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Bringing Technology to Post Offices and Benefit Payments
FINAL EVALUATION & SELECTION: FINAL EVALUATION TEAM REPORT
Author: Derek Selwood Version: Issue 1.0
Authority: Derek Selwood 28 April 1996
Reference: © PWKP4-43
Contents Page
1. INTRODUCTION
1.1. Purpose...
1.2. Summary of Recommendations ..
1.3. Structure of Report........
2. BACKGROUND
BW NNN N
3. EVALUATION OF TENDERS RECEIVED ON 21 MARCH...
3.1. Overview
3.2. Initial examination of tenders.
3.3. Assurance activities......
3.4. Presentations to Sponsors
3.5. Negotiations with Suppliers .....
4. EVALUATION OF RE-TENDERS RECEIVED ON 22 APRIL.
4.1. Approach taker
4.2. Assurance activitie:
5. RESULTS OF THE CONTRACT ASSURANCE REVIEW ....
© eo eo YUU ReR ®
7. THE VALUE ASSESSMENT AND FINANCIAL RESULTS...
7.1. Process
7.2. Results .
8. OTHER AREAS RELEVANT TO THE EVALUATION
8.1. Risk Transfer ..
8.2. Partnership Capal
9. ANALYSIS AND CONCLUSION.........
10. RECOMMENDATION....
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ANNEX A - GLOSSARY
ANNEX B - MEMBERS OF EVALUATION TEAM .......
ANNEX C - DEFINITION OF PRE-ITT HURDLES
ANNEX D - CATEGORISATION OF TENDERS RECEIVED ON 21 MARCH
ANNEX E - EXAMPLE LETTER TO SUPPLIERS OF I APRIL.......
A INTRODUCTION
it. Purpose
1.1.1. This is the final evaluation team report, giving:
(a) an account of the evaluation process from receipt of tenders on 21 March; and
(b) the results of the evaluation of the re-tenders submitted on 22 April 1966 in
response to the Invitation to Re-tender (‘ITR’) issued on 16 April.
1.1.2. It is supported by the following:
(a) contract assurance report (PWKP4-40)
(b) value factor report (PWKP4-41)
(c) _ financial evaluation report (PWKP4-42).
1.1.3. An interim evaluation report (PWKP4-37) was produced in respect of the tenders
submitted on 21 March and was supported by an interim financial evaluation report
(PWKP4-38). The two papers were considered at the Evaluation Board meeting on
19 April; this paper takes account of comments made at the meeting and since.
1.1.4. The Evaluation Board are invited to consider the Evaluation Team’s recommendation
and reach a conclusion as to the award of contract.
1.2. Summary of Recommendations
1.2.1. The team unanimously recommends that if a contract is awarded, it should be
1.3. Structure of Report
1.3.1. Sections 2 to 4 provide an account of the process of evaluating the tenders submitted
on 21 March and the re-tenders submitted on 22 April. Section 2 gives a brief
background to the evaluation, from the establishment of the shortlist to the issue of
the ITT. Section 3 describes the evaluation process up to 16 April, following receipt
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of tenders on 21 March. Section 4 describes the work done on receipt of retenders on
22 April.
1.3.2. Sections 5 to 8 present the results of the evaluation of the retenders received on 22
April. Sections 5 and 6 provide a summary of the contract assurance and financial
evaluation activities, fuller details of which are given in papers PWKP4-40 and
PWKP4-42 attached. Section 7 provides an account of the Value Factor assessment
(including the assessment conducted after receipt of retenders, detailed in PWKP4-
41) and its interaction with the results of the financial evaluation. Section 8
considers two other areas relevant to the evaluation. Section 9 provides an analysis
of the whole picture in the form of an account of a discussion by senior members of
the Evaluation Team of the main results of the various evaluation activities.
1.3.3. Members may find it helpful to have the following papers to hand when reading the
report:
PWKP4-5 “Use of Value Factors in final evaluation & selection’
Version 3.0 dated 30 November 1995
PWKP4-8 ‘Pre-ITT Hurdles’
Version 2.0 dated 3 January 1996
PWKP4-9 ‘Processing tenders: From receipt to award’
Version 1.0 dated 23 February 1996
PWKP4-4 Principles of Financial Evaluation
Version 2.1 dated 18 March 1996
PWKP4-23 Financial Evaluation Model
Version 1.2 dated 20 March 1996
PWKP4-22 Programme Value Factor Assessment - 7 March 1966
Version 2.3 dated 20 March 1996
PWKP4-33 Programme Value Factor Assessment - 26 March 1966
Version 2.0 dated 19 April 1996
1.3.4. Annex B details the members of the Evaluation Team.
2. BACKGROUND
2.1, Following evaluation of responses to the SSR from five bidders, three suppliers were
shortlisted in July for demonstrations of their proposed offerings and negotiations
leading to agreement of draft contracts.
