THIRD REPORT
The Committee of Public Accounts has agreed to
the following Report:—
THE CANCELLATION OF THE BENEFITS PAYMENT
CARD PROJECT
INTRODUCTION AND
SUMMARY OF
CONCLUSIONS AND
RECOMMENDATIONS
1. In May 1996, the Department of Social Security
(the Department) and Post Office Counters Ltd jointly awarded
a contract to Pathway, a subsidiary of the ICL computer services
group, for delivery of the Benefits Payment Card. The project
was intended to replace by 1999 the existing paper-based methods
of paying social security benefits with a magnetic stripe payment
card, and to automate the national network of post offices through
which most benefits are paid across Great Britain and Northern
Ireland. The project was vast in its scale and complexity, and
estimated to cost some £1 billion in payments to Pathway.
It was also one of the first information technology contracts
awarded under the Private Finance Initiative (PFI). Figure 1 outlines
the key statistics of the project.[1]
Figure 1: Key statistics of the Benefits Payment Card project
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Estimated contract value, (Payments by Department and Post Office):
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£1 billion, net present value over 7 years
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Number of post offices to be equipped:
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Up to 20,000, with 40,000 counter points in Great Britain and Northern Ireland
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Number of post office staff to be trained in use of the system:
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67,000 staff, serving 28 million customers per week
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Number of social security benefit recipients to be issued with Payment Cards:
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17 million, claiming some 24 different benefits
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Number and value of benefit transactions:
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In 1999/2000 some 760 million payments worth £56 billion were made through post offices
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2. The project suffered delays and in May 1999 the
government decided that removing the payment card from the project
was preferable to continuation, and offered better value for money
than complete cancellation which would prejudice the early automation
of the Post Office. The Comptroller and Auditor General reported
that cancellation of the benefit payment card had cost the parties
and the taxpayer upwards of £1 billion in abortive costs,
the write down of assets and delayed reductions in benefits fraud.[2]
We therefore examined the lessons to be learned from the Benefits
Payment Card project, and the alternative arrangements now being
developed for paying benefits. We took into account the report
of this Committee's predecessor, in January 2000, on the lessons
to be learned from the implementation of more than 25 IT systems,
and the Government's response.[3]
3. In the light of our examination, we draw three
overall conclusions:
- Successful delivery of innovative and complex
projects involves risks that need to be identified and managed.
This project had special features that added to its risks; notably
its status as a pioneering PFI project and the need to join up
the systems of two purchasers with differing business objectives.
While various parties identified many of the risks at various
stages, they underestimated the difficulty of attempting to tackle
a huge and complex project, at the heart of improving benefit
delivery and Post Office automation, in one exercise using relatively
untried PFI arrangements. There were also many basic project management
failures, which mirror those referred to in our report in January
2000.
- The improved arrangements developed by the Treasury,
the Central IT Unit and the Office of Government Commerce for
managing PFI and IT Projects should go a long way to preventing
similar failures in future. For example, similar projects would
in future be broken down into more manageable modules and would
be subject to independent reviews at key stages. Success is crucial,
especially for the Department, which has embarked on a fundamental,
challenging and innovative programme of investment in new information
technology to modernise the delivery of benefit. In view of the
Department's track record on IT, we remain sceptical about their
ability to deliver. The Committee will consider further their
progress as systems come on stream.
- When projects go wrong, management should face
up to the prospect of failure and take prompt decisions to avoid
abortive costs. Decisions in this case were complex, involving
a number of Departments, Post Office automation and its future
business streams, and ICL's proposed flotation. It took 18 months
from the point where the Department took steps to preserve its
right to cancel the project, to take the decision to do so. Meanwhile
abortive costs were rising and development of alternative arrangements
was stalled.
4. Our more specific conclusions and recommendations
are as follows:
On lessons to be learned for future major information
technology projects
(i) All the parties seriously underestimated the
complexity of the project and the risk of attempting to tackle
such a challenge in one go using relatively untried PFI arrangements.
They failed to achieve a shared understanding of what was to be
delivered and how, and the barriers to innovation contained in
benefit rules. The other major factors included inadequate contracting
and project management skills, and lack of clear ownership of
project delivery and risk management. These mirror many of the
failings referred to in our predecessor's January 2000 report
on lessons to be drawn from IT projects (paragraph 22);
(ii) Pathway was selected because they were willing
to take on a level of risk for preventing benefit fraud which
the other two bidders would not accept, even though Pathway came
third on 8 out of 11 technical and management criteria. At the
time, there was a mistaken view that PFI bidders should compete
on the level of risk they were prepared to take on, rather than
achieving an optimum allocation of risk (Paragraph 23);
(iii) The various parties identified many of the
risks at various stages, but did not always share this information.
Risks were "cleared" without justification, and "cleared"
risks were not well monitored and so re-emerged (paragraph 24);
(iv) Joined-up projects involving more than one
purchaser carry extra risks, and steps need to be taken to establish
clear leadership in purchasing and project management, and transparency
of information between the various stakeholders. The Department
and the Post Office took some steps in this direction during the
project, by revising the project management arrangements. The
McCartney report recommends one single responsible owner for each
major project in future; but the Benefits Payment Card also demonstrates
the delays and extra costs that can emerge when decisions on the
future of a project involve many stakeholders with conflicting
objectives, in this case, for example the Department, the Department
of Trade and Industry, the Treasury and the Post Office. (paragraph
25).
On the outcome of the Benefits Payment Card project
(v) Cancellation of the Benefits Payment Card, at
a cost of over £1 billion in lost fraud savings, nugatory
expenditure and write-down of assets and costs, must rank as one
of the biggest IT failures in the public sector (paragraph 31);
(vi) Both the Department (through its linked project
to computerise its Customer Accounting and Payments System) and
the Post Office (through its automation project, now nearing completion)
claimed to have obtained some value out of the Benefits Payment
Card project. But the Customer Accounting and Payments system
was a separate, though linked, project, and £127 million
of its cost may be wasted. In addition, some £571 million
of the Post Office's investment in automation has already been
written off (paragraph 32).
On developing new arrangements for paying benefits
(vii) In principle, the arrangements for payment
of benefits through Automated Credit Transfer from 2003 should
provide a more modern, efficient and secure method of paying benefits
and deliver significant administrative and fraud savings. It is
important, though, that these arrangements are developed with
the customer in mind, in terms of access to their benefits through
post offices, and continued access to cash payments if claimants
so desire. The Department will need to communicate the new arrangements
to claimants clearly and effectively (paragraph 39);
(viii) Arrangements are in hand to create a Universal
Banking service, to provide claimants with a post office card
account, basic bank accounts, and better access to current accounts
at post offices. These arrangements are likely to require public
money, government guarantees, or both, and to cover benefit payments
of many billions a year. The Department, along with the Department
of Trade and Industry, will need to secure proper arrangements
for public accountability for these payments and guarantees, and
for the quality of services delivered by post offices to benefit
recipients. We expect the departments to enter into discussions
with the Comptroller and Auditor General on access to the Post
Office for this purpose, and to submit a note to the Committee
on their proposals to secure accountability before the arrangements
are finalised (paragraph 40).
1 C&AG's report
(HC 857, Session 1999-2000), paras 1-2 and 14 Back
2 ibid, paras 6-9, and 1.31-1.36 Back
3 First Report from the Committee
of Public Accounts 1999-2000 (HC 65 (1999-2000)), Cm 4656, and
Successful IT: Modernising Government in Action-Review of Major
Government IT Projects, May 2000 Back
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