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FROM: — Stuart Cilverhouse (PEP)
DATE : 7 October 1998
EXTN : 4507 *
ROOM: 27/G
ADAM SHARPLES (PEP) cc: HMT Sarah Graham (DSS) -
. Harry Bush (FRI) . , David Sibbick (DTT)
* Adrian Montague (PFPT) Isabel Anderson (DTI)
Ross Newby (PEPT) Jeremy Crump (CITU)
Sarah Mullen (PEP) - Mark Gladwyn (CITU)
Joseph Halligan (SS) George McCorkell (BA)
“Elisabeth Hambley (TAD) Jonathan Evans {POCL)
Robert Ricks (TAD) Chris Wood (Cab Office)
Geoff Mulgan (No. 10)
Chris Nicholson (KPMG)
MORIZON WORKING GROUP MEETING: 25 SEPTEMBER 1998
The second meeting af the Horizon Working Group took place on Friday 25 September. The
minutes are attached.
The next meeting is scheduled for 2pm, Monday 12 October.
” Stuart Culverhouse
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“VW The work programme on fallback options (Sarah Graham)
Attending
HMTr
"Adam Sharples (Chair) Sarah Graham (DSS) Jeremy Crump (CITU)
Stuart Culverhouse _ David Sibbick (DTI) Geoff Mulgan (No 10)
Joseph Halligan . Isabel Anderson (DTI) Jonathan Evans (POCL)
Robert Ricks George McCorkell (BA) * Chris Nicholson (KPMG)
Action
. Sarah Graham. working with BA and POCL, to develop a programme for ACT. for
discussion at next meeting (para 6). :
. Chris Nicholson to produce a paper. working with POCL and DSS as necessary, on the
“4s impact on POCL of shifting to ACT, for discussion at next meeting (para 7).
. KPMG/POCL to provide update on alternative technology platform at the next meeting
» (para 9) : :
. Graham Corbett to use his authority as necessary to ensure ICI.'s cooperation on analysing ,
fallback options (para 12). : :
oo Jeremy Crump to see if there is anything to be taken forward from earlier work on wider
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ni MEETING OF HORIZON WORKING GROUP
Minutes of 25 September Meeting
Agenda
Sarah produced a paper for discussion, “BA/POCL automation project: Alternative
options for ministers’ consideration” with covering minute “BA/POCL automation project:
* Inter-Departmental Working Group”, 25" September
a Legal advice (Robert Ricks)
v Update.on DTI work programme (David Sibbick)
4f Progress in negotiations (Sarah Graham)
government objectives (para 14),
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. Secretariat to produce a list of key dates and deadlines (para 15),
. Robert Rich to seek lawyers’ confirmation of the broad procurement position in Option
2 (para 18). a
+” Robert Rich to focus lawyers attention on the Group's view of the strength of any ICL
claim against the public sector parties and seek confirmation (para 20).
. David Sibbick to circulate specification on transparent accounting for POCL (para 27).
Next Meeting: Scheduled for 2pm, Monday 12 October
Discussion
Before the meeting commenced, Chris Nicholson (CN) was asked to provide an update on
KPMG’s involvement. As well as supporting Graham Corbett, KPMG had been asked to work
on fallback options looking particularly at POCL's estimates of their profits, costs and the PO
network under the two fallback options; DSS’s programme for implementation of ACT: POCL’s
technological requirements if the project were cancelled: and viability of a solution without the
benetit card. KPMG would be meeting the parties.
2 On the timetable, Adam Sharples (AS) suggested that the three strands of work needed
to be completed and pulled together by Friday 16" October. This would leave the following week
to finalise the Group's advice to Ministers, so that a report can be submitted to Ministers on Friday
23" October
Jrem1_ The wor! a ne on fallback options (S: Graba:
3. Sarah Graham (SG) introduced her paper. It was agreed that the two main objectives were
to allow Ministers to judge whether the fallback options were practical/doable in terms of
timescale, etc, and ro make the fallback options sufficiently robust to be costed, so that Ministers
could gauge the VFM of the difterent options.
