Examination of Witnesses (Questions 100
MONDAY 26 FEBRUARY 2001
100. You do not know how many are involved
and you do not know what the special arrangements are?
(Ms Lomax) No. We have a great deal more work to do.
We have two years before we get to the point at which we start
to move to ACT, and that is rolling out over two years beyond
that. A great deal of research and work needs to go into this.
101. You hope that the use of bank accounts
is going to reduce some of the risks of fraud, and I accept that
it almost certainly will, what increased risk of fraud will there
be following the use of bank accounts?
(Ms Lomax) The research we have done does not suggest
that people who are paid by ACT at the moment are particularly
different in their capacity to commit fraud. The risk that we
do need to take very seriously is less interaction with the customer
and the possibility of payment being paid into inactive or the
wrong bank accounts. We have quite a lot of money earmarked to
research that too.
102. Let me ask one final question, I think
it was Mr Oppenheim who said, "This was a project which was
vital to the smooth functioning of society", I may not have
your exact words, it was something of that sort, and the Chairman
complimented you on your evidence in saying so. Ms Lomax, if that
is correct, and I believe it to be correct, does that not mean
this sort of project is one which is never going to be suitable
for PFI, because you cannot transfer to the private sector, at
the risk of something going wrong, something which is so fundamental
to the functioning of society?
(Ms Lomax) The Department has always got to retain
responsibility for the smooth running of the business.
103. Therefore you cannot transfer the risk.
(Ms Lomax) Some risks can be transferred. What you
cannot do is completely transfer everything. The business risk
remains with the Department. In this particular case, I note,
although the NAO report did note there was no interruption or
any inconvenience to any of our customers, the Department did
successfully discharge that responsibility.
104. Good evening, Mr Oppenheim this is
difficult for you. You are a company that has, I think, multi-million
if not billion pound contracts with the Government; is that right?
(Mr Oppenheim) Yes, it is.
105. You have to maintain your relations
with government departments on a civilised basis in order to win
(Mr Oppenheim) Yes.
106. Before a Committee like this, which
is trying to tease out who is to blame, you would not want to
point the finger too much at people who you may depend on for
(Mr Oppenheim) You are right. It is a difficult question,
if you are inviting me to say, were it not the case, I would say
something different, then no.
107. I will not have the Chairman remind
you of your responsibilities here, because I am sure you know
them. You did say in answer to him earlier something which, I
think, members of the Committee found fairly astonishing, that
was, the requirements that were placed on you in this contract
and how it was structured were not clearly expressed by the DSS,
the DTI and others.
(Mr Oppenheim) Yes. I think that has
been identified quite clearly in the NAO report. There were a
large number of agreements to agree, some of those were quite
crucial in the design system.
108. That must have hamstrung you?
(Mr Oppenheim) Yes.
109. Are you saying that the DSS did not
know what it wanted?
(Ms Lomax) There was a lot of clarification needed
right across the piece.
110. Give me an example of that?
(Mr Oppenheim) The determination of the rules for
benefit encashment would be one.
111. That is how somebody is claiming social
(Mr Oppenheim) Let me explain, not claiming Social
Security, this is all to do with encashment. There are some very
complex rules as to precedents and limits of the amount that can
be paid in one go. There are limits to how many so-called foreign
transactions you can make at post offices other than your post
office, your nominated post office. There are complex rules about
proxies and other kinds of agents.
112. These were paper rules previously,
(Mr Oppenheim) Yes, they were. As we now understand
it a lot of those are enshrined in various regulations which,
it turns out, the Department need to adhere to.
113. Your phraseology there says a lot,
were you not given an indication that here was a manual that the
Department had to adhere to and you would be required to do it
as well? (Mr Oppenheim) There was no manual.
114. There was no manual provided to you,
why would that be?
(Mr McCorkell) The situation we are talking about
here is one where the difficulty is that when you are going to
an entirely new system the contractor, the supplier, in this case
ICL Pathway, would wish to make a set of assumptions on the business
rules that will apply and that will simplify the overall system.
115. I do not think you have grasped the
point. I think if Parliament and/or the Department has got manuals,
and I have seen them, and these are not handed over to the contractor
who is designing the software you are heading for a disaster?
(Mr McCorkell) Those manuals, if they were to help
the process, could have been handed over. During the process of
doing the detailed development of the requirement the precise
rules were handed over.
116. My question was, was that an example
of what did not help the process? We have established that did
not help the process.
(Mr McCorkell) I am trying to explain what it is that
did not help the process. We started with a set of rules which
could have been handed over and the contract would have to design
something which met that set of rules based on paper methods of
payment when we were going to an electronic method of payment.
What we wanted was an electronic method of payment and a set of
rules that would fit the electronic method of payment. What we
found when we got to the detail was that there was certain things
that were enshrined in legislation and hence we could not change
it, even though it might have been simpler to change it, or where
there were customer service aspects we felt we could not accept.
That was part of the process of attempting to simplify the system.
Again, it was PFI philosophy, he has the right to make assumptions
if this can be made much simpler. When you get to the detail you
find we cannot make it that simple.
117. This is nothing to do with PFI. This
is to do with the fact that when the minister made a statement
in 1994who was the minister then?
(Ms Lomax) Peter Lilley.
118. When Peter Lilley made the statement
in 1994, months, if not years, went by with the DSS not, apparently,
knowing what was legally required by Parliament of them, and handing
that over to the contractor, but saying, "The contractor
might come up with a better system". If the contractor spends
£180 million he had to write off developing a better system
we could have come along and said to them, "We did not bother
checking before". That is what you just told us.
(Mr McCorkell) What I am trying to tell you is that
the process that was agreed was we would work on the basis of
a high level business requirement, work that down through the
detail and then find out the problems we were getting at a detailed
level. You are quite right, the Department has lots of sets of
rules, manuals and manuals and manuals of them. I think to give
those over to the contractor, and to go through a process that
goes through every single one of those and check it would stretch
the procurement process, bearing in mind this is costing the Department
and the contractor lots of money, and it would delay the eventual
implementation of the project and would take forever. Look at
what you need to change. Some of the things you would like to
change you find you could not change, and that causes difficulties.
119. You would have known from day one what
you could change and could not change. The contractor was not
(Mr McCorkell) We would not have known from day one
what we could and could not change throughout a massive set of
rules and regulations.
5 Note: DTI was not, in fact, a party to the contract
referred to. Back