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. Cardlink
. IBM
. Pathway
22, Demonstrations and contract negotiations duly took place between August 1995 and
February 1996, and on 29 February ITTs were issued to all three suppliers.
2dy Prior to issue of the ITT (via meetings held on 26 and 28 Febru:
/This paper had been approved by the
Procurement Board on 21 December 1995 and lodged with the Programme’s lawyers
on 3 January, before consideration of the issue began.
2.4. The hurdles included the minimum service requirements acceptable to the sponsors,
the minimum requirements for partnership with POCL and the development of new
business o ities, sufficient transfé f risk and a number of commercial
aspects. Having cleared
such hurdles, a supplier cannot be exclude m the competition on the grounds of
his performance in these areas unless changes have occurred or new facts come to
light which make clearance of all or any of such hurdles no longer possible.
vie In November 1995 suppliers were informed of the criteria for tender evaluation, and
that this would be based on both costs and a number of non-monetary “Value
Factors”. During the demonstrations and negotiations the Programme assessed each
supplier’s performance against these Value Factors.
2.6. Suppliers’ pre-ITT scores against the factors together with the associated rationale
were lodged prior to receipt of tenders (PWKP4-22, version 2.3, and associated
papers) following review by the Evaluation Board on 14 March, a follow-up meeting
on 18 March and subsequent approval by the sponsors’ senior Evaluation Board
members. (Paras 3.3.6 and 4.2.6 describe the action on Value Factor scores after
receipt of tenders and retenders.)
3. EVALUATION OF TENDERS RECEIVED ON 21 MARCH
3.1. Overview
3.1.1. The process to be followed from receipt of tenders to award of contract is described
in paper PWKP4-9 ‘Processing tenders: From receipt to award’ which was approved
by the Procurement Board and lodged with the Programme lawyers prior to receipt of
tenders.
3.2. Initial examination of tenders
3.2.1. Tenders were received from all three suppliers by the deadline on 21 March. Two
suppliers had provided a number of copies with ‘blank’ prices to facilitate the
application of the ‘need to know’ principle to the evaluation. The third supplier had
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not complied with this request, and the prices were therefore blanked out on a
number of copies before the tenders were released.
3.2.2. Legal advice was that, given the uncertainty as to the nature of the bids in terms of
compliance, no evaluation work should be commenced until the tenders had been
reviewed, their categorisation established and a decision taken on the approach. A
team consisting of D Miller, R Albright, K Baines and P Elliott (Bird & Bird) and
facilitated by D Selwood therefore examined each tender in sufficient detail to
establish a prima facie categorisation. Only Baines and Elliott were given access to
priced tenders in view of the potential involvement of the other team members in
reviewing value factor scores.
3.2.3. The review revealed the following (see Annex D for meaning of tender categories):
Supplier Claimed category Actual category
Cardlink Compliant Non-compliant - other
Cardlink = Non-compliant - variant Non-compliant - other
IBM Non-compliant - variant Non-compliant - other
(Pathway Compliant Compliant
Pathway Non-compliant - variant Non-compliant - other
3.2.4. Legal advice was that at this stage evaluation should cover either compliant tenders
only or all tenders and that the ITT letter allowed either course of action. If it
subsequently became clear that, for any reason, a tender could not possibly lead to an
award of contract then the evaluation of that tender could stop. Given that only one
compliant tender had been received, it was decided by the categorisation team (as in
3.2.2) that the interests of obtaining the benefits of competition were best served by
starting evaluation of all tenders.
3.3. Assurance activities
3.3.1. The assurance activities described in PWKP4-9 were carried out, and where
appropriate clarification queries were taken up with suppliers after quality assurance
of the need for the enquiry by CNT and/or the Procurement Team. The results of the
assurance activities are summarised in the following paragraphs.
Technical Assurance
33.2,
maj
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Contracts Assurance
3.3.3. Apart from the compliant tender from Pathway, this activity revealed a large number
of non-compliances across suppliers. Some were inherent in the nature of claimed
variant tenders, but others were outside the scope allowed by the ITT material
relating to variants. The non-compliances were noted in readiness for any
negotiations with suppliers.
Partnership Assurance
3.3.4. The tender material was reviewed against the results of the discussions held with
suppliers during the demonstration/negotiation phase. Some differences were found
in the degree of commitment given. Some clarifications were raised and satisfactory
replies received.
