Select Committee on Trade and Industry Minutes of Evidence


Examination of witnesses (Questions 61 - 79)

MONDAY 14 JUNE 1999

MR JOHN BENNETT and MR GEORGE HALL

Chairman

  61. Good afternoon, gentlemen. Who would like to do the introductions?
  (Mr Bennett) I am John Bennett, the Managing Director of ICL Pathway and George Hall is Director of Public Affairs working for the ICL Group.

  62. Thank you very much. The programme was running three years late and would not have been completed until 2001 instead of 1998. What was the reason for this? We have just heard that Camelot were able to institute an on-line lottery within a very short time. What is the problem with you guys? What is the difficulty?
  (Mr Bennett) Can I say that ICL was involved with the National Lottery roll outs so we have first-hand experience of that and did that successfully.

  63. Why were you able to do one and not the other?
  (Mr Bennett) We have just completed a fairly exhaustive and lengthy series of reviews on the Horizon programme and of course the Horizon programme has a substantial element of Pathway contribution in it, but obviously it involves both the Benefits Agency and the POCL, so all three partners are involved in Horizon. The reviews have been completed. One factor which came out throughout that period was that there was full endorsement of the technology which ICL was providing for this system. The delays were not driven directly by the technology. In fact, the benefit card system with that element of it has been running successfully since September 1996. If I was coming back to pull out two factors which perhaps have driven the complexity of the programme, I would say, first of all, that all three parties when we started this programme and the contract period in May 1996 found there was more work to consume than we had had a reasonable expectation of and that work has taken time to bring about and most of that was thoroughly reviewed during the reviews we have been through. One other factor which we have talked about when we have had other discussions around PFI contracts and this one is that while this contract was set in the first days with one contract to two customers, which is an unusual symmetry, so we have both the Benefits Agency and the Post Office Counters and both do have their own business agendas which are not always exactly the same and that has caused quite a lot of demand and challenge for all parties. So I think I would reply, Chairman, on those lines.

  64. Basically what you are saying to me is that the Post Office Counters were quite keen but the Benefits Agency were not really interested and tried to obstruct it at every turn. Is that an over-exaggeration or is that a reasonable summation?
  (Mr Bennett) That was not what I was saying and it is not what I would say.

  65. Is that a reasonable conclusion for me to draw?
  (Mr Bennett) It is not the facts I would present. I would present the fact as this was a challenging programme for all parties and that has been with us for quite some time. I think in terms of the way the review was completed and I think some of those issues have been resolved, we have now drawn a line under the past and have drawn the way forward and the way forward with ICL working very closely with Post Office Counters is the structure which will work very well looking ahead.

  66. Did you get the same amount of co-operation from both parties? Did you get the data that would enable the CAPS to be integrated? Were the Benefits Agency able to provide you with all of the data that you required?
  (Mr Bennett) I think the facts are that in the early days the Benefits Agency was unable to provide the data and the interfaces we needed, which we expected at the contract time, I am talking about May 1996 now. We were expecting full access to the CAPS in September 1996 for testing purposes and the fact is that it was not available September and it has been available progressively since that time.

  67. The data was not available in the manner that the original contract had envisaged, is that correct?
  (Mr Bennett) We had to sit down with the Benefits Agency and look at the issues we were facing and re-plan how we could work together to meet each other's obligations and meet the timescales.

  68. Why was that? You signed the contract in May but by September it had become well nigh impossible to meet the timescale that you had set yourself, what was the reason for that?
  (Mr Bennett) I think in truth, as I was trying to say earlier on, all parties had fairly ambitious targets for achieving the forward development of the programme and that was one component which had to be looked at afresh and in the round.

  69. I understand, maybe you can correct me here if I am wrong, you had to require the Benefits Agency to agree in writing that they would make the information available. Is that an unusual step when you have signed a contract in good faith? Is this the way you normally do business with Government departments?
  (Mr Bennett) If I try and stay with this particular contract, it is certainly the case that because of the dependencies we all had on each other, we had dependencies on the Benefits Agency, they had dependencies on ICL, and similarly with Post Office Counters, that we did in the contract construct how those obligations should be measured and should be delivered. It was quite clear that a key component for this contract was a good connection between ICL and the Benefits Agency and therefore it was not unusual to define one of the shared obligations as how we would connect and work together. From that point of view it was a right and proper thing to do in the contract and not unusual for a contract which had such inter-dependencies within it.

