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Peter Schofield, HMT From: Sarah Graham, PFD Spec Proj
Date: 11 December 1998
cc: HPTG Members wy
Ron Powell, Sol Comins
Carbons
File:
BA/POCL AUTOMATION PROJECT
i Thanks for your "issues" paper.
2. If this is going-to sit on front of Sarah Mullen’s paper, it could be the only thing
Ministers’ read. We need to bring out:-
. what we've already ‘Jost on the project;
* overall bill for Government of continuation;
. continuing the risk on the project;
. the fact that the proposals are based on a plan that is no longer valid; and
. six month slippage on Corbett’s plan.
3. You may find the attached paper on risks of: Option 1 (already circulated to other
members of the HPTG, in one of its previous incarnations!) helpful background,
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BA/POCL AUTOMATION PROJECT: TOWARDS AN INTER-MINISTERIAL
DECISION SS
a
“Aide-memoire" of issues that may have escaped the formal evaluation process
1. The risks of continuing with the project:
° why should ICL performance improve dramatically in the future over the
past? Apart from the well documented and continuing delays, ICL have
dragged their feet every step of the way, always looking to do less rather than
More eg. constant arguments about the security requirements for the BPC have -
only recently been resolved, although these were central to the DSS business
and policy objectives for undertaking the project at all. There is no evidence
that ICL is making extra efforts to keep to committed milestones since they
were placed in breach of contract by both parties last November eg. the
October, 1998 milestone for the software required for delayed operational trial
(11 months late) was not met. The whole tenor of the discussions around the
negotiations with Graham Corbett was to make life much easier for ICL than
under the current contract; easing requirements, cutting corners etc; and this
is further reflected in spades in the latest (9 November) proposals from ICL.
This cannot bode well for the future. Either the project is in the end going
to cost much more than is envisaged, to get the quality and timely product we
_ need; or, just as likely, it will not be delivered on time or in totality; or most
likely of all, a mixture of both. ' .
. incomplete "roll-out" to Post Offices: even if ICL meets its commitment to
develop the system to an agreed timescale, it cannot - and has no confirmed
plans - to meet certain isolated Post Offices which are too difficult and
expensive to "wire-up" with existing solutions; it is arguable that these would
be amongst those very offices that for “social” reasons the Government would
wish to keep open, certainly ‘for benefit delivery;
. ICL commitment to the project is likely to be reduced for the following
main reasons:
. + in their latest proposals, ICL are claiming they will be accepting a loss of
£100 million over the life of the project; certainly the project will not be
earning much, if any, profit for the organisation over its remaining life,
and is therefore unlikely realistically to command their best or possibly
adequate resources;
- _ it is now understood by ICL that the BPC clement of the project has no
life for Government after contract completion; neither does it have any life
for ICL in terms of a wider product marketability; it is unreasonable to
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expect a high level of commitment toa product with no future;
commitment of the public sector parties: the Independent Panel (which ©
reported in July) quite rightly recognised the difficulties inherent in a project
designed around different and often mutually conflicting objectives; continuing _
with the project merely cements these, and does not give an opportunity for
the three parties to re-group and re-commit in any significant way; if
anything, the different objectives of the two parties are now even more firmly
cemented following this year Jong period of debate.
2, What are we buying for the £5 billion that DSS will be spending on the contracts
with POCL and Pathway until 2008? 7
the DSS return on this investment will be up to £850 million in fraud savings,
.. provided the project is fully operational by 2002;
all options (with improvement in the security of paper-based methods in the
interim) can provide this same level of fraud savings;
an earlier move to a fally operational ACT system would see additional
administration savings of the order of £400 million a year being achieved;
in. effect, this could release around £2-3 billion over- the next decade
(assuming DSS plans to move to full ACT over 3 years from 2000) which
Government could make available to spend.on funding the Post Office and
ICL developments;
on this basis, a large number of Post Offices which might otherwise close -
over and above the 6000 we understand are planned to close anyway under the
Post Office Review assessment of the basis for a commercially viable network
- could be kept open;
in addition, a more transparent approach (eg, by giving social grants to certain
_ Post Offices that meet given criteria) could mean the Government has some
influence over which offices close, and which stay open.
3. Will continuing with Option 1 really help the Post Office significantly more than
other options? ‘ é
* the VFM of the options carried out by KPMG showed that none could give
the Post Office a viable commercial future, which sustains its current 19 000
network;
a viable Post Office network has to shrink, irrespective of whether Horizon
goes ahead or not (as confirmed by the Post Office review);
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- is simpler and familiar to ICL - they have delivered similar systems
successfully - eg. for First Direct; and
4s
- _ is potentially, in itself, a marketable product globally - we understand that
Post Office systems worldwide are moving to banking-based IT/business
solutions; .
