Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 360 - 379)



  360. But who has the copyright now of that database once NIRS 2 is running?
  (Mr Lord) Well, we might get out of our depth here. I think probably the position is that Andersen's are looking to commercially exploit the sort of technology they have demonstrated that they can deliver, fingers crossed, but in terms of our capacity to carry on using this facility, there is no doubt about that and there is no question of us not having access to that type of system when the contract expires.

  361. As I understand it, NIRS 2 will be the world's second largest single database which governments, like the South African Government, are very keen on purchasing. Now, if they wanted to purchase that, they would not go to you, but they would go to Andersen's?
  (Dame Ann Bowtell) By purchasing the database, do you mean the actual information?

  362. The software which was behind that database, the intellectual property.
  (Dame Ann Bowtell) Well, this is all Andersen's. Because Andersen's developed it, it was PFI, it is theirs. They did develop it, so it is not ours.

  363. If you would like to look ahead to what NIRS 2 will deliver once it is up and running, I understand that the contracting out employments group, just the administrative costs of that in the last year were £10 million, and, similarly, when I put down a written question and asked how much would it cost to provide every pensioner or everyone who pays into National Insurance contributions an annual statement of their accrued entitlement, I was told that it would cost something like £30 million a year, which, when I showed that to the insurance industry, they thought that someone really had plucked that figure out of the air as they did not want to do it. Now, how would you project those kind of administrative costs to be affected once NIRS 2 is running?
  (Dame Ann Bowtell) I do not think I know the answer to that particular question. My guess is that the way the contributions record works may be a lot more complicated than what the insurance industry are trying to provide, so I would need to let you know.

  364. Could you give us a note? It would be very interesting to know in terms of if this is a modern service, then what are the costs of pushing for things.
  (Dame Ann Bowtell) In terms of what the system will give us, we could not run the 1995 Pensions Act without it. It gives us the age-related rebate capacity which we could not have done on NIRS 2 and it gives an on-line access to the staff for information. The Contributions Agency was incredibly antiquated before it got this. This computer, because it was one of the very early computers, we then never did anything about it because we were all busy developing new systems in other ways. They have now got things like copies of people's accounts which they can get in seconds which used to take 24 hours, they have on-line access from the Benefits Agency, so they can also get access quickly to people's records and we have a proper accounting system which we did not have before, so it does give us an enormous amount and it should enable us to give a better service.


  365. But London and Manchester Life Assurance have said that their results have been affected by the disruption. You seem to be saying that you think you have got the project more or less bedded down, but how long are we going to read stories like the one in The Independent yesterday? Presumably if that affects the results, it might affect the value of the company and they have a claim against you.
  (Dame Ann Bowtell) I am very surprised that they should take that line, that it could have had that big an effect on them so far. I think it is possible that in some of these areas we are going to have to have a look, where the payments are really late, at whether there is actually a case for compensation because obviously if we have held on to payments which people ought to have had or which ought to have been invested on their behalf, then there is a liability on us, but everything depends on how long it does actually take us. These things always take us quite a long period, you see, so they would not expect to get them mostly now. The area which has been delayed for quite a long time is the schemes cessation area and it may be that that is where the difficulty on this is coming, but it may be better if I let you have a note on that.