Risk Transfer Assurance
3.3.5. This review was conducted by comparison of the tenders with the ITT position. As
with Contractual Assurance, a number of changes were noted across suppliers apart
from the compliant Pathway tender. Again, some were inherent in the nature of the
tenders but others were outside the scope allowed for variants by the ITT. The
changes were noted in preparation for any supplier negotiations.
Value Factor Assurance
3.3.6. In the course of carrying out the assurance activities the teams noted the need to re-
assess the pre-ITT scores. Formal reviews at Partnership, Contracts and Demo
Stream level were carried out on 25 and 26 March. At the subsequent Programme
review on 26 March, the scores and validity markings were amended for a number of
factors. The results were documented in PWKP4-33, endorsed by the Evaluation
Board on 19 April and taken forward into the evaluation of re-tenders due on 22
April.
Financial Evaluation
3.3.7. The suppliers’ prices were input to the financial model lodged prior to receipt of
tenders and initial runs of the various costing statements produced. In some
instances assumptions had to be made because of inadequacies in the information
supplied, but these were regarded as providing a sufficient degree of accuracy given
the position on the business cases (see para 3.3.8).
Business Case Appraisal
3.3.8. The figures emerging from the financial evaluation were input to the BA and POCL
business case models. The results showed that both sponsors’ business cases were
substantially non-viable, and resulted in the presentation to the Sponsor Directors
Group meeting described at 3.4.
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3.4. Presentations to Sponsors
3.4.1. A presentation to sponsor commercial teams had been pre-arranged for 28 March in
order to present initial findings and to focus the teams’ attention on any new
BA/POCL commercial issues thrown up by the nature of the tenders. Very few such
issues were identified, and these were of a minor nature. However, it was concluded
that there was value in holding the presentation in any event, and in view of the
emerging position on the business cases the Sponsor Directors Group (‘SDG’) agreed
that they should also meet that day to receive an abbreviated version of the
presentation together with the Programme’s proposals on progressing the
procurement.
3.4.2. I The SDG agreed that the Core Negotiating Team (‘CNT’) should:
(a) invite all suppliers to identify major cost drivers;
(b) negotiate a revised ‘package’ with each supplier aimed at bringing costs to a
level that would make the business cases viable;
(c) _ put the packages to SDG for their agreement in principle;
(d) if SDG agreement were forthcoming, invite suppliers to submit revised prices
on the basis of their negotiated package; if it were not, then the options of
further negotiation or of discontinuing the procurement would need to be
considered.
85. Negotiations with Suppliers
3.5.1. It was agreed that Keith Baines, the head of the financial evaluation team, should be
added to the CNT at this stage, given that detailed discussion of the financial aspects
of tenders and assessment of the financial impact of prospective changes were to be
key elements of the impending negotiating process.
3.5.2. All three suppliers were telephoned on 29 March and invited to meetings on 1 April
to take forward the remit given to CNT by the SDG. They were told the purpose of
the meeting and asked to prepare for it in advance.
3.5.3. At the meetings on 1 April the CNT provided initial comments on the tenders and
allowed suppliers the opportunity to present the work they had done thus far
following the phone calls on 29 March. They were asked to submit the final results
of their work by 4 April and were handed a letter summarising the purpose of the
meeting and the way ahead. An example of the letter is at Annex E.
3.5.4. Submissions were received from all three suppliers on 4 April. After individual
consideration of the responses, the Programme Director chaired a CNT meeting on 9
April to determine the negotiating strategy for the impending meetings with
suppliers.
3.5.5. I Meetings were held with suppliers on 10 - 12 April to explore further the responses
received on 4 April and to negotiate in principle a package designed to substantially
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reduce the service costs to sponsors from those flowing from the tenders lodged on
21 March. Suppliers’ considered responses to the points raised in the discussions
were received on 15 April.
3.5.6. The results of the negotiations, including the responses received on 15 April, were
put to SDG on 16 April and their views sought on the acceptability in business terms
of the prospective changes. Invitations to retender on the basis of the negotiations,
the supplier responses and the SDG decisions were issued to suppliers on 16 April;
tenders were required to be submitted by 22 April.
4, EVALUATION OF RE-TENDERS RECEIVED ON 22 APRIL
4.1. Approach taken
4.1.1. y
— the purpose of the retender a variant bid was any bid
which was not compliant, and could include any variant elements the supplier might
wish. A commitment was given to evaluate all bids, whether compliant or variant.
4.1.2. It had been agreed by the Programme’s legal advisors prior to receipt of retenders
that, given the terms of the ITR, evaluation should start immediately on all retenders,
i.e. there was no need for an initial examination of the kind carried out on the tenders
received on 21 March.
4.1.3.
displaying varying degrees of non-compliance with the ITR. They were subjected to
the process described in PWKP4-9, tailored to the amount and type of information
received. Clarifications, where necessary, were sought from suppliers.
