Examination of witnesses (Questions 61
MONDAY 14 JUNE 1999
BENNETT and MR
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
(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
(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
(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
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
(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.
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
(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
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
(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.
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.
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.