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PUBLIC AFFAIRS ~
Martin Walsh, David Simpson, Keith Hardie
Kathryn Hollingsworth
15/06/99
DTI Select Committee Hoaring on Horizon
Please find attached a report, including written submissions, on the DTI Select Committee last
night. I hope you find it useful.
Kathryn
Wuor
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Trade & Industry Select Committee Meeting
14” June 1999 :
Present:
Martin O'Neill (Lab, Chairman) I
John Butterfill (Con)
Lindsay Hoyle (Lab)
Helen Southworth (Lab)
Roger Berry (Lab)
Bob Laxton (Lab)
Alisdair Morgan . (SNP — for only part of the meeting)
Unless stated by a set of initials following the question or the answer, the
main questioner is the Chairman and the main respondee is either:
NFSP Colin Baker
CMA/CWU Derek Hodgson
ICL John Bennett
Post Office John Roberts
(Please see sheet attached)
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TRADE AND INDUSTRY COMMITTEE
LIST OF WITNESSES
ELECTRONIC GOVERNMENT: THE HORIZON PROJECT FOR
AUTOMATED PAYMENT OF BENEFITS THROUGH POST OFFICES
415pm I NATIONAL FEDERATION OF SUB POSTMASTERS (NFSP) :
Mrs Jean Kendall + National President, NFSP
Mr John Peberdy + “ Chairman of Negotiating Committee, NFSP
Mr Colin Baker General Secretary, NFSP
4.45pm CMA/CWU
Mr Terry Deegan General Secretary, CMA
Mr John Loveday Research Officer, CMA
Mr Derek Hodgson General Secretary, CWU
Mr Tony Kearns CwU
c51Spm ICL ,
MrJobn Benner Managing Director, ICL Pathway
Mr George Hall Director, Corporate Affairs
5.45pm § THE POST OFFICE
MrJobn Roberts - + Chicf Executive
Mr Stuart Sweetman Managing Director, Post Office Counters
: Lid.
Mr David Miller Managing Director, Post Office Network
¢
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Q; Where do you sec the Post Offices in 5 years time — any losses?
Az Coulde’t put'a figure on losses but there are currently §,000 Post Offices struggling.
Q: Are the mein worries the Jack of exclusivitiy? Eg. DVLA getting some electronic
services?
A: They do bave concems over the direction that the DVLA is going but they also
understand that other parties will want totake advantage of electronic delivery.
‘Also, sees worries that developments could mean a “double-whammy”, Not only will
money be paid into bank accounts but people will also pay their bills there. PO hes been
very lucky with utility bills etc, to date.
Q: Do you sce any advantage in modemising government?
A: Yes, But who’s going to pay for it? Govt wanted ta use PPP to provide the service.
Post Offices do have worries about use of ATMs etc. .
Q: What did you pick up from the tial runs? What did the Post Offices say?
A! No resistance — it was warmly received by user and the Post Office masters. There did
seem to be, however, & “Love Affair” with the actual ‘book’.
Q: HS; Any view on tho interim Barcode system?
A: Very successful — saving £100m in fraud.
Q: Worried about Post Offices vulnerability? Target for crime?
A: PO is being brought up to standard, £40m is being spent on security but it is still not
enough.
Q: Any views on how to seduce the amount of cash that the post offices deal with?
A: No. The great attraction of the PO is that it always deals in cash.
Q: What percentage of PO workis benefits related?
As Est. 25%, 45% if you include Bill payment.
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National Federation of Sub-Post Officestmasters
Chairman: Has anything other than lip service been paid to the idea of the Horizon
project?
At It's easy for the Government to say that they will automate the network of Post
Offices but the Post Offices then have to get on and do it,
MO’N: What do you want from ministers? A moratorium?
A: Against compulsory ACT but not voluntary ACT. Problems arise in that not
everybody has a bank account- not everybody wants electronic delivery
QUB: What about people that do want electronic payment? And Post Offices open on
Saturdays?
As Jéthe economics are right (and have been costed) then Post Offices will not be against
offering those services and to opening on Saturday afternoons,
Q; Why are Post Offices not open on Saturdays? Not very profitable then are they?
A-JK: Type of transaction is not conducive to Saturday afternoons, They have found that
PO service is superior to that of banks who close earlier than Post Offices and are not
open Saturdays.
Q: Once automation is in place, Post Offices will bo one way only of getting payment.
Will Post Offices be needed?
A; PO will admittedly only be an option. They would like to see a moratorium to try and
get a. deal going between banks and the Post Offices
.Q-LH: Post Offices are backbones of communities. What can Post Offices do to ensure
“chat they get the BA work? People can’t open bank accounts for several reasous so they
will need Post Offices
‘At Post Offices want to make sure that they are still there. They welcome the working
group set up under Jan McCartney and want to build on that platform, They feel that
social services are carried out in Post Offices everyday and the Post Offices will be
looking at ways to improve their service — opening hours, how the PO presents itself,
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GRO FSP PAGE 82
~ pe FUTURE OF THE POST OFFICE NETWORK
SUBMISSION BY THE NATIONAL FEDERATION OF SUBPOSTMASTERS
This submission is made in response te the request from the Select Committee of 9
June 1989 inviting the National Federatian of SubPostmasters (NFSP) to give our
reactions to the recent announcement by Government of the future of the Horizon
project, the events that led to the withdrawal of the Benefits Agency payment cafd
from the project and its Implications for 18,000 subpostmasters who own and
opsrate the vast majority of the network of post offices. 7
4. The Benefits Paymont Card
The decision of the previous Government to automate the delivery of benefits .
payments using the benefits payment card wes based on the need to reduée costs,
eliminate fraud and ensure beneficiaries would be able to continue to recaive their
payment in cash from the post office, thus ensuring they retained a choice as to the
method of payment which best suited thelr individual circumstances.
This decision was taken in response to the strong hostile public reaction to 2 trial
which the DSS began in 1983 to test 3 different versions of the pension claim form.