4.1.4. Asa result of one supplier submitting additional, unsolicited information in response
to the ITR after the permitted deadline, all suppliers were informed in writing that
such information might not be taken into account. ‘Any such “late” information
-Teceived has not formed part of the evaluation process.
4.1.5. Although all retenders contained pricing information, the members of the teams
undertaking the Technical, Contracts, Partnership and Value Factor reviews were not
exposed to the results of the financial evaluation until they had completed their
activities.
4.2. Assurance activities
Technical Assurance
4.2.1. This was found to be necessary, given es in supplier positions in some areas
from their pre-ITR position.
However, a number of issues were identified for feeding into the Contract Assurance
review and the team re-assessed the Demo Stream Value Factor scores (see paras
4.2.6 and 4.2.7).
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Contracts Assurance
4.2.2. Extensive activity was needed in this area given the number and type of non-
compliances across the tenders. A separate report (PWKP4-40) details the results of
this review, and a summary is given at section 5. In addition, the team re-visited the
Contracts Stream Value Factor scores (see paras 4.2.6 and 4.2.7).
Partnership Assurance
4.2.3. This was carried out in parallel with the Contracts Assurance described in para 4.2.2.
No changes were identified compared with the position identified previously
(described in para 3.3.4).
Financial Evaluation
4.2.4. Extensive work was carried out in this area, using the financial models approved
prior to tender receipt. A separate report (PWKP4-43) was produced and is
summarised in Section 6.
Business case Evaluation —
4.2.5. The results of the financial evaluation were used to update the BA and POCL
business cases. }
Value Factor Assurance
4.2.6. As a result of the findings of the Technical and Contracts assurance activities, both
the Contracts and Demo streams wished to re-assess suppliers’ scores under the ten
non-monetary value factors. The Evaluation Team acknowledged that caveats might
be placed on the results, given the exposure of the assessors to pricing information.
However, having taken legal advice, it
4.2.7. ,
A
Programme assessment review was held on pril and the results are detailed in
PWKP4-41. The scores were input to the evaluation of non-monetary factors
described in Section 7.
5: RESULTS OF THE CONTRACT ASSURANCE REVIEW
S.1. The full results of this review are set out in PWKP4-40:
(a) Each retender was compared with the corresponding ITR to establish the
degree of compliance. The results were structured around the decisions given
by the SDG on 16 April, supplemented by details of non-compliances in areas
additional to those considered by SDG.
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(b) given the importance of the fraud element a description of each supplier’s
position was drawn up;
(c) _ the other (four) key contractual differences between suppliers were identified -
i
(4) _non-compliances with the ITR have been costed where possible, on a basis
agreed between the Contracts and Finance teams, but where non-compliances
could not be costed, views on the risks to the Contracting Authorities were
recorded;
(e) asummary of the overall Contracts view was produced.
Se, The principal conclusions of the review are set out below:
(a)
‘for other fratid! The offers from the other two Service Providers are so
restrictive in scope and/or liability that they are difficult, if not impossible to
accept;
(b) in terms of the other (four) key contractual di Pathway are
compliant on all four, IBM on three an
(c) in terms of contractual) acceptability against the guidance given by the
sponsors, , with IBM some way behind and Cardlink
somewhat further;
(d) i
any price; Pathway should be preferred to IBM unless IBM’s bid offers a
considerable price advantage.
6. RESULTS OF THE FINANCIAL EVALUATION
See fme x
ud 2 JELSl/)
Introduction
Full Life Costs
6.2.1. The results of the rglitive costs of ownership of the tend,
charges and differéntial costs attributed to make them
business woskloads are shown in Table 1. Thes
(NPV) forthe life of the contract discounte
also stows the outline costs, not disco
(comprising supplier
parable) for the best view
fe shown as net present values
6% and 12% per annum. The table
, for the roll-out and initial Steady State
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services (from contract award to February 1999) and the average annual costs for the
Steady State servigés.
ible I - Full Life Costs with Beyow Workloads
Arigures in £m Cardfink IBM Pathway
Full Vife Costs: NPV 6% 257m £992m £1041m
Difference (% of lowest) 27™% 0% 5%
Veull Life Costs: NPV 12%
Difference (% of lowest) 26% 0% 6%
Roll-out £242m Seosm I 238m
(total of 1996/7 - 1
£237m £183m =I £187m_
a ess in the aly state than
dyting roll-out, reflecting the fact that Pathway’s costs reduce year-on-year in both
joney and constant price/erms, while
Differences in the pri
sponsors as shown i
ing structure result in a di
ent split of these costs between
the following table:
Figures in £m Cardlink Pathway
Full Ljfe Costs: NPV 6%
BA/SSA 847
POCL 410
Total 1,257
6.24. The next sub-secjions drill-down to give explanation
sensitivity analyses
(d) conclusions of the financial
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6.3. Supplier Charges
1 on
6.3.1.
g structures b
Table 2 - Supplier Charges with Best View Workloads
Figures in £m Cardlink IBM, Pathway
Supplier Charges:
e NPV 6% 1,111 906 904
* NPV 12% wy I 708 14
ause their tender-Smitted
is required in order to calculate the price for the
option in their tender which is xearest to meeting the sponsor directots’ brief for the
“tendering exercise.
