POL00028090
POL00028090
324-099-998 12:51 FROM:FEP TES HM TREASURY I FAGE:OL
4 Parliament Street
é HM Treasury London SWIP 3AG, ;
25 SEP 1998
IST
FAX MESSAGE FROM ADAM SHARPLES:-:
PUBLIC-ENTERPRISE PARTNERSHIPS TEAM
CHRIS NicHoLsov
To: PAIR. BABGAEK i. Fax No: ¥
Tor .. ASABE. ADESSO... Fax NO v.. he Aa
Fax Nos...
TOS cesses CaAHENS. UIQ OR ecseseeses Fax NOE vse PM ta ceee
TO: 0 GEA AYE cess FAX NO! Soseciesere FRO hesaneees
To: MOU ATHAN, EVANS, wu. Fax Not.
GEoRGE Mc ConmE AL
Department/Building
Number of pages (including this one) .......... ee
MESSAGE .
PAPERS Perrwith FoR gal poce YNeesine
2S. SseesemaeR.
. you havo rocolved this fax In error, plonso ail back on tha numbor abovo and thon dostroy this matorlal. Ploaso
troat our Information with tho same confidontlality with which you would oxpoct us to treat yours.
154)
POL00028090
POL00028090
24-09-98 12:31 FROM:PEP TEAM KM TREASURY _ Pagefee +
PIDATAMEnpGaham wpd
RESTRICTED - POLICY é
Adam Sharples
Head of Public Enterprise = ~ -—~ ~ ete oo . F
Partnerships Team adam.sharpl
Sarah Graham
DSS
Adelphi Building
1/11 John Adams Street
London oo 24 September 1998
Den Sons } I 8
1
BA/POCL - MEETING OF WORKING GROUP
The second meeting of the Working Group will be at noon on Friday, 25 September in room
32G at the Treasury. We'll lay on some sandwiches.
KPMG have been appointed to work with Graham Corbett, particularly on assessing Pathway's
financial projections, and appraising proposals put forward by the parties. KPMG will also be
helping with the analysis of fallback options, and Chris Nicholson, who will be leading this
strand of the work, will be attending our meeting on Friday.
I suggest we structure the meeting around;
. the work programme on fallback options (you are circulating a paper); 3
+’. progress in negotiations; and
. other issues, including legal advice.
Tattach a list of participants in the Working Group (please let me know if any of these details
are wrong); and a slightly revised note of our first meeting, which picks up some amendments
you asked for.
Copies go to the attached list.
. Yours sincerely,
"ADAM SHARPLES e
PEP
RESTRICTED - POLICY
34-0979 12:31
°
FROM:PEP TESM HM TREASURY:
Horizon Working Group Members
HM TREASURY Phone. Fax
Adam Sharples Public Enterprise
(Chair) Partnerships Team
Adrian Montague Private Finance Panel
Joseph Halligan Social Security Team
Sarah Mullen Public Enterprise
(Secretariat) Partnerships Team
Elizabeth Hambley Treasury Lawyer
-I DSS
Sarah Graham Special Project
DTI
David Sibbick Director Post
Isabel Anderson Post Office
CITU
Jeremy Crump 238 2068
CABINET OFFICE
Chris Wood* Cabinet Office I
No. 10
Geoff Mulgan Policy Unit [GRO I
Post Office
Jonathan Evans POCL c
BA
George McCorkell
ADVISERS
KPMG GRO I _I{ GRO I
Chris Nicholson
* Papers only
PIDATAIhWe.wod
POL00028090
POL00028090
PAGE:OS
POL00028090
POL00028090
24-89-98 12:31 FRCM:FEP TEAM HM TREASURY I Pace ‘ea ~ .