Only one version contained a direct reference to payment In eash ata post office,
whilst all 3 gave great prominence to payment by ACT. The biased nature of tha
trial, which could have resulted In the withdrawal of the option to choose to use the
post office appeared to have been undertaken by the DSS without regatd to the
Gavernment’s stated commitment to the nation-wide network. Had the tral been
folled out nationally # would have very quickly threataned the future of at least 5,000
sub post offices. .
Government's decision to automate the network promised a far more secure future
for’all involved with the Counters Business, not only safeguarding the right of
customers to choose to receive pensions and benefits from post offices but also
1
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providing 2 platform on which to develop new products and services for a wider
range of clients. This was recagnised to be the only way to ensure the future
«survival and prosperity of the post office network, and It remains the case mow.
The NFSP began to develop concems about the future of the Horizon project during
the latter months of 1997. Since then, press speculation surrounding its future has .
been continuous creating gfeat uncertainty for the future of subpastmasters’
businesses, POCL and its current and prospective cliants.
2. Welfare reform and tha paymantcard
On 12 May 1998, Kate Hoey: MP addressed delegates at the NFSP Annual
Canference on behalf of the Minister for Welfare Reform. That gpeech focused on
the Benefit Payment Card, fraud reduction and welfare reform, emphasising the links
between them.
Wider access to banking facilities and financial advice for low income groups was
stated to be a key aspect of Government's welfare reforms with the aim being for
averyone to have access to a basic hank account by 2020. The ability of the nation-
wide post office network to play 4 significant rofe in providing that access and
“continuing to provide 2 mathod of paying benefits was welcomed by the Minister for
Welfare Reform. ,
Post offices have been, and remain, the comerstone of benefit delivery for the vast
majority of people who rely on benefits. The NFSP understands the need to provide
3 modem, secure payment 5 tem which is cost effective, robust and fully *
accounted.
In the address to Conference, the Minister for Welfare Reform recognised that our:
partnership with the DSS: was crucial in making these objectives achievable for
benefits payments through post offices - and that the payment card was designed to
do all these things.
TRADE & INDUSTRY SELECT COMMITTEE! JUNE 1999 2
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The business case to warrant the investment being made in establishing a nation I
wide network through which customers may receive their benefits Using the new %
benefits payment card was based on being énly in post officas. POCL is obliged to 3
operate the largest UK retail network, reaching into practically every community ¥
throughout the country, Without exclusivity, its ability to provide the servic éna
cammercially sustainable basis was not possible. Wa therefore welcomed and were
reassured by the written confirmation later given by the Minister for Welfare Reform
that there were'no plans to extend the use of the payment card to other outlets. °
3, Government Review of the Project
The NFSP understands that the reasons for the delays experienced by the project
were in part caused by the sheer size of the project (the programme was the largest
+ {T project in Europe) and tha physical diversity of the post office network. A project
of this se and complexity was always likely te have its problems. However,
following the award of the PFI contract to ICL Pathway, progress was hampered by
the failure of all the parties to, agree tha detailed project specification. Lack of -
progress and rising costs led to a major review by Government to decide the best
route forward. ;
Hah aes
i
Since it became apparent early last year that Government were reviewing its future
the Horizon project has been overshadowed. The NFSP remained in close contact
with POCL and ICL Pathway during the course of the review, spending a great deal
of time dealing whh the uncertainty. Our concems have been constantly relayed to
. Goverment and POCL to ensure the decision makers are in ho doubt az to the
importance of automation to the future ofthe nework,
Confirmation has now been finally recetved that the payment card will not go ahead
because magnetic strip technology Is out of date. . +
save a NOUSTRY SELECT COMUTTEE/ UNE 12201 3
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4 Programme Dalivery
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The system has already been Installed in over 250 post offices in the South West
and North East of Engl Ind will all services fully automated. The Payment Card has
worked successfully since October 1996 and has been well received by customers,
being easy to understand and use. . :
The work being: done) at offices has in many cases been significant and is a
reflection of the inevitable difficulties of automating a large diverse network.
7 Nay
On the systems side]. our understanding is that the system had been moved
successfully through the final stagas of testing prior to addition of the remaining ba
offices ta make Up thaIbalance of 300 taking part in the formal live trial. The training
courses, golive arrangements and support arrangements both at offices and via the &
helplines were ready to ensure a successful trial prior ta national roll out, =
This experience has emphasised the need for careful planning and management
* through any trial period prior to automation being rolled out nationally.
5. Impact of the loss of the Benefits Paymont Card I
Government has stated that jt has found a positive way of moving forward on
automation as a result of which for the first time ever post offices will have an up to
date , automation platform, helping them to provide a better service for their
customers. Government has further stated that it Intends to move toa more modem
and efficiant way of paying benefits through the post office network, building on
banking technology It intends to do this by transferring between 2003 to 2005 toa
system of paying benefits:directly by ACT to bank/ouilding society accounts. Post
offices will only be one of a multiple of alternative delivery channels. Customers will
anly be able to retain the choica to pick up their penofit from the post office if the
account they have is accessible through the post office.
sieht
aye
TRADES INDUSTRY SELECT COMMITTEE) JUNE 1990! 4
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We view the headline agreement reached between POCL and ICL Pathway as,
short term protectionis which will have & disastrous effect onc the Benefits
Agency enforces automated transfer of benefits direct to a bankibuilding society
account. The effect on} the network of post offices we estimate to mean the direct
loss of up to 40% of dll business currently transacted over post office counters. %
If automation is completed. by 2001 it will be necessary for POCL to strike
commercial deals withIall banks and bullding sociaties to enable thess claimants
who are their customers to access their account at tha post offica,
asp ASO AEN a at AOE
Me
obs
If this Is suecesstully achieved it will mean that the post office network will just be
one ofa series of delivery channels alongside bank branches, ATM's, supermarkets,
telephone banking etc. It ls likely that customers will exercise their right to use all of
thase channels according to dheir needs, The impact on custamers We will return to.
&
3
The adverse impact oh post offices will be worsened once ACT fs enforced as it Is
inconceivable that customers will continua to use the post offica to pay their bills
even if they visit the post office to pick up their benefit. This in tum will have a knock
on effect on the tum aver of the subposimasters associated retail business, it being
the synergy between {he private/post office business that has enabled so many post
offices to remain viable.