6.3. To illustrate the compésition of the suppliers’ chargesFigure 1 shows the total
charges for the comp6nent services over the life of the€ontract.
190d 42N10
aiqeinquny
004
Figure 1 - Composition of Supplier Charges (Average Year)
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6.3.5. Although @4rdlink’s charge: i i an the both of the other
Attributable Costs
¢ attributable costs fet each sponsor.
Table 3 - Attributable Costs
Figurés in £m Cardlink IBM _ Pathway
BA &SS, 6% NPV 102 53 91 -
12% NP 78 1 146
pec 6% NPV 44 33 46
‘% NPV 34 QgRST PTE: !
Total 6% NPV 1 86 Oa
12% NPV 112 67 105
6.4.2. The main cost areas included
(b) 5
(©) jets;
(d) _ differénces in contracted transa¢tion times,
J}
6.4.3.
f costs.
6.5. Sensitivity Analyses
6.5.1. Sgfhsitivities of the costso changes in key assumptionshave been tested. The
‘ollowing results are worthy of particular attention.
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tent Tact Volumes
Cardlink IBM Pathway
I 10% increase _ BA —- #3.1% BA —-+2.9% BA 43.2%
POCL -0.5% POCL -1.6% POCL 0.7%
Overall 1: Overall +1.0% erall +1.8%
IB -3.2% BA -3.3%
OCL +0.5%
POCL +0.7%
Overall -2.0%
Overall -1.9%
Pathway
+0.8%
6.5.6. *s pri g kér suppliers, also their
BA’s total charge in these
. In this scenario, charges
circumstances even though the BA volumes are lowe
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BAwould reduce by 2% for Cardlink, reduce by 1% for Pathway and increase by 5%
for IBM. POCL charges would reduce in all three cases, by 37% for Cardlink, by
35% for Pathway by 25% for IBM. Overall charges reduce by aro 13.5% for
ay and by 6.7% for IBM.
6.6.
marginally lower gst at best view vo}times but becomes more eXpensive at lower
volumes. Aboye 110% of best view the IBM price is uncerfain as they have not
provided prieing information.
6.6.3. I The IBM pricing structure aphieves an income guarantee for them of over 90%.
6.6.4. IBM has lower attributgble costs than the other4wo suppliers and this makes 4Ke total
ost of their offerAower than that from/Pathway. However, there e6uld be a
significant increas€ in the attributable cosfs as a result of the shift of burden of proof
of fraud to the Authorities which is stil/being investigated, and theye“are major down-
side risks as result of the lower fratid liability limit and the anpfial limit of £50m for
supplier’ s/iability in the event ofomplete failure of the service.
6.6.5. OverAll, therefore, Pathway/and IBM are clearly lowef cost options than Cardlink,
which is not only the mst costly of the offers bft also has the highest risks of
Subsequent cost incregsés as a result of price review triggers.
Pathway appears 46 be around 5% more cgsfly than IBM at best view/vorkloads, but
there is a greatef degree of certainty aboxt the Pathway prices thapAbout those of the
The With IBM’s limits on frafd and
géneral liability. IBM/7s“ position relative to Pathway may worsen as & result of
additional attributablé costs resulting from thechanged burden of progf6f fraud.
7 —— SS ——$—=$S>
1. THE VALUE ASSESSMENT AND FINANCIAL RESULTS
TA. Process
7.1.1. The treatment of Value Factors, including the weightings and sensitivity analyses to
be applied to the scores in the evaluation, is described in paper PWKP4-S5, issue 3.0
dated 30 November 1995 ‘Use of Value Factors in final evaluation & selection’.
This paper was agreed by the Procurement Board late last year and lodged the
Programme lawyers prior to receipt of tenders.
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F12:
The process of arriving at the Programme scores prior to receipt of tenders is
described in paper PWKP4-25 Issue 1.0 dated 11 March 1995 ‘Supplier scores in
respect of Value Factors’ approved by the Evaluation Board on 14 March. The pre-
tender scores themselves are contained in paper PWKP4-22 Issue 2.3 dated 20 March
“Programme Value Factor Assessment - 7 March 1996’ and associated papers.
