Forizon -* -
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Post Office Counters /
Benefits Agency / ICL Pathway
Automation Programme
John’ Rob erts
Stuart Sweetman
February 1998
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THE POST OFFICE
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k-urpose
¢ Brief Government on ‘Horizon’ issues
¢ Share Post Office’s perspective on emerging options
¢ Explain Post Office’s proposed way forward
THE POST OFFICE
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Lackground
1992/93 Compulsory Automated Credit Transfer
debate
1993 Cabinet agrees policy contexts
1993/4 DSS/PO agree card - based payment process
1994/5 Joint PFI procurement process long term
contract agreed to 2005
May 1996 PFI contract to ICL Pathway backed by Fujitsu
Serious Commitments Publicly Made [aieresromer]
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Rey Features
¢ This world class programme will mean skilling all of POCL’s front line staff
and subpostmasters - over 50,000 people - to run a modernised post office
¢ Horizon is capable of handling all POCL’s 170 services over time, including
dealing with £125 billion p.a. of cash transacted over the counter for its clients
¢ ICL will need to commit over £400 million, backed by its parent company
Fujitsui to complete the programme; nearly £100 million is estimated to have
been sunk by them already
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horizon - Key Features
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¢ New end-to-end benefit payment systems across three
organisations (DSS, ICL, POCL)
¢ Automates all 19,000+ post offices to create new secure
electronic/physical UK-wide network
¢ Capable of automating all POCL services and key
processes
¢ c20 million new benefit payment card holders
THE POST OFFICE
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I Horizon-Benefits —
¢ Once rolled out, Horizon provides a new, powerful national electronic’
network, sited in a nationwide network of post offices that gives local and
personal service. This is also backed by powerful new card management and
payment authorisation systems on a scale greater than, for example, Visa.
This capability will meet the current range of government services, but is also
flexible enough to accommodate new services emerging in the future. That is
what we mean by a “future proofed platform” being established as part of the
national infrastructure.
¢ Examples of services that could arise from new ideas or policies are “social
banking” or “learning accounts” as part of the Government's drive to reform
welfare and education respectively ,
Korizon - What Benefits It Will Bring
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*Benefits Agency
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{
m proper reconciliation of benefits
(unqualified accounts)
eliminates £150m pa fraud
eliminates costly paper based
payments
strategic flagship project in
Europe
future-proofed platform as part
of UK infrastructure
private/public sector partnership
THE POST OFFICE
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Kbrizon - What Benefits It Will Bring
¢POCL a central to commercial
future/viability
combines community role with
modern network
levers private sector capability
Wins for All Parties
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Current Issues
* Delays have been caused by an original underestimate of the complexity of the
programme by ICL, and some initial delay in the development of the new, single customer
based system within the DSS which acts as a feeder system to Horizon ,
¢ When contracts were awarded to ICL in May 1996, national roll-out to post offices was
estimated by July 1997; latest plan shows national roll-out commencing in April 1999
¢ PA estimated extra costs to the programme of c£200m because of delay
¢ BA say they have an affordability gap of c£70m over the 3 year PES period
¢ BA believe that the Post Office Review gives an opportunity to change policies on the post
office network and/or benefit payments
e ICL Pathway have missed an original contractual milestone. BA/POCL have jointly
advised them of that and reserved all rights; Pathway. dispute fault
* POCL has reminded BA that they should not terminate contracts with ICL unilaterally,
and that BA’s contract with POCL should continue to be honoured
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Current Issues
Delays
Affordability issues for BA short-term
Business case/contract length issues for ICL
Profit strain issues for POCL to manage
Emerging new policies on welfare/PO review
Increasing press speculation about commitment to the
programme
Independent Review by PA
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PA Review
Review by PA, jointly sponsored by The Post Office, BA and ICL in October 1997, with
some additional work in December 1997
PA's review stated that POCL had not contributed significantly to delays to date
DSS had some delays to their feeder systems at the outset, but have since reviewed their
plans and appear to have taken action to stabilise these ‘
PA recommended that programme management arrangements needed to be
strengthened
- this is now in hand, with POCL and ICL committing additional-
management resources
PA recommended that the critical data for the future programme plan needed to be
settled and agreed upon
- a set of planning abapinpiene about the future timetable have now
been agreed
Review proposed an alternative automation option for the smallest offices. POCL have
acknowledged that this could be a potential option but are currently awaiting a technical
specification from ICL.
