Examination of witnesses (Questions 360
- 379)
WEDNESDAY 29 JULY 1998
DAME ANN
BOWTELL DCB, MR
STUART LORD
AND MR
GEORGE MCCORKELL
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.
Chairman
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) ***
Chairman
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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