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CASG(98)1st Copy No
CASG98/1 to 6 adj"
COUNTER AUTOMATION STEERING GROUP
26 JANUARY 1998
Present: John Roberts (Chairman)
Richard Close
Jerry Cope
Dave Miller
Paul Rich
Stuart Sweetman
Scott Childes (notes)
MINUTES OF CASG98/1
PREVIOUS
MEETING The Committee APPROVED the minutes of its meeting
of 22 September 1997
POLITICAL CASG98/2
SENSITIVITIES
The Committee noted that
(i) John Roberts had recently met with Anne Bowtell,
Permanent Secretary at the DSS, (on a ‘without
prejudice’ basis), who had indicated that rather than
press for withdrawal from the programme and the
introduction of ACT, the main DSS concern was to have
a viable, fit for purpose product that could perform to
the original specification and be delivered within the
current timescale. She also commented that
POCL was perceived by BA as having been inflexible
historically over contract negotiations and one of her
concerns was the risk to DSS of the intensive roll-out
programme not hitting its targets, especially as POCL
had refused to accept any financial liability for this
noted in discussion that
(ii) previous commercial discussions between all three
parties (POCL, BA and ICL Pathway) had
been held against the background of a Government
committed to Horizon and as this Government’s
position was as yet unclear it was probably sensible to
delay such discussions until the positions of ICL and
BA, with regard to the future of the programme, were
clearly understood. To this end it would be useful for
Stuart Sweetman to arrange to meet with his counterparts (on a
‘without prejudice’ basis), from ICL and BA to
determine whether their respective future commitment
to the programme matched POCL’s, as in follow-up to
John Roberts’ recent meeting with Keith Todd,
In Strictest Confidence
also
Todd
COUNTERS’
COMMERCIAL &
CONTINGENCY
PLANNING
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had a pre-
below-
meant
(iii)
(iv)
In Strictest Confidence
conducted on a ‘without prejudice’ basis, Keith
had indicated ICL’s commitment to the programme, but
believed commercial matters had to be addressed by BA
and POCL
CASG98/3
The Committee noted Paul Rich’s report and in
particular that
the impact of the programme delay and the three pricing
scenarios put forward by ICL on the individual business
cases of POCL, ICL and the BA had now been
estimated by POCL, in broad scoping terms, to
understand their relative positions;
with regard to Counters’ own business case the
previously reported information to MaPEC, as part of
POCL’s overall automation programme (September
1997) which assumed rollout in January 1999,
risk NPV of £131m, but with very heavy risks
the-line. With roll-out delayed until April 1999 this was
reduced to £100m. Should ICL’s proposal to increase
prices by 30% be accepted the NPV reduced to £41m
and if POCL accepted a 10% price increase from
ICL, a PES subsidy for DSS and a 5 year contract
extension, NPV reduced to £68m. A 5% price increase
and 5 year contract extension resulted in an NPV of
£94m. A full report on the Business case assessment
would be prepared for MaPEC in the next two months.
The price increase being proposed by ICL would
probably not be passed on to BA and in effect this
that Counters would be subsidising BA to overcome its
PES funding difficulties;
an assessment of the BA Business case based on both
100% fraud recovery and recovery of only 1 in 5 fraud
savings, seemed to show that even in a worst case
scenario the BA case would breakeven. An assessment
of ICL’s Business case was more difficult to model. It
had been projected by ICL that an internal rate of
return (IRR) of about 15% would be achieved;
Counters’ calculations showed an IRR of 25%
being achieved
noted in discussion that
ICL had already committed approximately £100m on
programme and in simple financial terms it would
therefore be very damaging for them to withdraw;
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(vy)
wi)
(vii)
(viii)
(ix)
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with regard to commercial issues, planning work had
been started in a number of areas, including
validation of termination impacts, identification of
critical parameters against which to negotiate,
identification of candidate positions for each parameter,
reviewing the Post Office Board’s non-negotiables, and
also assessing the impact on other clients contracts, such
as Girobank;
advice through Post Office legal services and Slaughter
and May, had been taken with regard to a number of
issues, including protecting Counters’ position
against unilateral termination by BA of any of the
contracts and on the next action that had to be taken
with regard to ICL’s breach of contract; in particular
when written notice had to be served on ICL. Legally
this was a judgement issue and one that depended more
on commercial and business matters, rather than legal
absolute. Given that the breach had occurred prior to the
independent review by PA, Members felt it sensible for
ICL to be given the opportunity to show that
improvements had been made and that future milestones
could be achieved. It was recognised that in adopting
this approach Counters could be perceived by BA as
failing to take the contract breach seriously, which was
not the case;
preparatory work for any claim from ICL, which could
possibly range between £200m and £250m, to be split
between Counters and BA, had begun;
it had been established that ICL had no legal right to ask
for a price increase and/or contract extension, and any
commercial discussions had to be set in that context
it was important for Counters that the programme
continued with a sensible business case and that a clear
view of the needs of each party was established.
However, it was not in Counters’ commercial interests
to be the only party that openly declared an interest in
maintaining the programme as this could be a poor
position in which to progress commercial negotiations
with ICL and BA. Although it was recognised not to be
in Counters interests financially to orchestrate a solution
to the DSS’s financial difficulties, it was necessary for
both Counters and BA to continue to work together
whether it be under Horizon or another automated
route. In view of this, opportunities to provide some
degree of flexibility, such as reviewing the relative risks
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(x)
PROGRAMME PLAN
UPDATE
well
FUTURE ROLE OF
(i)
(ii)
(iii)
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around the speed of roll-out to offices, should be
considered;
in the longer term it was important to ensure that the
working relationship between all three parties improved
as without this difficulties would continue to emerge
CASG98/4
The Committee noted the report by Dave Miller and in
particular that
the programme was now focusing upon three key
planning dates: October 1998 and the launch of Release
2, January 1999 when live trial commenced, and April
1999 when national rollout was due to commence;
other key issues which needed to be addressed included
the involvement of 10,000 offices in the installation
process in 1998/99, a feasibility study for small offices
for “Pathway Light”, a reduced form of automation
functionality, and the installation of a further 2,000
APTs (not supplied by ICL) in 1998, to protect POCL’s
bill payment market in the interim. The migration of the
PDA into POCL was due to be completed by April 1998
and it was important that this was successfully managed
to ensure that all batons were transferred. BA was
continuing to load CAPS information on to its new
CAPs system which would ‘feed’ Pathway’s payment
authorisation system, having already installed personal
details relating to 3.5 million child benefit customers.
Service management issues in the 205 offices already
running the current release were being closely
monitored, and integration of the programme into
POCL’s operational and systems planning was fairly
advanced
noted in discussion that
with the strategic uncertainty and the transitional period
of disbanding the PDA, it was important that
momentum and enthusiasm from all parties was
maintained and that delivery of the programme was kept
up and separated from the commercial and contractual
negotiations that would have to be held. John Roberts
asked to be kept closely informed if POCL perceived
lack of programme effort or commitment by either BA
or ICL
CASG98/5
In Strictest Confidence
CASG
to or
role,
DATE OF NEXT
MEETING
In Strictest Confidence
The Committee agreed that existing CASG meeting
dates would be maintained, but should urgent issues
need to be discussed time would be found prior
following POEC or Post Office Board meetings. It was
noted that Peter Crahan would be replaced by Dave
Miller at CASG meetings, given Dave Miller’s new
and that Paul Rich or Mena Rego would continue to
attend at Stuart Sweetman’s discretion, dependent upon
agenda items
CASG98/6
The Committee noted that the next meeting was
scheduled for 27 March at 10.30am.
In Strictest Confidence
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