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Memorandum . benefits
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agency
To: Naresh
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From: John Cook a ee
Subject: I Acceptance paradigm 28 October 1998
Thanks for sight of the Peter Copping note and your early draft
response. I have marked up a couple of suggestions on your paper,
but I also think that it is not clear that all the issues have
been exposed. I accept that anything can be changed in the current
plans, but thought needs to be given to:
1)What is meant by “acceptance”
As currently defined, “acceptance” means the giving up of
termination rights for failed acceptance, the commitment to
start national rollout (and committed rate of roll-out) and
the application of payment guarantees. We could split these
out into different points of acceptance, but I know Pathway
have strong views on the commercial aspects. For example
they have stated informally that a national roll-out without
guarantees would be unacceptable as they would be incurring
too high a capital risk.
2)How guarantees work
I gained the impression from the papers that there is some
confusion on how guarantees work. As currently defined they
are minimum revenue guarantees, not transaction volume
related. However it has always been claimed by all parties
that if volumes were so low as to invoke the guarantees,
then there would be no business case for anyone.
Hence the linkage to 80% payment levels is to me wrong
thinking. It must be recognised that this programme was
established as a PFI, with Pathway recovering revenues for
delivered business transactions. I can’t see how the 80%
applies - are you saying we would pay 80% of the transaction
price? I do not see this as helping Pathway, and they would
argue that if the contracted transaction was being delivered
they should get the full price for that transaction. If they
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delivered and rolled out only 80% of functionality they
would not be paid for the missing 20% in any case.
3)Purpose of MOT
Pathway have currently planned to make no use of MOT for
acceptance. They argue that they have no control over what
happens there and therefore the testing would not provide
the controlled environment for acceptance. I believe there
must be scope to overcome this if we can all work together
to plan in detail the what and the how of MOT, but that
spirit has not been around previously, and a lot of detail
work would be needed to deliver it.
4)Acceptance/business fit
Pathway have always had grave concerns about linking
acceptance and release authorisation. They argue that if
they deliver that which they are contracted for then we
should accept. If what we contracted for does not actually
fit the business, or if the business is not ready to take
it, then Pathway should not be commercially penalised.
I readily accept that many of these things can and maybe must be
changed. There will be procurement issues (e.g. the scope of the
EC advertisement) but the starting point should be what the
businesses and Pathway want. It seems to me that the papers you
have provided, unless they are suggesting early lump sum payments,
only present a commercial worsening to Pathway and are therefore
unlikely to be well received. There is no point in working hard to
move sponsors if what is being discussed is of no value to
Pathway.
This has perforce been a quick look at what you gave me, and I
have not been part to any discussions. That said, I hope the
comments help.
John Cook
Contracts Team
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