  70. You still had to get them in writing to agree to provide you with the information over and above what you had signed up for in the contract, is that the position?
  (Mr Bennett) No, there were contract schedules which laid out the obligations on various parties and there was a contract obligation on the DSS that set that out.

Mr Laxton

  71. I have just been listening to your response and I have spent a bit of time elsewhere looking at computer projects and various things that go wrong. I have to say, sorry, I do not necessarily want to get into a blame culture as such but you know always with computer projects we hear these words coming out "over ambitious", "challenging", "having to review the process". Simply, can you put together simply, what has gone wrong with this project? The sheer length of the overrun. You have said yourself right at the beginning that the technology was in place. You experienced it with Camelot and you have been involved in that project, the technology in there. What went wrong? Who, when you get down to it, is responsible for cocking up this whole process, if I can put it that way? If I can put it bluntly, I am looking for a blunt and a specific answer from your point of view? I just got this view that everyone would be going "Not me", "I am not guilty" or maybe we are trying to attribute and shift blame here and there but at the end of the day when we conclude this process we will probably sit down and have a look at everything that is written up and say: "Hang on, we are still no clear as to what went wrong and why it went wrong".
  (Mr Bennett) I have to echo some of the comments I have made so far that this is probably one of the most technically demanding projects of its sort we have seen and you will see anywhere across Europe. It did require three parties. The complexity was greater than people anticipated. We did have to sit down and do the replans. We had to work together on the shape those replans should take place and that has been done in good working relationships between the three parties. The nature of the reviews, the Treasury's reviews, was to try and bring about through those debates what was the best way forward for everyone. The conduct of those reviews was forward looking, it was concerned about making sure the case was sound for all parties, it was clear to try and work out where there were technical issues which each individual had to address and it did avoid it being a question of it was not a blame culture review, it was looking at the programme across the piece and how everyone could contribute towards it. That is how it ran, that is how it has completed and that is how we now need to move forward.

  72. But it is a hell of a mess. Let us be frank about it, lots of money, we are not talking about a bit of loose change here, we are talking about large sums of money that have got to be met from somewhere and I mean those are the issues that we will be asking perhaps of other people who we will be examining as to where that money is going to be found, for sure. It is one hell of a mess, would you not agree with that?
  (Mr Bennett) I would say that the work I have seen going on this project, I have seen many Government projects over many years, the quantity and quality of the work put in by all parties on this, is as high as I have seen. In terms of effort and determination that has been extremely high. You mentioned the point about funding and I think you may well know that ICL in its last year's annual accounts has taken a £180 million provision against this contract, recognising the abortive costs we have incurred in delivering the payment card element of this system. I think in terms of paying then ICL and Fujitsu have taken a substantial write off in its accounts recognising the withdrawal and loss of this element of the Horizon system.

  73. Could I just then ask one final question. Again in listening carefully to what you have said, there has been a very high level of commitment, everyone has worked extremely hard and diligently to make sure it works. Is this a project, are you saying to us, that is just so large and just so complex that it is almost like what I would term Mission Impossible, let us walk away from it because there is not the capability technically—
  (Mr Bennett) No.

  74.—in other words to deliver it?
  (Mr Bennett) I do not think there has been a technological or technical issue with a programme of this size. It is large scale but the technology is manageable. I think if anything it has pointed out the programmes of this sort need to be managed in a careful manner. I would echo it is my strong view that complex projects like this need one customer and one supplier and that is a very important relationship. When you start adding multiple customers or indeed multiple suppliers for the contract then you do increase the complexity and you do make it much more difficult to manage. I think there are management lessons perhaps to learn but from a technology point of view I think the technology has proved to be extremely robust and applicable. I think listening to some of the other evidence you have seen some of the comments about it.