4, The Group looked at the work on the fallback options under four headings:
levelop a programme for working with
§ This would need to look at periodicity, migration and the implications tor the banking
system. SG noted the practical difficulties of taking the latter part of this forward, without being,
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able to talk frankly with the banks given the commerical sensitivities. Although links do exist
between government and the banks, it may be worthwhile using consultants, such as KPMG, to
help do this. .
6. Action: SG to take forward with KPMG and POCL and circulate papers for discussion
at the next meeting.
The i shi 4
"2, Action: KPMG to take forward, working with POCL and DSS, to produce a paper for
discussion at the next meeting.
Alternative technology platform
8. This strand involves estimating the cost of providing a platform for banking services, etc,
if Horizon is scrapped under Option 3. POCL have done this work and KPMG are engaged to
assess this work, reporting back to the Group.
9. Action: KPMG/POCL to provide a progress update at the next meeting,
Mi ion 2. usins
10. This concerns the technical and commercial viability of Option 2, asking the question “If
there is no BPC, would Horizon be a sensible solution for POCL in technical and commercial
terms?” This issue is being addressed by KPMG. George McCorkell (GM) noted that this work
should take account of where the Post Office itself wanted to go.
inl Jonathan Evans (JE) explained that if the BPC was cancelled, POCL would wish to review
its options and requirements and retender. AS suggested that if the Horizon system was worth
pursuing, it would be surprising if taking out one Component would require starting again from
scratch, Restarting would delay by several years, so to continue without the BPC must be a serious
contender for a fallback option. DS noted that even though Option 3 may be better for POCL.
ministers may prefer Option 2. AS concluded that it was as important to assess the viability of
Option 2 thoroughly, with KPMG.
2. $Gnoted ICL's concern that information provided in negotiations should not be used to
‘develop fall back options. Information required for Option 2 might draw on information included
by ICL on Option 1. some of which might be commercially sensitive and was subject to some
12
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special arrangements being drawn-up in conjunction with the “standstill” agreements. ICL had
stated that they did not want information given in the negotiations in Option I. feeding into the
Group's work on fallback options without their knowledge. AS noted,that Graham Corbeit’s
terms of reference, which ICL agreed, make clear that such information must be made available. 4
It was agreed that if there is any difficulty in obtaining information from ICL, Graham Corben I
should hey have a requires ci rate, pointing to the clause in the terms of
reference
“13 David Sibbick (DS) raised the question of discussions with ICL on carrying on the project
under Option 2. AS noted that the negotiations concer only Option I. A judgement on the
commercial basis for Option 2 would have to be made based on the work of KPMG with POCL
and ICL.
14. AS asked if these headings encompassed everyone's understanding of what needed to be
done. Jeremy Crump (JC) expressed concern that the Government’s wider objectives, as specified
On page six of SG’s paper, did not readily fit under the four headings. AS asked what more could
be done on this. JC ayreed that CTL! would review the work done so far and see what could be
Fe cyymhe — ly ws
added, ately LE MC Ge elo &
Gat) lulke Gat aR Flu Po
15 SGasked the Group to produce a timetable of key dates and deadlines. ecretariat will petivasl
circulate such alist, Gllog re.
16. Robert Ricks (RR) reported that Graham Corbett had asked for legal advice, for which-
Eleri Wones, from the Treasury legal team, had been appointed.
“17. A meeting of'lawyers was planned for Tuesday 29" to discuss EU procurement law. Lord
Falconer, at a meeting on Monday 21", made clear that he does not want procurement law to
drive the negotiations. SG expressed dissatisfaction that that meeting proceeded without the
presence of any lawyers who had knowledge of the contracts and with responsibility to the
contracts sponsors. SG asked that their presence/consultation should be ensured in future. AS
apologised for this, noting that the meeting had been called at short notice by Lord Falconer's
office.