REO a ti wa”
Many sub post offices already operate on the edge of viability. In these
circumstances, with d lass of work on such a large scale, the lacal post offica will nat
&
survive, rasulling inja lass to those beneficiaries who want to use post office 3
services, including the elderly, infirm and those without transport, people who naw FA
are comfortable with fransacting their business In the post office environment. Fs
a
7 3
By moving to compulsory ACT, where each beneficiary will need to have a %
commercial relationship with their bank many may incur bank charges. Banks are A
now inteducing charges to use their sarvices, for example to accass Bn ATM and I
use counter services. : I
rot
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Memorising a PIN number and accassing cash at an ATM machine makes people.
vulnerable. A cost effective and secure methad of paying benefits - for who?
The impect on the cam! unity of the loss of a post office is will known, The Bub post
office is at the heart of the community and the vital social role subpostmasters ‘play
has been recognisad many timas by Goverment. ti
Every day there is a sotial role played out by the subpostmaster in every community.
Who will fulfil that need when the sub post office is closed?
Thie NFSP's view is that the decision to scrap tha benefit payment card will fead to!
« the loss of subpostmesters’ jnvestment in their post offica business, in which
many have invested their life savings and on which they raly-for their income and
fatirernent provision. In many many cases entire families eam their Itving from
their pest office.
« the prospect of a SI ignificant proportion of the current 40,000 sub post office staff
losing their jobs, many of these staff being part time, one of the most vulnerable
sections of the workforce. i
» 17,500 jobs in POGL being put at risk. i
i
« the loss to the con munity of thelr local post office, restricting customer choica.
siete nacre
. The NFSP therefore wish to ask for the support of the Trade and Industry Selact
Committee:-
In opposing compulsory ACT as the costs, both financial and social, will fer
autweigh the savings the DSS can make by enforcing ACT. ®
» to ensure the Benefits Agancy do not promote ACT until automation of the post
. office network is complete-and contracts with the banks signed.
__ TRADE A INDUSTRY SELE} COMMITTEEY JUNE 1993] 5
1
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42/06/1993 12:19 Nesp i @
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« to énsure the Goverment maximises its use of the network for'delvary of Its
welfare reform and *Modemising Gavermment™ aims, whieh needs to ba done in 8
way whlch is commercielly Viable for all parties to the contract,
4 ° a
to encourage all Government Departments which now use the past office network
to remain loyal to POCL during the period in whieh the proposals to medmice the
usé of the network for tha Government Gateway are developed and implemented,
We look forward to the opportunity to expand further on the points covered in this
submission. :
.
12th June, 1839 oo. .
Nafonal Fodoration of SupPostmasiers 22 Windiesham Gardens Shoreham by Sea West Sussex
BN435RE Tat 01273 452 324 e-mail; nisp@mistral.co.uk
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‘Unions have finally been asked to participate in the future of the project due to an
agreement signed on 24 May 1999.
t
They don’t feel that the project bad been properly thought through by the last
govern, ment(having triell to borrow the Irish system)
Q: Reactions of staff to the Swipecard?
A: It was popular with staff. Saved around £2m in fraud.
They would like a commitment from the government that they will open up other
schemes.
They feel that some good industrial relations have developed in the last 2 yearé.
Q: Is the management prepared to back up the implementation of the system with
relevant training ctc.
- A: They are prepared to do anything that is necessary.
Q: What are your views 6n barcoding?
A: Barcoding is fine cxcept that it is a temporary expedient.
Q: How confident are you that in S years time you will have a share of the work?
A: If the govt manage to do what they said there will be an extremely bright future. Tf
they don't manage toI do what they have planned there will be some trouble in that it will
mean longer hours, protracted work etc.
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CWUICMA SUBMISSION TO THE TRADE AND INDUSTRY SELECT
COMMITTEE ON POST OFFICE COUNTERS AUTOMATION ;
INTRODUCTION
_ The Communication Workers ‘Union (CWU) represents around 165,000 non-managemeht
employees in the Post Office, over 11,000 of ‘whom work in Post Office Counters Ltd (POCL):
The Communication Managers AssociztionI (CMA) isthe representative body of ‘all management
grades within the Post Office. We therefore have a great interest in the automation of the
Counter’s network under the Horizon project, and its implications for the fumure of POCL and
the Post Office as a whole. :
To date the negotiations found the Horizon'Project, and the problems encountered within it,
t
such as the delay in implementation, have een berween the contract partners; Post Office
Counters Ltd, ICL and theIBenefits Agency. *
_ This submission is therefe made on the basis of knowledge gained by the ‘Unions through the
industriel relations interface with POCL andithrough our contact with Government, a5 well as
by what has been report d in the press over the last few months. The Unions make these
comments, as we believe itis our responsibility to play apartin any’ discussions thet impactupon
the fine security of the Post Office nerwork as a whole, as this enables us to enhance our
members employment security anduse ourknowledge of the serviccto ensure the public interest
is protected.
The new working group announced by the DTI Minister of State Ian MeCarmey on 28 May 1999
will be our first direct involvement in the project at this level. We pope it will help develop a
sensible solution to the problems encountered so far during the development and trial of the
Horizon project.
HP2.®
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S. Weare confident that our knowledge of the industry and our desire to sé
project will help in facilitating)
¢ the success of this
these discussions alongside the other interested parties, 60 that a
favourable outcome can be red lised.
&, With these factors in mind the postal Unions woul
regarding certain core problems and issue
id like to make the following comments
s which we believe the Select Committee my wish to
explare concerning the Horizon project:
= THE REASONS FOR THE DELAY
3} Our view is that for one reason or another either directly or indirectly all parties to the contract
may bave contributed to theldelay.
— Theprevious Government must share a good deal of responsibility forthe delay. Inits rush
to be seen to be tackling fraud the Conservative administration was happy to initiate the
launch of a system
without fully understanding both the technological capability of the
system and the cost sasbived to both the Post Office and Government Agencies.