The process for re-assessing the scores after receipt of tenders, together with the
resultant scores, was as described in paper PWKP4-33 Issue 1.0 dated 11 April
“Programme Value Factor Assessment - 26 March 1966’ approved by the Evaluation
Board on 19 April.
the
The table below shows the ee ee enon eat et should be
applied to the scores to represent the joint BA/POCL perspective of their importance,
together with the agreed ‘sensitivity’ weights to reflect each sponsor’s particular
perspective.
I Joint [ BA I POCL
Characteristics
1 Customer Acceptability I eres age I0
7 Flexibility 20 20 20.
9 Reliability and Support 20 25 1
6 Innovation — 15 lo I 29
2 Staff/ Agent Acceptability i] 15 15
Viability
3. Fraud-Free Method of Payment I 30 I 30 I 20 I
4 Credibility of Delivery 20 20 20
8 Management Capability 20 20 20
5. Start-Up pe od bes ea
10 Stability and Coherence 18 15 15
Note: underlined figures denotes changes from joint weights
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7.2.2. These can also be depicted by means of a ‘radar chart’. The optimum result for a
supplier is to achieve a large well-rounded shape, i.e. one in the upper reaches of the
scores with a degree of consistency throughout:
Management Capability
-o-Cardlink
Staff / Agent Acceptability ] I -o-IBM I
-= Pathway
Stability / Coherence
Figure 2 - Value Factor Assessment
7.2.3. Applying the pre-agreed ‘overall’ weights to the scores gives the results shown
below.
Cardlink IBM Pathway
7.2.5.
The results have been plotted on a grid (Figure 2) as envisaged in PWKP4-5 to
identify the suppliers according to their position in the financial evaluation and to
show their relative standing in terms of weighted scores against Characteristics and
Viability. Thus the identities of the suppliers on the grid are:
1 IBM
2 Pathway
3 Cardlink
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0 +4 #3)
Good:
Opportunity
&
a
Characteristics Ss 2
Good value, but .. High Potential
4
tsi aie tial Unacceptable : Solid, but ...
*0
Poor, ————————» Good:
Doubts Viability Sound
Figure 3 - Value Assessment Grid
8. OTHER AREAS RELEVANT TO THE EVALUATION
8.1. The purpose of this section is to consider two aspects that allow the results of the
contract assurance activity, the financial evaluation and the value factor assessment
to be considered in their full perspective.
8.1. Risk Transfer
8.1.1. Risk transfer was been considered throughout the evaluation and the results are
reflected in the contract assurance, financial and value factor reports. It was also
necessary to consider the degree of risk transfer achieved in relation to the
acceptability of the prospective contracts in PFI terms. Particular emphasis was
placed on the need for confirmation that ‘tisk had been transferred in the areas of
The assessments below have
taken account of discussions with Treasury and the PFI unit in a non-supplier
specific environment.
8.1.2. The suppliers’ position on five major elements of PFI compliance is summarised in
the following table:
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ahem Nace wher
CO AQT Fone List Tanefe pager
‘Supplier
Cardlink IBM Pathway PROLA
PFI Compliand halal
Requirement 5Eh
T Fraud Risk Transfer 7 7
Onus of proof on,
Authoriti are
—_— enge ur
Shes ba lor
for unactioned stop am.
notice.
z Commissioning 7 7 7
Risk in delays etc.
x Volume Change Risk x x 7 fe.
Requires volume verification I Requires 92% of revenue to I Relief for changes to e
at end of yegr I ofrollout. I be guaranteed. benefit frequency. This is KRaZy
el. acceptable.
7 Taflation x X 7
RPI-1% pa offered. RPI protected. Accept RPI increases upto I QL See
Charges will increase Charges will increase. 6%; share these above 6%
with Authorities.
x ‘Operate the system to agreed x 7 v
8.2.
8.2.1.
8.2.2.
Taking the three suppliers in anticipated order of acceptability:
It is expected that the prospective deal with Pathway would be regarded as PFI-
(a)
compliant;
(b) The position on Cardlink is less clear than that for Pathway, but it is thought
probable that PFI compliance would be accepted;
(©) ,
given the company’s position on fraud risk, the inbuilt RPI protection
mechanism and the high (90%) revenue guarantee.
Partnership Capability
As mentioned in section 3, the tender material was compared with the commitments
obtained at meetings with suppliers last year. In summary, Cardlink’s position was
unchanged, IBM showed some reduction in commitment an
However, all three suppliers continued to make a
i
satisfactory showing.
The review of the retenders showed no change from this position.
