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Sarah Mullens
HM Treasury
1 Parliament Street
LONDON
SWIP 3AG
Post Office Counters Ltd
11 December 1998
Dear Sarah
SARAH GRAHAM'S LETTER
Having just had sight of Sarah Graham's paper with its attachment from
George McCorkell I have a number of comments to make:
MAIN TEXT PARA 3
Sarah has suggested some wording on Alternative Options. I support the
broad thrust of the statement with the exception of the last sentence. I
believe it would be misleading Ministers to suggest the possibility of a better
VEM case for Options 2 and 3. POCL has already outlined its position
formally to Ministers on Option 2. On Option3, POCL has made it clear that
this is not a realistic option as currently defined. We have no means of
knowing if KPMG numbers will be borne out in reality both in terms of
stability of the network or the costs of automation, profits from Banking etc. --
It is also quite possible that in achieving VFM, the NPV effect on one or other
(ie, BA or POCL) could be significantly improved/ worsened eg by deferring
ACT or the impact of interim Banking on POCL's profits. I suggest therefore
the last sentence should read:-
"However all parties are committed to working together in a pro-active
manner against a clearly defined set of objectives to fully maximise the value
for money from alternative options to Horizon".
ATTACHMENT ON DSS REACTION TO ICL PROPOSAL OF 9 DECEMBER
Re: para 3, I had an action point from The Horizon Progress Tracking Group
to clarify this point with Hambros.
Post Office Counters Ltd
King Edward Building
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Sarah Mullen
11 December 1998
I raised this issue at a meeting yesterday afternoon with James Stewart of SG.
He confirmed that Fujitsu were prepared to stand behind the whole project, ie
up to whatever funding is required. The reference to £600m in Keith Todd's
letter to the Chief Secretary was meant to emphasise the scale of investment -
not set a cap on it.
He also confirmed that Fujitsu's support for this programme would be similar
to that provided for DTI project Elgar - but made the point that the letter of
support for that project (provided at preferred bidder status) had yet to be
converted into legal terms. I believe this covers the point made by George
McCorkell at the meeting yesterday. James Stewart also advised that Adrian
Montague has been fully briefed by ICL on the nature of Fujitsu's support.
Clearly BA and POCL would need to ensure that Fujitsu's support for
Horizon was expressed in legally enforceable terms as part of any agreed way
” forward. 7
(ij) Commercial
Para 4.1 should read: On 9th November 1998, ICL were seeking price
increases which would increase the NPV provided under Corbett from
£116m to £237m +£80 contingency to be funded by the public sector.
They are now seeking price increases to increase the NPV from £116m
to £229m and the contingency fund has been removed. Conclusion:
they have moved £88m from their 9 November proposal.
(ii) Acceptance
The Acceptance tests do not relate solely to system tests. There are
tests which will involve live running. However, POCL do share BA's
view that a full live trial is necessary.
(ii). I EFFECT OF LATEST ICL PROPOSAL ON DSS COSTINGS FOR
OPTION 1
Para 3: I note George's estimate of the impact on BA of the revised
programme timescales.
As a counter balancing effect I think it is worth pointing out that in
view of revised BA volumes and ICL's latest pricing proposals BA's
charges from Pathway are significantly lower than originally
envisaged when the programme was tendered for. (I believe Keith
Todd has suggested a figure of £107m lower in his letter to the Chief
Secretary).
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Sarah Mullen
11 December 1998
In the interests of speed I have made some manuscript amendments to
George's table to reflect a more rounded position on ICL's latest proposal.
If you have any queries please give me a call.
Yours sincerely
Mena Rego
cc Sarah Graham
Ross Newby
George McCorkell
David Sibbick/Isabel Anderson
Geoff Mulgan
Andrew Montague
Joseph Haligan
Jeremy Crump
Peter Schofield
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NO. 4684
DSS PFD SPECIAL PROJECT
11. DEC, 1998 12:52
FUNDING
CORBETT
9 NOV
9 DEC
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PO7 .
0431
FUJITSU GUARANTEE ICL
BORROWING (£600
Million)
GOVT GUARANTEE ICL
BORROWING
FUJITSU SUPPORT ICL
FUNDING THE PROJECT. NOT
CLEAR IF THIS CAN BE
ENFORCED.
‘TY/RX.-NO.
OPTION TO PURCHASE
SYSTEM ON TERMINATION
OBLIGATION TO
PURCHASE SYSTEM ON
TERMINATION
OBLIGATION TO PURCHASE
SYSTEM ON TERMINATION IF
IT HAS VALUE. .
CAP ON LIABILITY IF
GOVT. TERMINATE
Dlr CAPPED AT. Aagces
Bokeovina +Gauty
No_ear Copper At Aakéers
CREAN ING + Erury
11/12 '98 11:53
NO. 4684 =P. 9/9
DSS PFD SPECIAL PROJECT
11, DEC. 1998 12:52
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COMMERCIAL
CORBETT I 9 NOV 9 DEC I
NPV OF ADDITIONAL LIT: ¥ ;
PAYMENT -TO ICL ' £116m £237m £229m
ICL ESTIMATED IK LOSS )
k £224m £103m £118m
RPI LEVEL BEFORE
PRICES INCREASE 6% 23 2%
Guan dresrces re ie ‘BOQ, I 1S&%
KT fre wcetusles kgom Pronsiout fer com buiaency
TX/RX NO. 0431 Pos. -
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P. 8/9
NO, 4684
11. DEC. 1998 mT
ACCEPTANCE
CORBETT
9 NOV
9 DEC
‘I LOSE. TERMINATION
RIGHTS ON SUCCESSFUL
COMPLETION OF SYSTEMS
TESTS AND LIVE TRIAL
(CB ONLY}
SYSTEM TEST. ONLY
SYSTEYTEST-ONEE
-Rased. ow Com Parton’: LO ty
“Pecetrperce TESTS (Some...or. Te se
CAN onty 0CCUR py Live Rawswinic)
GUARANTEE PAYMENT
APPLY ON ACCEPTANCE
AND ROLLOUT OF ALL
CONTRACTED FUNCTIONS
APPLY ON SYSTEM
TEST ONLY NO
ROLLOUT (CB ONLY)
APPLY-ON-SYSTEM -TEST-AND
ROBEOUT (EB -ONBY)_—.
ARRAY Rom," Bo° Septem Bek, ssurun
NO MORE THAN 10
CATEGORY 'B' FAULTS
NO MORE THAN 230
Succcrceus.Cou Meron. oe-Live Ted
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Pos -
0431
TX/RX NO.
NO MORE THAN 100
DSS PFD SPECIAL PROJECT
INDEPENDENT EXPERT TO -
FACILITATE DISPUTE
I RESOLUTION
EXPERT MAKES
BINDING DECISIONS
EXPERT'S DECISION MUST BE
IMPLEMENTED. GOVT CAN
LATER SEEK REDRESS IN LAW
11/12 '98 11:53
.