  366. Perhaps we could turn for the last ten minutes to the benefit payment card. Please tell us what you can about where we are. The project, we all know, is two years late. There is speculation that the costs have risen in that time and there is obviously quite a lot at stake. Some of us were able to go and see what the system was able to do earlier this week and, speaking for myself, I was suitably impressed about the facility and also the timescale in which it is working, but what are the problems from your perspective?
  (Dame Ann Bowtell) Perhaps we should start there because what you saw was the thing which is working in 200 offices with 27,000 clients, and we are talking about a system which can work in 19,000 offices with 18 million clients. The system that you saw is not capable of being rolled out to all those offices, it does not have a lot of the back-ups that we would require, there are a lot of fraud things which are not in there now and there is no contingency in there now, and it is not capable of making urgent payments. There is a whole series of things which it cannot do, so that bit cannot be rolled out. In order for it to be rolled out, we need another release which has got all of these things in it and that, even on the present timetable, is not going to be ready until January 1999.
  (Mr McCorkell) At least January 1999.
  (Dame Ann Bowtell) At least January 1999 and probably later, so it is not true that you can just press a button and roll out what you saw. I agree, it looks very attractive, does it not? As a piece of kit on the desk, it looks very attractive, but they have not put in behind that a lot of the things which are essential if you are going to run it out on this basis. They are still doing tests of things that go astray and even with these 200 post offices, they have got quite a lot of things that they cannot reconcile and maybe where they are making duplicate payments. Did you see the receipts coming out?

  367. Yes.
  (Dame Ann Bowtell) Well, they discovered that if you tear that off too quickly, before it has stopped, it does not register the payment, so the next time you go in, it pays you again. Those are things where you cannot test it and you have got to try it out, so it is not true that that is ready and they have got a lot of work to do before they can actually roll some thing out.

  368. Is that why the Financial Times story indicated that Ministers were fundamentally reviewing the whole project?
  (Dame Ann Bowtell) The point we have got to is that we have had a big replan of the project in February 1997. The contract was signed in 1996 but it had become clear that there had been an underestimation of the size and complexity of this thing, so a replan went in and we kind of started again with a clean slate, everybody.

  369. In 1997?
  (Dame Ann Bowtell) In 1997, yes, in February 1997. On the basis of that, we were supposed to start national roll-out in January 1998. That began to slip almost straightaway and the position now is that nobody thinks we can have national roll-out before the beginning of 2000, George, or probably later?
  (Mr McCorkell) The earliest is likely to be January 2000.
  (Dame Ann Bowtell) So what is happening is that it is just taking ICL a lot longer. I do not think there is any doubt that in the end this thing will work. Well, I have some doubts.
  (Mr Lord) Doubts have been reduced recently.
  (Mr McCorkell) We believe that technically the system, as designed, can provide a function and, therefore, will work to that extent. There are obviously question marks about basically fitting it into the total Post Office environment, and that is a different question, but from a technical systems point of view, we believe that it can be made to work.
  (Dame Ann Bowtell) So that is ICL taking much longer than we had expected. The other cause of our concern is actually the post offices because this is huge. There are 19,000 outlets and they have got to train 70,000 staff. Now, when we did JSA, which was the biggest thing we ever did, we trained 30,000 staff and these are sub-postmasters, these are not their own staff under their control, and we do not think that all the post offices have actually got the management capacity to do this as they are organised at the moment, and what has been happening over the past year has not given us any confidence that they are really able to get to grips with it. So we have these two worries. The third thing, I suppose, which is around for us is that as the project slips, our costs mount because we are having to carry on with our end of the project. The savings we shall get from it, which are administrative savings are balanced by the administrative costs, though there are big savings in fraud savings. But of course as the length of the project shortens, because it is supposed to end in 2005, we get less and less of those. Also the world moves on and a payment card system which looked a reasonably sensible thing to do in 1993 when the planning on this first started begins to feel pretty odd because banking outlets are available everywhere, you have got the supermarkets going into banking, you have got ATMs everywhere, so, from our point of view, the payment card actually looks a bit old-fashioned. From our point of view, the best answer would actually be payments into bank accounts and if we want to use post offices, the post offices could actually have some kind of banking facility where people can just put their card in at the post office and get their money out. So that is how it looks from our point of view. As the project got delayed and delayed, the Benefits Agency, who are accountable for it, were really beginning to say, "This can't go on", and when we got to that stage earlier in the year, this Treasury review was set up to take stock of the whole project and to see whether it was going to be technically viable and whether there was any other way forward. Our current position is that that review is just reporting to Ministers and Ministers are now going to have to make some decisions about what they want to do.