— ICLappears to have had problems with the technology itdeveloped. We understand thatthe
magnetic swipe card stem it has attempted to introduce was modelled on the one used by
the Irish Post Office (An Post) which works well, and is an efficient way of paying benefits
and reducing benefit fraud. However, we gather that there have been major problems in
transferring this type of system to a much bigger network and "scaling up" the technology
. forthe UK
— The Benefits Agency, (BA) has for a long period wished to provide benefits by means of
Automatic Credit Transfer (ACT). ‘This remains its long-term objective. In order to mect the
needs of the HorizonIproject its existing technology would need to be compatible with the
magnetic cardor: smaft card planned foruse uaderthe project. Weunderstand thatto date this
has not happened.
It is impossible for us to say Why this delay was caused, butthe desire to
move away from Horizon and.on two the ACT system would no doubt have influenced its
judgement.
Ly 2 ROST OFFICE @o1s
ois
ability to adapt such
%. The principle benefit of
defrauded.
electronic Government
_ itis impossible for us to
of Horizon and lead to the inteodvition of ACT as their preferred option.
— Post Office Counters Ltd (POCL) has been keen to ensure that any 2ew technology is not
only suitable for the purpose: jtwas originally designed for, buttharitwill be compatible with .
jts future business vision, In particular POCL needs to be confident that it will have the
technology to be fit for purpose, specifically to fit its vision of POCL
as anetwork bank. thas} acknowledged the role that Horizon would play in performing its
current business in @ bewer and more efficient way. Jn practice this has meant developing
technology to execute the transition from paper-based order ‘pooks to the new screen
technology. POCL’s objective has been to ensure thatithas 100% confidence in the system
peforeitisrolled out. Thus itis far better to encounter some delay in order to be certain that
the system fits not only current services but can be adopted, by the use of software modules,
to perform new busines: in the future.
» ASSESMENT OF SWIPE CARD TECHNOLOGY
the magnetic swipe card, or the future use of smart card technology, is
that jt would be beter at preventing fraud than the bar-coding of order books that will now be
in operation instead. We lmderstand that this was verified by the trials carried out by POCL.
Tho Post Office clearly shares an immediate interestin curing benefit fraud: and introducing this
technology as it is obligeé to compensata the Benefits Agency for s proportion of the amount
4, The smart card would alsa bave the additional advantage of enabling customers to access further
secvices through the post office network. These services could range
from accessing information to the provision of on-line healthcare.
« ROLE OF THE BENEFITS AGENCY
Jo. Weunderstand thatthe Benefits Agency (BA) failed to prepare itselfand its systems sufficiently
in order to be compatible with Horizon. However, without having bada: rolein the negotiations,
y whether this was 2: deliberate action in order to facilitate the demise
i
[a t
Po
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Tispossible tharthe reported failure ofthe BA to complete the necessary work onits system was
due to technological problems, or altematively a result of difficulties berween the various
stakeholders. In a project of thi size and importance with such wide-ranging implications, itis
almost inevitable that some conflicts of interest will arise. It may bea deficiency of the way in
which the Private Finance Initiative (PFI) operates but, atany stage in the development, design
or tris] ofa project, there canbe delays if all those directly involved are not totally committed to
moving in the same direction at the same time.
e CONTENT, TIMESCALE AND FINAN ICING OF HORIZON
‘As the Unions have been outside the negotiations on Horizon, we do not have a full
understanding of the implications of ‘the variation inthe contract Detween the stakeholders and
the knock-on effects. In particular, we have not been party 10 detailed information on the
financing of the project, and look forward to meeting with working group representatives and
especially with POCL to discuss the implications-of this and the potential loss of income
involved. a
_ We do understand that time and money has been lost while we wait for this project to be rolled
out, and that the delay is not good for anyone concemed. ‘Aside from the advantages of cutting
benefit fraud, 2 fully automated and on-line post office network would be a much more attractive
partner to develop access to Government services, or even for organisations wishing to bid for
the National Lonery contract in future. :
» SIGNIFICANCE OF GOVERNMENT ANNOUNCEMENT
. The Government’s announcement represents & welcome move and was significant in that it
provides 3 vehicle for the continuation of the Horizon project. It sppears that the project had
reached the stage where the only altemative was termination, which would be the worst scenario
. for our members and our Members’ jobs, as well as the public who would be faced with 2 large-
scale reduction in the Post Office Network in general. Ifthe Govemment really wants to prevent
Ia
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fraud and move forward in developing 8 successful, modem and expunding Post Office in the
funure, it cannot afford to cance} Horizon. .
! :
MOVING FORWARD :
\US_ This submission is an acemnyy
regording Horizon as we unt
submission, we have not been party to the De;
Ib, However, we bope and believe that
to provide the Select Committee with 20 outline of the situation
derstand it, As we have mentioned several times during this
gotiations so far. :
i
the establichrnent of the working group announced by the
28 May 1999 will allow us to draw on our knowledge and
DTI Minister of State on
‘understanding of the in:
encountered
that such a working group is
of this project wo believe
14 JUNE 1999
RDINIES/L
by Horizon. elook forward to working
and participate directly in developing solutions to the problems
with all the interested parties, and believe
1
long overdue. Provided that all particsare committed to the success
tan outcome favourable to all concemed can be reached.
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I
Q: The progremme is three years late. What ig the problem? Managed to
lottery within 12 months, ‘hy the delay this time?
A: The payment card has
one of the things that the!
One of the problems hasIbeen one
to enter into such a contract especially with sucha
Q: The POCL has been
‘A: That is not the conchision thet they would: draw.
Q: Have ICL seceived the same
‘As Tho BA couldn’t provide certain ‘informatio
through since thea.
‘They hava since had te meet and re-plan
their conclusions,
Q: Is that right that you
contract? Isn't that very od¢?
. 1
Ax Ie is not that odd seeing that the contract demanded good
relied on very close interdependency
pasties. The contra
agreement was called for.
QBL: What has gone wrong? The technology is
previously Cottery)
been running, successfully
there is more work than they had originally felt and
have looked at in their latest review. ;
. I
ery keen but the BA not so keen. Is that a fair
had to get the BA to agree in writing to
implement the
since Septémber 1996, They feel that
this has taken time to sort out, This is
i
contract for two companies! Jt is very unusual for IcL
large customer.
conclusion?