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18. “JC also expressed concern over whether Option 2 would breach existing contracts, Legal ©
advice to date was that it would not. RR would have to put this to the lawyers meeting for
19. There followed a detailed discussion of whether more could be done to establish a common
legal view-on the strength of the public sector parties” case against ICL over alleged breach of
contract. SG noted that Peter Mandelson had referred to DTT legal advice that the public sector
case was not strong. She queried the legal advice that supported this view since DSS/BA were not
‘aware of any. POCL reported that they had sought advise from Slaughter and May, who
confirmed that the public sector has a strong case. SG reminded the Group of the two independent
assessments (covering pre and post Feb 1997) commissioned by the joint programme lawyer, with
the specific purpose of identifying if there was any substantive weaknesses in the BA/POCL case:
both assessments stronuly supported the strength of the Government’s position. DS confirmed that
the public sector position is strong, that delay was caused by ICL. However, he noted that DTI
lawyers havé suggested that there was a risk that ICL could demonstrate that it was the public
sector that had delayed. He referred to a letter from the PO solicitor to the DTI that noted the
public sector has had no access to ICL*s documentation and that it was premature to rule out the
possibility of'a successful claim and therefore it was not possible to substantiate claims that 1CL
was at fault. GM also added that if ICL have a claim. then by the very nature of the contracts, we
must have such documentation.
20. AS summarised the proceeding discussion, suggesting that the cross Government view
supported the joint programme lawyers advice, that the Government has a Strong case; that if there
is litigation, it would be messy; and the outcome would necessarily be uncertain. These points
were agreed, The Group sought clarification that this understanding is correct. GM also asked for,
he Group's
21 The Group were alerted to a letter from ICL Pathway to Ross Newby that appeared to
concede that any claims prior to the February 97 re-plan had in effect been settled by that re-plan.
22. The discussion then focused on whether BA and POCL could have a common legal team
representing the joint public sector interest (as suggested by SG), or whether they should be
separately represented (as suguested by RR). SG said that there was no question of DSS/BA suing
POCL and POCL should accept that the reverse is equally true. JE noted that POCL needed to
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be clear where it stood and would seek advice Separately on this issue. AS concluded that POCL
needed to seek their own legal advice but BA and POCL needed to work together to prepare
against ICL and it was inconceivable that Ministers would sanction legal action by POCL against
BA.
Item 3_Lipdate on DTI work programme
23. JE reported on what the Post Office was doing to satisfy the DTI's requirements on project
management, wider commercial objectives, partnerships and extending banking services. On the
first two points. the PO were putting together a paper on what POCL had done since April. He
* explained that since then all milestones had been met.
2 24. JE queried the critical comments about POCL’s management of the project (recorded in -
the minutes of the previous meeting). AS explained that this reflected the report of the
Independent Panel and a judgement that not enough progress had been made in realising the
potential of Horizon to provide wider services. Ministers needed to be convinced that the
deficiencies evident in July had been remedied,
25. DS explained that Peter Mandelson had seen the PO’s Chief Executive and explained what
Ministers were looking for from the PO within the next month.
26. DS had talked to KPMG about exploring partnership options with PO and McKinsey, 4
27, Action: DS agreed to draw up and circulate to the Group a specification for the work
. Fequired on transparent accounting for the costs and benefits of the PO network
‘Item 4_ Progress in negotiations (Sarah Graham) -
28. SG noted that a joined up BA/POCL approach had been established. Graham Corbett had
spent time with the parties, both individually and together. All parties had convened that morning
to discuss process: and in particular to establish with KPMG the work to be done to provide a
“baseline” on which valuing options to underpin a potential commercial deal could be modelled,
At the meeting arranged for Wednesday 30", each party was due'to present their objectives from
the negotiations, DSS and BA were happy with the way discussions were proceeding.
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29. The CST has asked for a weekly meeting with Graham for a Progress report
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