Chairman

  75. Surely the problem of the conflicting interests of the customer, the two customers, as it were, ought to have been obviated by the establishment of the programme delivery authority? Did they not provide the kind of single focus that one could have anticipated that a single body representing both customers would have done?
  (Mr Bennett) I think the programme delivery authority, the PDA, first of all started out with the right intentions to deliver on behalf of the two sponsors a clear focus but in the event grew to quite a large organisation, 140/150 people. I think the difficulty they had was speaking with a decisive voice on the decisions which needed to be made. In fact, the management truth of that meant that the PDA when it had to make decisions had to really go back and try and broker decisions back with two sponsors. So they did not have executive authority. The outcome of one of the earlier reviews, which was towards the end of 1997, was to reflect that the PDA was not the appropriate delivery mechanism but indeed the programme should be managed from Post Office Counters, who really were the real client of this system. This is a system to help them with their business, with their clients, in their network to their customers and so there was a movement which took place in early 1998, in fact moved the management responsibilities for Horizon very clearly with Post Office Counters and that came out of the earlier review and I think that was both the right decision and has proved to be a good decision.

Mr Berry

  76. Can we move on to cards, largely because we are not going to make, I suspect, much progress in pursuing that particular aspect further. The Government is basically saying that the strip card is an outdated concept, do you agree?
  (Mr Bennett) No. The use of magnetic stripe cards for systems like this is common place today, it is in solid use today and has worked well in the time it has been in use. If I come back at it another way, we have had a discussion about smart cards and I think we have all recognised for quite some time that the future would move more to smart cards the magnetic stripe cards. Indeed, during the procurement phase of this project in 1995 we did recommend to the Benefits Agency that a smart card might be the right thing to start with rather than the magnetic stripe card. The view was that the magnetic stripe card would be quite adequate and what we built into the contract was the possibility to migrate to the smart card when the economic, political and technological factors added up and in order to make sure that happened we have ensured that the network was always smart card enabled from the very beginning. Today we have 300 post offices live and 750 counter positions live. Each one of those counter positions has the capability to read and use a smart card. In fact, smart cards are in use today in those 300 offices, albeit they are used mainly for the sub postmasters and the post masters to introduce themselves for security reasons to the system, but later on smart cards will be used. We talked about utility payment systems. There is no doubt that the utilities will increasingly implement smart cards and when they do the infrastructure today is built for smart cards to be used. So the infrastructure, if I could describe it that way, has been designed to take smart cards. It then depends on the clients, the Benefits Agency, utilities, DVLA, to determine whether they want for their customers to have a magnetic stripe card or a smart card. So the system we have built for the Post Office enables both technologies to be used and it really then depends on the end client as to which one he wishes to have. It was a decision of the Benefits Agency that they wanted a magnetic stripe card at this stage of development.

  77. Are you selling similar systems elsewhere?
  (Mr Bennett) Smart card systems in ICL we sell all over the place. We have a very big industry in financial services. We have a lot of presence in the United States.
  (Mr Hall) Fort Knox.
  (Mr Bennett) We are probably one of the largest deliverers of smart card systems around the world in different markets.

  78. And everyone else wants the smart card system. Have they gone through these trials and tribulations of spending quite a few years wondering which system they want or have they gone straight for a smart card?
  (Mr Bennett) The magnetic stripe system is still a well used system around the world today. What we find, of course, is that what people want to do is they want to move to a position where on the smart card they can offer multiple services. So I think it is really a question about whether you want the customer to have many services. It is one of the factors which helps you to deal with the economics of moving up to a smart card. Picking up the picture about modernising government: I think the view we have always had in ICL is that we would like to work with the Post Office to introduce a smart card because then we could use that one card with one member of the public for multiple services and, indeed, the benefit payment card could have fulfilled that transition, although, of course, that is not the way forward we will be progressing now.

Mr Hoyle

  79. You refer to a new fixed price contract with the Post Office to run until March 2005 presumably for smart card technology. It is a new contract, is it not? Subject to contract, do you have a clear idea of what this is all for?
  (Mr Bennett) We have taken the original contract and we have revised it in two ways. The first revision is to extract out of it all aspects for the Benefits Agency. So one major revision is to remove all Benefits Agency activity from the contract and that is a major part of the revision. The second revision is to recognise that we are moving the contract somewhat away from the original PFI terms of a transaction fee income. In the original contract we would be paid only when a transaction took place across the counter. With the removal of the benefits payment card those transaction volumes are lower but more difficult to predict, so we will revise the contract to look much more towards a fixed payment structure for the services as opposed to a transaction fee income. The base contract is still the start point and we have overlaid these revisions on top of it and that work is in hand now and should complete around the middle of July.


 
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