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9. ANALYSIS AND CONCLUSION
O14. The following group, which the evaluation team considered a suitable representation
in terms of function and organisation, met on 26 April to consider the results of the
evaluation and reach a conclusion:
. Dave Miller CNT POCL
. Pat Kelsey CNT BA/DSS
. Robert Albright CNT POCL
. Tony Johnson Demo/
Technical BA/DSS
. Stuart Riley Financial BA
. Keith Baines Financial POCL
912. It was assisted by:
. Hamish Sandison Lawyer Bird & Bird
. Derek Selwood Facilitator Kermon
. Nick Richardson Facilitator Kermon
9.3. The group considered the results from the various streams of activity feeding into the
evaluation:
(a) the Contracts Assurance review ranked the suppliers in the order Pathway,
onsidered that Cardlink should not be awarded the contract
at any price, because of its unacceptable degree of non-compliance with
contract requirements. Pathway should be preferred to IBM unless IBM’s bid
offered a considerable price advantage.
(b) i i iT ving considered both direct and indirect cost
implications,
fromthe standpoint of BA” and POCL: Cardlink were significantly more
expensive than these two.
(©) the Value Factor re-assessment had shown a close match between the three
I Sikes wn sa eli ee wn ot 8Sng CaaS
. On ‘internal’ factors covering the soundness in terms of servic
delivery (e.g. stability and coherence, fraud-free method of payment) the orde:
was again Cardlink, IBM and Pathway, with the first two being significantl
ahead of the third.
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(d) the Partnership Assurance review had concluded that all three suppliers were
judged to be satisfactory future partners with POCL in generating new
business.
(e) the Risk Transfer Assurance review had concluded that the deal with
Pathway would be regarded as PFI-compliant, that the position of Cardlink was
less clear cut but would probably be regarded as acceptable but that the IBM
position was thought to be unacceptable in PFI terms.
9.4. The group considered that Cardlink should be eliminated from further consideration
at this stage. It ranked first on the Value Factors and was thought to be PFI-
compliant, but was significantly behind the other two on costs and its bid was
regarded by the Contracts Assurance review as one that was unacceptable.
9:5. As to IBM and Pathway, IBM’s tender showed the lowest cost of service but the two
were sufficiently close to be regarded as equal on price. They were virtually equal on
the ‘external’ value factors, but IBM were clearly be
9.6. However, there w
ies. The Contracts review had
recommended that IBM needed a significant cost advantage to be preferred to
Pathway, and in doing so had drawn special attention to the IBM stance on fraud risk
transfer as being one which had previously been rejected by Sponsor Directors. The
Risk Transfer review had concluded that the IBM bid would not be regarded as
acceptable in PFI terms.
O77,
018, Whilst acknowledging the implications of selecting Pathway, the group considered
this a far preferable prospect to the consequences of awarding to IBM (in the unlikely
event of their being regarded as PFI-compliant), given IBM’s stance on fraud risk
transfer and other factors, most notably limited liability.
9.9. The group thereforé unanimously Concluded that it should recommend to the
Evaluation Board that any contract award should be made to Pathway.
10. RECOMMENDATION
10.1.
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ANNEX A - GLOSSARY
ACT Automated Credit Transfer
ARTS Association of Retail Technology Standards (used in context of
standard data models for EPOS)
CAPS Customer Accounting and Payments System
Card authentication The processes and systems that support the accurate identification
of cards.
Cardholder verification The processes and systems that support the accurate identification
of individuals using a card.
CIS Counter Interface Service
CMS Card Management Service
ECCO Electronic Cash Registers at Counters (existing POCL system)
EPOS Electronic Point of Sale
ESNS Electronic Stop Notice System, currently provided on ALPS
(Automation of London Post Offices)
IPR Intellectual Property Rights
ITT Invitation to Tender
OBCS Order Book Control Service, migrated functionality of ESNS to be
provided over the proposed POCL computer infrastructure.