A
amount of hélp from the samé parties?
n in Sept 96 although it has trickled
1
the contract so that the two of them could meet
i
iti moet their side of the
connection between the Two
and that is why 8 written
i
there and bas been implemented by ICL
but this time it is has ‘not worked out, Why?
‘ArTtis one of the most technically demanding jobs that ICL have ever undertaken.
Q Fair to say that if is one hell of 8 mess?
A; The quality ant
quantity of the work undertaken has been of the highest
they've
known. ICL have taken out £180m against this scheme td cover any loss.
PO}
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I, post oFFICE ozo
I ®
I
i
Q: BL: Was the project just too large and too ambitious? Can it be delivered?.
A; The task is managead
contract of this size
more than one customer you
The PDA (programme
Jad of thet first
ct,
‘The PDA agreed at the
main client of the contr
Q: The govt are saying
No. They bave worked
ICL suggested to the
swipecard as opposed to smartcard.
‘The magnetic swipe card is awell-used
greater uses
Q: Onthe contract wi
A; ICL bave revised
le. Although, ICL have
ly needs one customer
enter into greater complexities 1°
i evelopment Assthority) started of
then had to go back and renegotiate the contract with the two
I yell while they have beon ia usc.
IBA in 1995 that it may
opposed to @ magnetic swipecard, However,
PO that is to run until 2005. '
learnt the tesla from this venture that 2
and one provider. ‘When you introduce
Lien the right intentions. It
mers.
reviewat the end of 1997 that the POCL were the
1
that the card is outdated. Would you aggee?
be better t6 start with a smartcard as
the BA decided that they wanted 2
system around the world but the smartcard offars
ir contract swith the ‘PO and havo renpved all refs to the BA. They
pave changed the contract so that they receive payment for the infrastructure of the sytem
as opPost Officesed ¢ current contract sees TCL
lo a payment for each transaction.
fosing £100m as opPdst Officesed to being in profit as for the previous contract
Q Isthe card a payment card forthe PO or an all-round cash card?
A: It offers the cone
apt of a universal
PO, This is an achielable goal for the
bank — all facilities lan be
carried out through the
PO. They- visit al] Post Offices and sucvey them.
Tho equipment in place in 300 Post Offices will remain there after’ testing.
They had to look at
Le amount of services that the
PO oft, 170 products are provided.
‘They bave learnt ffofn this and also, ftom the size of the PO itself — having to train 70,000
Post Office masters Pts.
Thoy have also noted how committed most Post Officest masters at getting automation in
place.
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Q; Why have they not considered legal attion against the BA?
A: Tt won't happen. They;
Q: Would you enter into
AcICT already are enter
ICL have tried to meke the syste
from the beginning andI
through their TV and ki
The PO is in a better
sks etc.
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have renegotiated their contract.
lother contracts‘of this (PFT) nature apy
ing into other contracts of this nature,
mm as Gasy to use as Post
Position than any other group to
electronic delivery of govt services.
om
the hope is that it will have the techni
“Ben
Lessible. It is web friendly
ology for people to use it ”
pe with the demands of
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se __ = POST OFFICE fozz a
Hes.
IGLPATHWAY,
<TBMISSION TO THE EA USTRY SELECT CO E
History — 1996
1. InMay 1996 ICL Pathway won the tender to computerise al the UR’s 19,000 Pbst
Offices and:simultaneously automate the system for paying DSS benefits to atotal of
28 million claimants. This was a Private Finance Initiative @FD project under which
ICL Pathway would design, build, finance and operate ths system, taking on all the
jnitial risks and being rewarded by receiving # fee for cach trahsaction conducted over
the new system. The contract was to mun until 2005; the customers were the DSS
Benefits Agency (BA) and Post Office Counters Lid (Oct), Contract details were
gue to be completed by the end of 1996 and national installation in all post offices
was to be completed by the end of 1998. '
2. ICL Pathway (isitially the Pathway consortium, since 1996 a wholly owned
> psidiary of ICL) had been formed in 1994 to bid for the teqider. It was sclected
following lengthy competitive bid; its subcontractors include Girobank and De La
_ 3. One of the largest IT projects in Burope, the proposed aeorkis twice as large a3
' all of the current banking infrastructure inthe UK. The project would also involve
ICL Pathway taining 70,000 post office staff, and designing and integrating the
system to handle some 20 DSS benefits paid to a total of 28 million claimants (many *
Of whom receive more than one benefit) at post office counters. Since billions of
pounds are paid out every year, the system had to be extremely robust and secure.
4, Thenew system, when fully installed, would enable Poth to offer more services
to their current and prospective customers. A major attraction of the system was its
capability virtually to climainate fraudulent DSS benefit encashment, resulting in
estimated fraud savings of £150 million a year. H
bd L at
5. As specified by the two customers in the contract, ICL Pathway would deliver a
magnetic stripe swipe card (the Payment Card) which would gradually replace order
books and girocheques. ICL's original proposal was to isse 2 smagtcard but the
customers maintained their preference for a “mag stripe” Fayment Card, Currently
some 390 million order book and girocheque payments are made through post offices
yeor. ‘ H
6. In May 1996 the customers established the PDA (Programme Delivery Authority)
to oversee the project, the PDA’s 150-strong “tall being formed from POCL, BA and
external consultants. In September 1996 the firstten postloffices in the Stroud ”
vicinity were automated with the few system and the firs! ‘benefit Payments Cards
were issued for claimants to receive Child Benefit only.
