2015

Evidence on official site
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Post Office Limited — Strictly Confidential

POLB 15(4")
POLB 15/64 - 15/67

POST OFFICE LIMITED
(Company no. 2154540)
(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
Richard Callard
Alisdair Cameron
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Neil McCausland
Paula Vennells

In Attendance:

Chairman

Non-Executive Director (by telephone)
Chief Financial Officer

Non-Executive Director (by telephone)
Non-Executive Director (by telephone)
Non-Executive Director (by telephone)
Non-Executive Director (by telephone)
Chief Executive

Alwen Lyons Company Secretary
Lesley Sewell Chief Information Officer
Neil Wilkinson Separation Programme Manager
Lesley Sewell Chief Information Officer
Jas Virdee
Kevin Seller Head of Government Innovations Programme
Apologies:
POLB 15/64 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 15/65 FUJITSU CONTRACT EXTENSION

(a)

(b)

POL Board minutes, 2 July 2015

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.

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 could not
be confident that the project would 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 branches. Any suggestion that branch
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Post Office Limited — Strictly Confidential

accounting was not right would, given the Sparrow sensitivities,
cause the project to slow down.

(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.
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;

possible further incentivisation of IBM to help minimise the

Fujitsu costs; and

e the timeline when decisions had to be made, taking into

consideration the Telco contract negotiations.

(d) Alisdair Cameron advised:

e 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 was £6.5m.

e 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.

e The maximum spend assumed a full year of running to
March 2018. If even more time was needed, in theory a
further limited extension could then be negotiated. However,
the back-up datacentre was due to be demolished in
September 2018.

(e) It was also NOTED that full capital provision of £45m spend had
been assumed in the Three Year Plan, comprising including six
months of additional run costs, between April 2017 and September
2017.

(f) In respect of governance, the Board was advised

e The Front Office Steering Group would continue to explore
options to reduce the capital investment, with an aim to
cancel the refresh and extension by June 2016, therefore
targeting a maximum spend of £22.5m;

e Spend would be approved by the CFO and the CEO in 3
month stages and an update provided to the Board in
October 2015.

(g) Internal and external legal teams had confirmed that Fujitsu had an

obligation to act and negotiate reasonably in agreeing the contents
of the exit strategy leading to an orderly and efficient transfer of

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responsibilities and services to the next supplier. These obligations
did not compel Fujitsu to extend the contract beyond the contractual
end date. An exit manager was working with Fujitsu to ensure
these contractual obligations were met.

(h) Discussions regarding incentivisation had led to Fujitsu requesting
£17m for effectively goodwill, which was not considered good value
for money and which was not recommended. Dialogue was
ongoing with IBM regarding incentivising them to ensure the
programme was delivered on time. It was however too early to
conclude such discussions and such incentivisation would be
reconsidered when a better view on the delivery timeline was
available on completion of the design phase in September 2015.

(i) I Telephony contract extension was arguably more urgent, with both
Fujitsu and the Company having a shared need to replace Capita, a
key provider of services under the contract. Contractually that
replacement could be achieved now, because of the poor service
provided by Capita but that situation may not persist and Fujitsu
would not go through the replacement process without the longer
contract period under discussion. It was unclear whether Fujitsu
would agree the IT extension without the opportunity provided by a
new telephony contract. The Board was advised the contract
extension could be delayed to some future date that would bring
contractual and financial risk.

(j) In relation to risk, the Board was advised:
That each risk retained ‘Controlled’ status and was within the
Technology and Operations risk appetite of Adverse.

e Failure to fully transition to the new Front Office solution by
March 2017 may result in a delay in benefits realisation and
significant additional Fujitsu cost being incurred to maintain
continuity of service. (Operational Risk / Financial risk —
Controlled);

e Failure to deliver within the three-year transformation
window may have significant ramifications to the wider
business transformation, and require major funding outside
the existing cost envelope. (Operational / Financial risk —
Controlled);

¢ Operational continuity of service may be put at risk through
adverse influence from failure in relations with Fujitsu, or
behaviours of Fujitsu. (Operational risk — Controlled).

(k) 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
presented an unacceptable level of risk. On the basis that the
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.

POLB 15/66 RESOLUTION

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(a) Having listened carefully to all of the arguments for and against the
proposed extension the Board 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:

e 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;

¢ 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;

e 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.

POLB 15/67 ANY OTHER BUSINESS
There being no further business the Chairman declared the meeting
closed.

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