PAS Payment Authorisation Service
SSR Statement of Service Requirements
TMS Transaction Management Service
Watermark Trademark of Thorn Secure Science (used to support card
authentication)
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ANNEX B - MEMBERS OF EVALUATION TEAM
Financial
Stuart Riley BA/DSS
Keith Baines POCL
Martin Gill PA Consulting
Ian Robertson PA Consulting
Daniel Ratchford PA Consulting
Guy Pigache Charterhouse Bank
Trevor Nash BA
Mick Jeavons POCL
Marian Ireland POCL
Bill Lavery POCL
Martin Vosper POCL
Stephen Woolley POCL
Mark Dunkley BA
Duncan Greer SSA
Dick Harber BA
Kevin Lawrence BA
Hilary Manning BA
Jan Martin BA
Brandon Walder BA
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Contracts
Dave Miller POCL
Pat Kelsey BA/DSS
Robert Albright POCL
Hamish Sandison Bird & Bird
Peter Elliott Bird & Bird
Technical/Demo/Requirements
Tony Johnson BA/DSS
Michael Berg PA Consulting
Colin Oudot BA
Jeremy Folkes POCL
Torstein Godesth POCL
Facilitators
Derek Selwood Kermon
Michael Purchase Kermon
Nick Richardson Kermon
Alan Fowler Kermon
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ANNEX C - DEFINITION OF PRE-ITT HURDLES
The definition is reproduced from paper PWKP4-8, ‘Pre-ITT Hurdles’
Any service provider invited to submit a best tender must have cleared a number of
“hurdles”. The Stage 3 work and the commercial assessments will assess whether the
following conditions are met:
(a) Service Requirements
The minimum service requirements acceptable to the sponsors as identified in
the requirements catalogue; this includes:
i. customer acceptability: make sure customers perceive no material
worsening in services from POCL; and the new benefit payment service
is likely to be acceptable to all customer groups who choose to be paid
their benefits at post offices;
ii. staff / agent acceptability: the services are likely to be acceptable to the
system users comprising BA and POCL staff and agents;
iii. fraud-free method of payment:
signi
iv. the proposed services meet the minimum requirements specified in the
requirements catalogue with respect a transaction
process & system response times, reliability and flexibility;
v. the provision of full accounting reconciliation and audit facilities,
consistent with recognised accounting practices;
vi. the provision of arrangements for making emergency payments in the
event of system failure; and ensure the financial impact and speed with
which full services are reinstated are acceptable;
vii. the ability to make one-off payments at short notice (within the service
levels specified in the requirements catalogue);
viii. the capability of the proposed systems (and services) to enable POCL to
automate all its clients products and to use automation to develop new
services in line with its greater commercial freedom;
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ix. provide for the automation of all post offices in some format, achieving
minimum levels of automated business within a reasonable timeframe,
ensuring the overall coherence and accountability of post office services;
x. _ the service provider has adequate management and technical capability to
develop and deliver the proposed services (ié) there) are noymajor »
}
(b) Partnership
The minimum requirements for partnership with POCL and the development of
new business opportunities (as described in the Prospectus and the SSR). This
includes ensuring that there are no major concerns relating to:
i. the ability of the service provider to support POCL in identifying and
prioritising automation options following the initial automated
transactions;
ii. the likelihood of the service provider developing a successful commercial
relationship with POCL, initially in the role of supplier to POCL with
potential to develop closer commercial ties leading to joint ventures if
appropriate;
iii. POCL retaining control of its commercial planning and the products
offered at post offices.
(c) Risk Transfer
Sufficient transfer of risk for an acceptable risk profile, in particular for the
fraud risks and system errors but also for the general service development,
operation and business volume risks;
(d) Commercial Aspects
i, an acceptable funding method and financial structure;
ii. acceptable financial guarantees in the event of catastrophic system
failure;
iii. satisfactory termination arrangements that avoid lock-in;
iv. agreement to a common charging structure;
v. POCL to retain control of its critical operational processes, and of its key
commercial relationships (e.g. clients and agents);
vi. no material damage to the Post Office brand.
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(ec) Service Provider Risk Register
No Category ‘A’ risks and an acceptable profile of other risks*.
(f) Contract
A draft contract acceptable to BA and POCL*.
* failure to meet any of the conditions (a) to (d) should trigger failure at (e) or (f); however, a
supplier passing (a) to (d) but still failing (e) or (f) for some other reason would not receive
the ITT
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ANNEX D - CATEGORISATION OF TENDERS RECEIVED ON 21 MARCH
A tender was either compliant or non-compliant. There were four categories of tender
covered by these two states:
Compliant
A tender which was fully compliant with the ITT and clarifications; the ‘baseline bid’ referred
to in para 3.1 of the ITT letter of 29 February.
Non-compliant - Variant
A tender offering ‘risk’ variants on the baseline bid. Should conform with the principles of
the Common Charging Mechanism but may show the effect on price per servicepoint of
variations on the allocation of risk. No limit on the number allowed. Referred to in para 3.2
of the ITT letter.
Non-compliant - Alternative
A tender offering an alternative tariff structure. Maximum of two allowed. Referred to in
para 3.3 of the ITT letter.
Non-compliant - Other
A tender which was non-compliant for a reason or reasons other than those specified for the
other two non-compliant categories.
Note:
For the purposes of the ITR and retenders, different terminology was used. A retender was
either compliant with the ITR or variant (i.e. not compliant with the ITR).
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