7. The ICL Pathway system was Hbpendent on information received from the systems
ofboth customers, ie this was an end-to-end system. where DSS systems would
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. PUBLIC AFFAIRS
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transmit data through the ICL ‘Pathway derwork to the relevant post office (and vice
8, The original contract timetable was Hased on the agreement that the BA would
make its CAPS database (Customer Accounting and Payment Strategy) available to
ICL for testing in September 1996. This software and the inte
ential to ICL Pathway, to enable the establishment of the datsbases for all _
were essi
erface specifications
benefits so that the ICL Pathway system. could pay the right money to claimants at the
right post office at the righttime. CAPS is run in-house by
BA. However, it
subsequently emerged that it would be available only on a phased basis and would be
delayed by three years. ‘Today, as {CL understands it, itis still not fully completed:,
41997
9. In June 1997 the system in the firstiten post offices was UP!
led to introduce bar~
coding of order books. in an easlier contract signed in 1994 CL bad introduced bar;
coding on order books presented at alllpost offices within the
5 area, Which still
runs successfully and which has led ta tangible savings jn encashment fraud through
the impounding of fraudulent order bgoks). {
10. However, in the course of 1997 if
the project was being managed by
gradually became evident to ICL Pathway that
DA in a manner inco!
istent with the
principles of a PF1 as explained in guidance issued to departnents by HM Treasury
and the Treasury PFI Taskiorce. Although a8 a PFI contract significant amount of
risk was being laid on ICL Pathway, the
Pathway to behave as if this was a.
This led to a huge amount of senio
nani
iggues which were constantly being. raised by the PDA. Acct
PDA maintained it had aright to require ICL
Javentional govermment/procurement programme,
levoted to solving the
rdingly, ICL, POCL end
agement time being
BA sponsored an independent reportifram PA Consulting. This concluded its Review
in October 1997 and one important result of this was the abolition of the 150-strong
PDA, But a significant amount of time had been lost.
1). -In November 1997 the ICL Pathway system was extended to a further 200 post
offices in the north-east and sol K
west using the benefit Payment Card to pay Child
Benefit. The technology was acknowledged as working successfully and was well
_ received by sub-postmasters, their siaff and claimants alike!
BA claimed that ICL Pathway was Tate in delivering under
This is not the case: arevised timescale and programme
Atthe same time, the
¢ terms of its contract.
been agreed by all parties
including the BA, and ICL Pathway, was delivering to schedule,
1998 I
12. Inearly 1998, because of whatlit regarded as excessive interference and
Dureaucracy, ICL approached HM Treasury to register its éoncem. AS aresuit, the
Treasury Expert Panel under ‘Adrian Montague of the PFI ‘askforce was established
to assess the commercial and technical feasibility of the project. This Panel reported
its Gndings in July 1998, which confirmed the technical vib
the approach of ICL Pathway,
lity of the project and
Tt vias then indicuted fo ICL that relevant Ministers
would meet to consider the way allead, but the Cabinet reshuffle at the end of July
prevented this taking place.
a ne
rare
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13. In September 1998 Graham cad deputy chairman of th Monopolies and
Mergers Commission, was appointed by, the Government as “forilitetor’ to determine
away forward to meet the needs of sll parties to the contract (GL Pathway, POCL,
BA). He concluded his discussions with the parties four weeks hater. From October
to December 1998 ICL Pathway held detailed negotiations with BA and POCL,
making a number of: revised proposals which represented serious concessions, in order
I to gain acceptance on a commercial way-forward. On 18 December ICL Pathway. *
submitted its final proposels which ‘were-to be presented to Ministers, who were
expected to meet shortly thereafter to reacha ‘decision. However, Ministerial
resignations before ‘Christmas and another, subsequent reshuffle prevented this taking
place. ICL has not, in fact, ever recei ‘ed a reply to its letter of 18 December 1998
and in April 1999 formally withdrew is proposal.
14. By this time some 36,000 claimants were successfully using the new benefit
Payment Card at 204 post offices to collect Child Benefit. Even on this relatively
modest basis, the system jneluding thd electronic scanning gements for order
books generated £2 million in potential fraud savings. Throughout this period of
almost constant review since February 1998, ICL Pathway continued to work on the
project at a cost of £10 million per month.
1993 i- -
15. In January 1999 itemerged that the BA did not wish to proceed with the magnetic
stripe card, preferring instead to make direct payments into bank accounts —
potwithstanding the fact that many millions of legitimate benefit claimants do not
have bank accounts and, because they rely on their benefits, arc unlikely to be able to
open bank accounts. ICL Pathway was, however, not jnformed whether Ministers
collectively had decided to dispense: ith the Payment Card:
16. In late January a senior Treasury official, Steve Robson, was appointed with the
Prime Minister’s authority 10 deviselan alternative solution I ICL Pathway fully co-
operated with him. His proposed solution was to preserve the Post Office :
infrastricture and climinate the magnetic stripe card, paving the way for the possible
introduction of a smartcard and a simple banking role forPOCL. Benefit claimants
‘would use their smartcard to access their benefit account atthe post office and the BA
would pay the benefits direct to thee accounts or to an account jn.aconventionsl
pankk jf the claimant wished. Itis worth noting that although ICL Pathway bad
developed a magnetic stripe card os stipulated in the 1996 contract, ICL Pethway
designed the system to be capable of using smartcards from day one.
17. From February to May 1999 IGE Pathway made strenuous efforts to achieve a
solution acceptable to all parties, bit by May it was clear thar Ministers bad decided
not to proceed with the Payment Card. On 24 May the Government through the DTI
announced the revised agreement for a partnership betwe the Post Office and ICL
to deliver the new infrastructure butiwithout the BA Payment Card or a smartcard, In
the meantime, 2 further 100 post offices had been equipped in the run-up to national
installation of the system across the:UK. .
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Project Achicvernents
18. This submission secks to make it clear that, in addition to the measurable savings
in benefit encashment fraud cited abov' i
~ ICL Pathway bas delivered a wo! ing’system since 1996 that has been subject to
rigorous external reviews, each of which hes validated its tekhnical feasibility.
- ICL Pathway has designed a system) tt would have enabled theBAfullyto I
reconcile its accounts (this element of the system is successfully in place for the:
payment of Child Benefit at the opetational post offices), ’
- ICL Pathway has gone to very considerable lengths throighoutthe duration of the
project to date to find an acceptableIcommercial way forward; the issue has not
been the technology.