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Soint PA Review
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¢ Technically feasible solution
* Confirmed delays to timetable and higher costs
e ICL Pathway had underestimated complexity of
programme at outset
¢ No sensible way of radically altering plan
¢ Alternative automation option for smallest offices
Better to Continue Than to Terminate
THE POST OFFICE
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Latest Timetable
¢ Pathway’s system is due to be “accepted” by both BA and POCL by March 1999,
This is a contractual condition, to meet agreed standards of service and operation,
before sponsors agree to the full rollout of the infrastructure, planned to start in April
1999
* National roll-out to post offices will be complete within the lifetime of this parliament
with c13,000 post offices rolled out by April 2000 and all 19300+ post offices
completed by April 2001
* Other benefit payments are due to come on stream from new DSS feeder systems
during and after roll-out, as are new software links to new POCL systems to enable it
to modernise its key processes (contracted separately), together with new links to
enable its other clients’ services to be automated
* During roll-out, it is planned to develop other government or private sector business °
(in part by commercial freedom) to use the system in post offices
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Latest Timetable —
Original plan showed national roll out July 1997
205 offices now successfully running child benefit cards
Formal ‘live trial’ release October 1998
Live trial January-March 1999/system ‘accepted’
National roll out begins April 1999
Roll out to 300 offices per week
Rollout Complete by 2001
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Probable Impact of Termination
Over 25% of POCL income lost
‘Inevitable spiral of decline for POCL - ongoing subsidy of over £200m pa needed
Over 17,000 job losses estimated - £50m EVR costs
4500 sub offices closed, 500 crown offices closed unless heavily subsidised
Compensation payment to subpostmasters to compensate of c£150m
Strategic Cash Market disruption/imbalance for UK
Girobank would lose 75% of its core corporate deposits Bustaces
But ‘rump’ of 7-9 million customers without bank accounts - what happens to them?
Banks’ unwillingness to take on anyway - and/ probably charge customers and government
heavily for doing so . -
‘Social Banking’ through post offices for the “unbankable rump” only does not seem to make
commercial sense for anyone : a .
Issue of what happens to the ‘rump’ of 7-9 million customers without bank accounts. The banks
have shown themselves to be unwilling to take them on and would probably charge the customer
and the government for doing so. A commercial case for ‘social banking’ through post offices for
the ‘unbankable rump’ has yet to be proven.
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-robable Impact of Termination
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High profile legal claim / counter claims I
Flagship PFI scheme is seen to fail
BA accelerate ACT
¢ Many post offices not viable and so will close
¢ Significant impact on other “post office dependent”
businesses (e.g. Girobank)
High Risk Consequences
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Emerging Position
We believe that if all parties were to be flexible, a way forward may be found I
The alternative “social banking” solution emerging from DSS is not yet specified, and it is
difficult to construct either a proper set of commercial or programme arrangements at this
stage. Soundings with HMT indicate that it is at only.an early stage concept currently
ICL’s preference is for extended contracts, arguing that a PFI of this nature is more like an
infrastructure project with intrinsically longer pay-back periods required than that
contracted. Fujitsui are expecting to see commercial discussions with BA and POCL
commence soon to ensure their continued support.
ICL’s accounts run from April 1*t so if they do not receive assurances before the end of
March they may need to include provisions in their accounts or have their accounts
qualified. Potentially this undermines Fujitsui’s aim of floating ICL on the stock
exchange within 2 years. :
Post Office signed its contracts with BA in good faith, and has fully co-operated fully in’
achieving the automation design contracted by BA. We would consider extending
contracts with ICL once their delivery is proven, and only if this was matched by an
extension of our BA contract, subject to acceptable commercial terms.
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iinerging Position
e DSS .
wm no discussion around increased costs or contract
extension.
m= seems to imply greater use of ACT or the
development of new payment methods based on an
unspecified ‘social banking’ solution
e ICL
m ‘continue and extend contracts and/or raise prices
(helping BA with PES in doing so)
¢ PO
pm continue and develop platform separately
exploit its potential with Government and ICL
THE POST OFFICE
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Exploiting the Platform
Potential for new citizen’s ‘bank accounts’ as part of “social banking” in the future
¢ Potential for new citizen’s card to access ‘learning’ accounts, ISAs, stakeholder
pensions and new government information services
¢ . Potential to make Post Office part of “Better Government” and welfare reform, not
an indirect ‘casualty’ of it
¢ Potential to provide a network of services for local businesses, to ensure social
inclusion for the local community
¢ Potential to add other private sector communications and financial services
provision
* Potential to provide trusted and networked presence in every community through
the Post Office brand
¢ Potential to tackle other key areas of fraud through a world-class secure platform
Horizon Is a Future-Proofed Infrastructure to Deploy New Government Policies
and Provide Public and Private Sector Universal Service
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Proposed Way Forward
Honour all existing contracts
Continue Horizon’s programme delivery
DSS to fund PES gap in short term
Accelerate work on wider government services role
with ICL
Consider extension of ICL contracts once delivery is
proven (so ICL possibly help DSS on PES gap)
Develop strategy for exploiting the programme ;
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