. ICL could work much more overtly closely with Government in delivering its.
future programme, rather than the past programme of a previous’
administration. :
How will continuing with Option 1 further the Government agenda?
In practice it may put off the introduction of ACT for longer than is theoretically
being planned: it may be difficult to change payment arrangements for the 15 million
or so people currently paid by Order Books and Giros, and shortly after that expect
them to move to an ACT-based/banked system; similarly we would be asking Post -
Office and their staff to undertake 2 major changes in their business in a relatively
short period,
‘Will not further the Government's agenda in terms of opening up “access to banking"
for all - currently under discussion within the Social Exclusion Unit, from whic it
_ is evident that, without a major move to ACT, other measures are marginal - or
worse, socially divisive involving "poor people's banking";
The BPC in itself is potentially socially divisive, marking out often poorer
beneficiaries from the rest of the population;
Similarly it will prolong the situation recognised by the Chancellor and his plans for
WFTC, that there is a distinct difference between the benefit economy - cash based -
and the world of work associated with payment into bank account, with the access
this brings to other financial services, payment by direct debit (and consequent
savings in bills for utilities); and arguably losing the opportunities offered by moving
to a banking-based system, to help support a sense of personal responsibility - a
“hand-up" rather than a "hand-out" - that this Government is seeking to inculcate in
its approach to welfare provision.
Hoy will the Government be judged for its handling of this project?
In five years’ time - or earlier! - Government could easily be judged to have
rewarded a failed PFI project (and in the shorter term it may find itself under attack
from Andersen Consulting who have been given a very different package on NIRS
2);
In the short term the PAC have commissioned an NAO VEM study which will start .
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all that option 1 does is put off the agony for a further 2-3 years compared
with arrangements under’ the current DSS/BA contract with the Post Office;
as shown above, there will be plenty of money from ACT administration
savings (once fully implemented) to cushion any cliff-hanger effect for the
Post Office, as it moves to a new commercial future;
the only viable way forward for the Post Office to emerge so far, is to:
> act as an agent of Government Services, {including but not dependent on
benefit delivery, and adding in information and other services that
Government may require;
+ provide financial and banking services; and
- elated, but probably marginal services, such as providing insurance etc;
the Post Office under any option has a further two years at least of guaranteed
paper-based levels of payment from the Bénefits Agency and accompanied
funding;
it could use that time to use and plan moreswiftly for simple banking initially
followed by more sophisticated services in the longer term.
4, What will continuing with the project really do for ICL?
BUT
if a solution acceptable to the Government and the taxpayer is found it will not
give ICL what is normally understood to be a commercial rate of return,
certainly over the life of the project (under their proposals of 9 November,
they are accepting a loss of £100 million);
provided the project is delivered (and that is questionable - see above) it could
help {CL market itself as a successful deliverer of large business systems;
there are better ways that JCL could do that eg. by delivering an adapted
Horizon automation programme, with a banking facility instead of the
"bespoke" BPC element: this should surely be attractive to ICL:
- there must be significant savings to ICL in removing the BPC elements: - -
it is relatively cheap to install (around £20 million) and there will be
savings in the service requirements for Card operation (eg. provision of
new Cards; Help Desk Services etc);
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— .
immediately Ministers’ reach their decision on’a route forward; this will certainly
~ pore-over all the detailed VFM analysis undertaken by the Working Group(s) and
_ XPMG and however a decision to continue is justified in broader Government terms,
: will raise many difficult issues for Ministers about the BPC angle - which already
presents such difficulties in VFM terms, that the Chief Executive of the Benefits
Agency (CE/BA) has required a formal Direction from his Secretary of State to
continue with the project while a decision is being taken;
. Ministers will need to give a very clear justification for continuing with the project,
in order to avoid the need for a further substantive Direction to the CE/BA (DSS are
drawing up an example of the sort of statement that would be required, for Ministers
to consider at their meeting on 17 November); without such cover, the PAC probing ~~
of the issues will be even more difficult: they have a duty to explore all.the.
background to the issue of a formal Ministerial Direction; °
. There will be a complete lack of evidence of "joined-up" Government:
Government could be accused of a lack of clear of strategy around either the future
of the Post Office network, or of benefit delivery - Government could easily be seen
as the victim of ICL, as it fumbles for a strategic way forward on either front.
. ‘What may seem the "safe" way forward now to continue with the project at all costs
(quite literally!), will not look such a comfortable decision in five years time.
Sarah Graham a ar,
DSS/PED Sp Proj :
13/11/98
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