  370. In weeks, not months?
  (Dame Ann Bowtell) In weeks, not months, as far as we are concerned because the accounting officer is Peter Mathison, the Chief Executive of the Benefits Agency, and his accounting officer position is difficult. One of the problems is that it is we who carry the can, as it were. I suppose ICL is also doing so, but it is mainly we that have the problem and while this is going on and delay is going on. *** ACT is in pence and all other methods of payment are far more expensive than that, so the more uncomfortable for us it feels. The problem for the Government of course is the Post Office network, that it wants to maintain the Post Office network and a third of the Post Office network income comes from us, so that is where we are.

  Chairman: It is as straightforward as that, is it!

Mr Leigh

  371. I can remember that with the last Government there was this constant internal battle between the DTI, as responsible for the Post Office, and Social Security. I do not know how that was resolved, but I am deeply worried, as a Member for a rural constituency, that already every year three or four of my sub-post offices are closing down and they are under huge threat. I know you are not responsible for post offices, but I just wonder what the latest state of play on this is and how are we going to keep these post offices open because they are a vital fabric of the rural community?
  (Dame Ann Bowtell) Well, there is a review of the Post Office going on at the moment, as I suspect you know, and the decision on this project will be taken collectively, so it will be taken not as what is best for the DSS, but what is best overall. The Government have said that they are committed to people being able to get benefits from their post office.

  372. I liked your comment about people just being able to get it from the local rural post office with their card. Presumably some work has been done on that. What that means for staffing is that you do not really need any staff, do you, but you just have a cash box?
  (Dame Ann Bowtell) Well, if they were running banking facilities, they would have something else there for people. Part of this automation, the appeal of it for the Post Office is that it gives them lots of other capabilities besides just the payment card. Whether that sort of capability will really be developed in the small, rural post office, I do not know, but that is the appeal of it and that is why they are getting it, and the ability to do lots of other business and if that is going to give them a launching pad, as it were, that is quite important.

Ms Stuart

  373. Did you tell us how much you have spent so far on the ICL project?
  (Mr Lord) I do not think I have a cost so far.

  374. Roughly, to the nearest tens of millions.
  (Mr Lord) Is it worth quoting the net administrative costs associated with the projects which at the outset we put at about £250 million and on the timetable to which the Benefits Agency has recently been working, the cost goes up to about £430 million, and there are fraud losses slipping away as well.

  375. How much have you paid to ICL?
  (Dame Ann Bowtell) We have not paid ICL anything within the PFI. ICL do not get any money until it starts working.
  (Mr McCorkell) Can I make a very slight correction to that? Obviously the 200 offices are processing child benefit for currently 20,000 people and we paid ICL the transaction charge, but it is a very small amount of money.
  (Dame Ann Bowtell) We are not paying them the development costs.

Mr Pond

  376. I was wondering if there are any penalties built into any contract with ICL. If you were to pull out, would there then have to be a payment to ICL to compensate them for the fact that this is a DSS or a Government decision to pull out of the project?
  (Dame Ann Bowtell) ***
  (Mr McCorkell) ***


  377. ***
  (Dame Ann Bowtell) The result of a termination would be a long negotiation, a long, nasty negotiation which would probably in the end result in some sort of out-of-court settlement because that is what tends to happen.

Mr Pond

  378. Is there any idea about the scale of a settlement out of court? This is important, Chairman, because presumably somebody is thinking that if there is a consideration about whether or not the DSS should continue this project, someone is able to give Ministers some sort of indication of the total scale that it might be in terms of costs.
  (Dame Ann Bowtell) I think that the best judgment probably is that it would cost us money to do the thing and it would be surprising, given a claim and a counterclaim, if we ended up getting much off ICL because that is the way these things go.

Mr Goggins

  379. To seek clarification, you said that no payment had been made at this point in time ***
  (Dame Ann Bowtell)***
  (Mr Lord) ***

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