to
ensure these contractual obligations were met.
«
(i) Dialogue was ongoing with 1BM regarding incentivising them to
ensure the programme was delivered on time. It was however too
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early to conclude such discussions and such action would be
reconsidered when a better view on the delivery timeline was
available on completion of the design phase in September 2015.
(ij) The conclusion was that having undertaken the review requested
by the Board on 21 May 2015, the programme team continued to
believe that to proceed without a contract extension option I
presented an unacceptable level of risk. On the basis that the I
Company would minimise the cost of the proposed option and that
any spend would be approved by the CEO and the CFO, the Board
was asked to approve a one year option to extend the existing
Fujitsu Horizon contract at a maximum investment of £57m: £33m
of operating costs and £24m of capital.
(k) Having listened carefully to all of the arguments for and against the
proposed extension the Board reluctantly took the view it was in the
best interests of the Company to agree the proposed option to
extend the Fujitsu contract as submitted AND RESOLVED:
¢ To approve an option to extend the existing Fujitsu Horizon
contract as contingency against delays in the establishment
of new Front Office services;
¢ The maximum investment in the option to extend should be
£57m, comprising £33m of operating costs and £24m of
capital;
¢ There would be another Board decision at a check point in
June 2016 with the aim of capping expenditure at around ) I
YEe25m and another in December 2016 with expenditure
around £30m;
¢ That the CFO and/or CEO be authorised to take all actions
and do such things as were required to conclude the option
agreement with Fujitsu on the terms recommended;
¢ That the CFO and/or CEO be responsible for approving
spend in three monthly periods under the terms of the
option and provide update reports to the Board on the same
three monthly cycle.
(0) The Board acknowledging the importance of hitting the June and
December 2016 deadlines in order to minimise expenditure and
asked for close monitoring of the costs with reports to the Board
every quarter.
(m) It was agreed that risk status for technology and operations should
be changed from Controlled to Managed and the risk appetite i
remained at Averse.
POLB 15/66 ANY OTHER BUSINESS
There being no further business the Chairman declared the
meeting closed. I
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Chairman Date
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