Select Committee on Public Accounts Third Report


The Committee of Public Accounts has agreed to the following Report:—



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

Estimated contract value, (Payments by Department and Post Office):

£1 billion, net present value over 7 years

Number of post offices to be equipped:

Up to 20,000, with 40,000 counter points in Great Britain and Northern Ireland

Number of post office staff to be trained in use of the system:

67,000 staff, serving 28 million customers per week

Number of social security benefit recipients to be issued with Payment Cards:

17 million, claiming some 24 different benefits

Number and value of benefit transactions:

In 1999/2000 some 760 million payments worth £56 billion were made through post offices

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

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 6 December 2001