The Future
19. Following the policy change within the DSS to discontinue the use of the benefit
Payment Card, the three parties to the original contract have agreed arevised
programme as follows:
1. The original PFI contract with ICL! Pathway has deen revised so that payment will
no longer be linked to transaction yolumes, reflecting the femoval of the Payment
Card clement. 5
2. ICL will have a single customer, the Post Office.
3, The fixed price contract for ICL wil mun until March 2005.
4, ICL and the Post Office will continue discussions on.8 Public/Private Parmership
for the development of Network Banking and ‘Modemising Government’ services *
which may be built upon the Pathway platform. we? ‘
§. The electronic scanning of benefit payment order books will be implemented on 8
national basis, and will contribute to reducing benefit enqashment fraud.
6, ICL will complete automation of all 19,000 post offices and installation of the IT
network. By January 2000, automation will be running at arate of 300 post
offices per week, with the programme scheduled for completion by April 2001.
20. As a consequence of this, in ling with accountancy requirements ICL has made a
provision for £180 million in its accounts for 1998/1999, representing the cost of its
investment in the Payment Card to date, The deadline for sigaing the revised
agreement is 16 July 1999.
IcL
11 June 1999
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a
POST OFFICE
Q: Not so happy with ICL now? What happened?
‘As After the Treasury re
DSS. They wanted to pursue an alternative option.
PO felt
that they had bad it tied down.
by the BA.
PO has scen the automation programme!
The Mod Gov White Paper said that the
provide electronic government.
‘At The PO can offer the human face
between transactions.
SS: It’s clear from market research
accovints they prefer to collect their ben
Q: What about the 30% that don’t have bank accounts?
‘A: PO hopes that the govt offers them the choice, PO must
user wants. BO would like to provide oth options not dictate
have. :
Q:RB: The Govt should do what? ‘
A: The government should move toward ACT as the best oI
done and how quickly.
‘The PO would like to see it in place because it would
Offices who would then buy other things (stamps etc.)
‘They would like to casurc that the
govt doesn’t withdraw
through Post Offices .
They would also like to ensure that the PO operates on ale}
view it becerne clear that there was
by Christmas, One of
DSS is a key customer of ‘the PO so they had to try and accommodst
as essential to the surv}
Post Office would be
One third of PO revenuc comes from DSS — important customer.
F PUBLIC AFFAIRS
~ POST OFFICE
change in policy at the
¢ problems was that the
¢ the position taken
val of the PO network,
{quipped with the ability to
Q: What are the advantages of ‘the PO Having the payment card?
of automation. The FO will act as the interface
that although 70% of benefit receivers have bank
efits in cash from the PO.
facilitate the choice that the
which options the user must
ion, The issue is how that is
len draw customers into Post
other govt services provided
cl playing field.
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. H
The concer that banks are just waiting for the system'to opened up is not bore out by
the fact that 8 lot of banks greet the prospect with something le:
4 ‘than enthusiasm.
‘There were reasons why a swipe card iwas a better epione years ago but the
development of technology in that time has meant that perl
hindsight, it was a poor ides. They should have opted for the
-and they accept that the smextcard is the way
Now, they can implement the smartcard
forward, All equipment will be smart card friendly. i
The change of funding from PRI to customer based funding
onto the PO. 7
s, with the benefit of
¢ smartcard from the off.
throws the emphasis back
Q: AME Is it fair to say that the PO wou id not entertain a PRI deal again with three parties
Decause the to customers had different agendas? =!
A To acertain extent. Don’t want to spportion blame but shuld see the progress made
. " t
in the last 12 months.
Most of the cost has been boc by ICL because initial outlay has been on technology.
i
I
Q: BL: How is barcoding going to help'PO or is it virtually obsolete now?
ade
At Barcoding will help detect fraud or s book that! should
system stays the same. eF i
1°
The PO held a review at the beginningjof’ 1998 and tee objectives emerged:
1) They wanted to stay in the cash matket
1
I
2) Government Gateway — they wanted to. be 4 provider of personally automated
government services
ei
A I
3) Wanted to continue providing services for Royal Mail and
IParcelforce
Biruesd. eo
I withdrawn provided the
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“7
HPL e@
‘Memorandum to Select fot mittee tlhe and Industry
Horizon Project. i
: fi ‘I
1 POCL has developed a Missio1
strategy for the next 10 years, buil i
reach, its infrastructure, andits trusted brand. +}
2
important business of everyday life.
and ison hich outlines a business ,
on the key! strength; of its unrivalled
Ha
The POCL Mission is to become the UK's niumber one choice for the -
Irhig will bedchieved by concentrating
on four key markets in which it has zeal competitive advantages.
3
- access point for official information
wholesale cash distributor :
access point for cash deposits and
and transactions
' I
POCL aims to be the UK's srigst trusted arid used:
jndrawals on beh
of many banks
- provider of transactions and specialist advice on all aspects of Post Office
mail and distribution activities. I ° i
4
2 ’ !
Providing a highly competitive infrastructure whith connects post
offices to each other and to others: systems ina secure an(d efficient way is key
to our success in these markets. +], H
5
on which services can be developed:
enable other technologies to be ca
6 The benefit payment card d
The Horizon projectis a cormerstone forthis and
The platform will also be designed to
mmnected to it and the equipment is able to
handle smartcards, magnetic swipe cards and Barcodes.
t builds a platform.
yas seen as I important step strategically
to retaining customers and migrating them onte aaa ne Smartcard,
which would be able to do many #
to Government services. =~
hings including pro
Te would also provide signi
as well as proper reconciliation o!
card was as good as, if not better,
than, the order’book.