e
RESTRICTED - POLICY
HORIZON WORKING GROUP MEETING: 17 SEPTEMBER 1998
Present: 7 --
HMT DSS DTI Cltu
Adam Sharples (chair) Sarah Graham David Sibbick Mark Gladwyn
Adrian Montague Ruth Calder ‘Tsabel Anderson
Ross Newby No. 10 Policy Unit
Sarah Mullen Geoff Mulgan
Stuart Culverhouse :
Papers: Chief Secretary's letter of 10 September to Alastair Darling x 3s
Peter Mandelson’s letter of 14 September to the Chief Secretary
Alastair Darling’s letter of 14 September to the Chief Secretary
Chief Secretary’s letter of 15 September to Keith Todd at ICL
Keith Todd’s letter of 16 September to the Chief Secretary
Adam Sharples’ letter of 16 September to Sarah Graham
Sarah Graham’s Jetter of 17 September to Adam Sharples
Agenda:
(1) The purpose of the Working Group and membership
(2) The negotiation process
(3) DTI’s programme of work
(4) Fallback options and appointment of consultants 3
(5) Legal Advice
Action points:
. POCL and BA to be invited to join the Working Group
. DTI/DSS to ask POCL and BA to consider who might act as their joint representative
in the negotiation :
. Ross Newby to brief GC on need to establish a joint BA/POCL position I
. David Sibbick to draw up a specification for work on a transparent funding regime for <
. POCL and circulate : e
POL00028090
POL00028090
24-09-98 12:32 FROM:PEP TEAM HM TREASURY I PAGE: 0S
€
RESTRICTED - POLICY
. Sarah Graham to carry forward work on fallback options and circulate a paper before
the next meeting of the group considering in more detail what work was required
. HMT to speak to Lord Falconer's office to arrange a meeting of the lawyers
Date of next meeting: Friday 25 September (morning).
Discussion:
1) The pu of the Working Group and membershi
F 1. It was agreed that the role of the group was two-fold:
’ to pull together the various strands of work commissioned in the CST’s letter to
Alistair Darling in the short timescale available;
. to lead the work on the fallback options. with the help of consultants.
2. Membership of the group was discussed. Sarah Graham (SG) suggested that both BA
and POCL should be represented on the Group. On the one hand it was important to keep the
negotiation separate from the work of the group, and this might be difficult if they were
included. On the other hand there was presentational value, not to mention advantages in
terms of speed (since they would need to be closely involved in the work on fallback options),
with having them represented, It was important to overcome POCL’s view that they were bd
arate from gover It was therefore agreed that BA and POCL would be included in
the Working Group, but on the understanding that there may need to be some meetings
without them present (particularly towards the end of the process, when the central
8 government parties were brokering recommendations to Ministers). Adam Sharples (AS) said
that it was for DSS and DTI to decide whether BA and POCL respectively saw copies of the
Report that went to Ministers.
3. ° Other interested parties (e.g. SS and CI teams within HMT) would be invited to
meetings as appropriate. Any necessary meetings with ICL would be kept separate.
{2) The negotiation process
4. AS summarised the state of play:
° Graham Corbett (GC) had been appointed as the independent adviser reporting
directly to the Chief Secretary. Ross Newby would be providing support;
. The Chief Secretary had written to ICL setting out the terms of the negotiation:
.¢ ICL (Keith Todd) had responded, denying the breach of contract but accepting the
e terms set out in the CST’s letter. The clock was therefore ticking on the month agreed
for negotiations to be concluded;
POL00028090
POL00028090
24-99-98 12:32 FROM:PEP TEAM HM TREASURY
Paeeias--: I
e
RESTRICTED - POLICY
. The first step would be a series of: meetings with the individual parties in order to
establish the parties present view of the contractual position and:their objectives for 7" *
the negotiation. Then GC would need to evaluate the strength of their positions.
5, There was then a long discussion about the role of the GC. The terms of reference for
CG's appointment were clear that the role of the independent adviser was to facilitate the
negotiations rather than act as negotiator himself. At the same time CG was directly
accountable to the Chief Sccretary and other Ministers, and was therefore was responsible for
ensuring that the public sector achieved a satisfactory deal. In that sense GC was not neutral. x
6. There were clearly differences of view between POCL and BA, and it would be
important to ensure that [CL did not exploit these differences in the negotiation. A united
public sector front was required. It was agreed that it would be for GC to bring BA and POCL
together to establish a joint negotiating position prior to any discussion with ICL. but that he
could not negotiate on their behalf with ICL. SG therefore suggested that someone should be
appointed to act as a spokesperson for the public sector (once the negotiating brief had been
established) and suggested that the programme lawyer Hamish Sandison would be suitable.
for the reasons set out in her letter. In particular ICL had appointed Richard Cristou as their
lead negotiator who was a lawyer and had extensive experience in litigation.
7. David Sibbick (DS) agreed that the negotiation should be two-sided, between
Government/public sector and JCL; and that a spokesperson was needed, &
8. Adrian Montague (AM) was strongly of the opinion that the negotiation should not be
undertaken by legal representatives and should be firmly grounded in a commercial
discussion, He did not think that Hamish or Richard Cristou would therefore be suitable. ICL
could be told that they would have to find an alternative negotiator. AS suggested that Adrian
Montague himself might act in this role, although SG was concemed that he might be
unacceptable to POCL and BA given his previous role as chair of the Independent Panel and
that he had no “locus” to speak for the parties, Ross Newby (RN) said that whoever
tepresented BA and POCL would need to have the authority to enter into a negotiation with
ICL: the deal would collapse if the parties did not “own” the solution. It was agreed that DSS
Hee DTI would ask POCL and BA to consider together who might best act in this role on their
chalf.
9. RN agreed to brief GC on this discussion and the suggestion that he should in the fir
instance establish a joint negotiating position between POCL and BA before negotiations. Wa
with ICL began. If a'joint BA/POCL position could not be established then it would be *
important to report this back to Ministers very early on in the process.
10. Inthe course of the discussion AM expressed his view that it would be impossible to
achieve a documented deal in one month, but that the aim should be to achieve broad heads of
agreement to a deal. A fully documented deal could probably be achieved in two months,
. although this would be tight,
11, SG made the point that the outcome after one month must have sufficient “bite” for
(24-08-98 12:33 9 FROM:PEP TEEN HM TREASUR'
e
sor
. the impact on the network of the loss of BA income and associated footfall;
* the viability of an early shift to ACT including the impact on the banks:
° the timescale and costs of an alternative technology platform;
a the viability of pursuing Horizon without the benefit payment card.-# .
POL00028090
POL00028090
PAGE: 07
RESTRICTED - POLICY
Ministers to be able to establish a reliable view of the VFM of continuation versus the
alternatives. and sign up to any decision to continue with confidence: a further round of
substantial negotiations with ICL would not be acceptable and was not what Ministers had
agreed.
(3) DTI's propramme of work
12. DS reported that he had had un initial discussion with POCT. (Jerry Cope) on the remit
given to DTI in the CST's letter. POCL recognised that more work was required on the
fallback options and they were prepared to co-operate fully. DS said that POCL felt they had
already strengthened the management of the project in the light of the previous review of the
project in 1997. In their view ICL were content with POCL’s arrangements. POCL would also
gear up to set a timetable for taking forward banking services once it became clear where
things were going. It was pointed out that whatever the outcome of the negotiation POCL
needed to develop banking services quickly - there was no reason for delay.
13. AS said POCL had to recognise that there was a clear view that POCL’s management
of the project had been complacent and ineffective. Ministers would need Concrete assurances
by the end of the month tat POCL could deliver. This included taking action to strengthen
the management of the project’as recommended by the Independent Panel’s report. POCL had
to recognise that the project was not “in the bag”: Ministers would judge at the end of the
month whether going ahead would Tepresent good VFM.
14. DS also said that POCL were taking forward work with McKinseys on developing
Strategic partnerships. They were also considering what work could be done to establish the
social value of the network. Geotf Mulgan (GM) said that he saw the necessary work as bein,
the required managed decline of the network (cither after the end of the contract if the project
went ahead or under the fallback options) which related payments to social goals, This could 7
be subject to competition. It was agreed that DS would draw up a specification forthis work *
‘or the Group to consider. DS also reported that POCL were giving thought to how they
would manage the transition from the benefit payment card to a smartcard.
{4) Fallback options and appointment of consultants
15. It was intended that consultants would be appointed (as part of the wider negotiation
tender) to provide assistance to the Working Group on fallback options. Their work would
comprise four elements: . :
POL00028090
POL00028090
24-@9-98 12:34 FROM:PEP TEAM HM TREASURY I GRO
ss
PRGE?3 .
RESTRICTED - POLICY
16. It was likely that the consultants would be appointed next Monday. AS suggested that
the work on fallback options should be the focus of the next Mecting of the group. Iuwas
agreed that SG would carry forward the work on fallback options und circulate a paper before
the meeting setting out in more detail the main areas where further work was required and
how any additional advice } .
(5) Legal Advice
17, GM said that Lord Falconer, the Minister Without Portfolio, had offered to assist with
drawing together the legal aspects of the negotiation and establishing a Government view of
the legal constraints (he has a background in commercial law). It was agreed that HMT would
contact his private office to arrange a meeting between the relevant lawyers. AS would also +}
speak to Elizabeth Hambley.
(6) Lines To Take
18, It was agreed to continue the government's present holding line that officials were
keeping Ministers informed of progress on the project and discussions were continuing with
ICL to ensure the successful completion of the project. It was agreed that a more pro-active
announcement that there was a re-negotiation would be unhelpful, and would increase ;
uncertainty (although it might be appropriate at a later stage in the negotiations).