: 1
i
rogramme kan bet
Shad equally, positio:
Jension payment, ci
fe 1992, DSSibegan
8
Previously, customers had alway
they wished to receive ‘benefit or;
‘The origins of the Horizon
or bank accounts (via ACT). In
ding electronic access
ficant fraud ‘savings to the Benefits Agency.
iis accounts: Benefit tecpients like to be
able to collect benefits from post offices and 77% said the benefit payment
aced back to circa 1992.
ed choice a5 to how
er through post offices
trial of anew benefit
entitlement claim form which omitted use ofjpost offices. Following extensive
campaigning by the National Fedlration of Sub-Postmasters (NESE) fo the
t 4
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7 _ I » post oFFICE oso I”
e
. servants from the Department of So
i iI
effect that the trial represented a threat'to the viability of past offices, the
daim forms were withdrawn. at i
9 Ministers asked senior managemere from POCL and senior civil
al Security tound
e anend toend
review of the product design and come up with something that addressed the
three main drawbacks of paper based inethods of pal
fraud Liability and lack of customer level accounting len
40 TheBA/ FOCL Joint Feasibility study examined 3
namely cost,
in options (along
with several variants); use of ‘barcodes, use ofa magnetic bwipe card, use of a
smartcard. The report concluded that ‘amagneticiswipe d offered the most
effective (as well as cost effective) way forward.’ This ap oach was endorsed
. i
by ministers.
procurementand Contract
i =—- Ajoint programme known.a$ 'Bringing Technology to Post Offices and
Benefit Payments’ was established, Jed by 2 senior DSS
consisting of staff from BA and POCL, supported by sp
consultants where needed. The programme followed a
inline with Government and European regulations.
vil servant and
jalist external
procurement process
12 Contracts were signed between BA, POCL and IGL Pathway and
Agency Northern Jreland (SSA) and POCL were signedI
programme moved from procur Scent into delivery phi
the Programme Delivery ‘Authority; The contracts si
outstanding issues would be resolved and that softwar}
would be ready for model office} sting in January 199:
live Operational Trial peginningiin April 1997, with ful
in July 1997, and completing by itis end of 1998.-
between BA and POCL on 15May, 11996. Contracts be
een Social Security
in June 1996. The
e and was renamed
d envisaged that all
and the solution ©
, to be followed bya
yoll out commencing
13. Inline with PFI methadola} ey of allowing the contractor to develop a
solution to meet business requiements, the signed contracts contained
hundreds of requirements and associated solutions whit
ch were expected to be
extrapolated into detailed schedullés of service descriptions. This process took
eight months rather than the thide originally allowed,
14. ~~ Anearly version of the Benefit payment card solution was developed
and went live in one post office in'September 1996 followed by a further nine
post offices in October 1996. 4
15 Slow progress resulted inla re-plan in Decomb pr
1996. The Operational
Trial was rescheduled to take place from August 1997 to November 1997.
‘This re-plan was carried out through the agreed charige control process and
igf wt
yt i
signed-by all parties.
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16 Theprogramme continued fomake slow ‘ogress d to protect the
‘Authorities (ie BA and POCL) contractual position, as completion of the
Operational ‘Trial had not been: achieved by Nov : ber 1997, a notice of
default letter was sent to ICL Pathway. ICL Patiiway rejected the letter and
have since claimed that the Authorities impeded fhels ability to deliver the
trial and that the dates do not Hold.
ade . +
17 The programme has been re jiewed severdl times,Iby POCL and BA
jnternal auditors and external consifitants. In particular, PA Consulting
performed a strategic review of the[programme in September 1997 on behalf
of DSS, POCL and ICL. It concluded:the programme I; technically feasible,
that it would take longer and costimnore to deliver, was ofa complexity
underestimated by ICL, and that there was no gensible way of descoping/
radically altering the plan. Overalllit was better‘to continue than to terminate.
18 In December 1997 ICL requssted new coxnmercial terms to compensate
them for the delays to the project, Jae Authorities rejectbd their aims.
However ICL kept pressing for new terms with further [discussion papers’
and began lobbying to further thei ‘case. i
19 POCL took over line management of the ‘pro ¢ (renamed
Horizon) in April 1998, as recommended in the PA Consulting strategic
review, Ae i
20 InJune 1998, against a background of concern aout delay to the
project and its ability to deliver ilsIobjectives, HM Treagury (MT)
commissioned an independent réview of the programme and asked a panel of
experts to make recommendations, published in July 1998. These were
broadly in line with previous reviews, finding the pro} e technically
viable though complex, and that there was likdly to belfurther delay and cost
implications for each party's business case. - .
21 Ministers considered the report along itih other submissions from a
working party chaired by HMT lithe future of the programme. Three main
options emerged: continue withthe benefit payment card (BPC), continue
without the BPC or terminate thelprogramme. ‘Ministels asked ifa way
forward could be found between the three parties. .
22 InSeptember 1998 Grahai Corbett, Deputy Chairman of the
Monopolies and Mergers Commission, as an independent adviser was
appointed by HMT to facilitate discussions between tHe three parties on an
acceptable way forward. He recqmmended:" ;
+ contracts between POGL and ICL Pathway Would be extended to
2010, . I.
* contracts between'BA and POCL, a
extended to 2008. - :: I! 7
A ICL Pathway
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S
» POCLalso agreed to pi the costs ckrepta in\g the basic
infrastructure equipment in} 2006 and tid additicnal costs of PIN
pads to facilitate a banking service in line with the vision.
ICL and The Post Office were askeditp work up ajPublic/ Private Partnership
Heads of Agreement as a possible Wwayeforward. This wasIduly done and
provided ICL with a way to make fgther concessions to as the public
sector position and allowed them id‘accept a loss on theirIbusiness case.
23 ICL madea final offer on-9-December 1998 and The Post Office agreed
to bridge the gap by picking up incrdased prices to ensurd continuation of the
programme and the BPC. ICL still, However, were required to accepta loss
on their business case. This deal! would have provided POCL with a more
certain route to Network banking and the termsiwere additionally offset by a
large reduction in residual risks hel ‘by POCL. ;I
24 — During 1999 a series of different options idere tabled by Goversunent,
culminating in a proposal which removed the BEC but rolled out the
remaining infrastructure. In them time POCL wouldIbe expected to
develop new banking relationhipsIwith compulsory ACT being introduced
in 2003. This Horizon system woldialso provide interim (but not complete)
fraud savings by reading the ‘barcodes printed on order books.
25 This became the preferred Ldoverment option sehich Ministers wished
to have implemented. Negotiationsithen took place between Government
and ICL on the cost of the new contract and in the light pf these The Post
Office signed heads of agreement oxi the basis of which jwe are now
attempting to negotiate a full agreement by the end of July.
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The Post Office
11 June 1999