Examination of Witnesses (Questions 160
MONDAY 26 FEBRUARY 2001
160. Can I be clear about this, we have
made some of them, but there are some that have gone forever.
There are some here that you would expect to make in the first
year, they are all gone; then in the second year they are all
gone as well. There is a process, presumably, of catching up.
(Ms Lomax) This is estimates on estimates. We may
do better by moving to ACT earlier as well, I do not know.
(Mr McCorkell) I think the significant saving, the
only real saving was the reduction on instrument payment fraud,
which was a saving in the card programme. Because we did not roll
out cards to the original timetable we have not been making those
savings. Having, instead, rolled out OBCS to the current Post
Office automation we are now starting to make those savings.
161. What surprises me, having listened
to both of you, is how much or how minimal the loss has been and
why this enormously expensive project was being entered into.
My feeling is that this has been a disaster. Why did you proceed
with it, there must have been other things we would have to spend
so much time and money on?
(Ms Lomax) I think it is wrong to think of this as
an unmitigated disaster, it is not. What this was, was three bits
of a vast project, three separate chunks you can identify, one
was about automating the Post Office, that has gone ahead, perhaps
two years later and financed in a different way from what was
originally envisaged, then there is something about completely
restructuring the DSS customer accounts and payment systems, which
we needed to do anyhow, for a number of reasons, not least improving
our internal accounting and providing a platform for the modernisation
of our benefit systems. We are putting modern IT down the track.
That has gone ahead. Most of that was at value, we put it in place,
it went there a little bit later than we hoped, but by and large
we have got that. The bit that has failed is the bit that connected
up the CAPS programme with the
162. The point of it.
(Ms Lomax) It was not the only point of it.
163. The main point of it is the bit that
has not worked. The rest of it has not been a complete and utter
(Ms Lomax) I am not certain that is true. There were
three big things we wanted to get out of this. The Post Office
automation was always a large part of this. The business case
for the Post Office automation would not have stacked up without
the DSS involvement. It was about making sure that long-standing
164. I think I understand what you say,
but I do not accept it. I wonder if I can turn to Mr Oppenheim
and ask about the figure we have bandied about for the loses by
yourselves. Can you clarify for me whether or not you have factored
in the loss of reputation, and so on and so forth? If this was
a normal commercial operation, how much have you lost out on all
(Mr Oppenheim) There is nothing factored in for loss
165. Do you think your reputation has suffered
(Mr Oppenheim) It certainly did. I think we have managed
to pull a little bit of it back. I appreciate the favourable comments
today about the success of the Post Office roll-out and, indeed,
OBCS, which was a piece of innovation that we put on the table
as part of the original PFI. There are things to take some satisfaction
from. It has been a very bruising experience for us, that is for
sure. There was a time when ICL's name was mud as a result of
this. £180 million was certainly a massive hit, as was observed
166. Can I finish on this point. The books
of rules, which have turned out not to be books at all, but a
combination of rules, which if they were gathered together would
be a book, had you been given authority to streamline the whole
lot? Could a lot of these difficulties been overcome? Ought your
remit to have been wider to achieve the same objectives?
(Mr Oppenheim) I really do hesitate to answer this.
All I can say is that we could see a way through this, otherwise
we would not have taken it on in the first place. It would have
required more compromise and more understanding, perhaps, than
was available at that time and under the processes at that time.
Technically we would have to live with this and we were on our
way to delivering it, but it would have certainly taken more time.
167. I apologise for being delayed. I seem
to remember when I was in the DTI that this debate was going on
then, ten years ago, and the problem was that the DTI was mainly
concerned about preserving the Post Office network, and the DSS
was concerned about saving money. We have resolved our differences
of approach nowadays, have we?
(Ms Lomax) I hope so.
168. Thank you. If you have answered this
question already let me know, there was meant to be a live trial
system within ten months of signing the contract. Nearly 36 months
later there has only been a trial in ten post offices in Gloucester,
and the contract was then terminated. It was almost two years
after the deadline for the live trial to begin that it was decided
that the Benefit Payment Card would be scrapped in May 1999. Why
was there such a delay about making a decision about the future
of the project?
(Ms Lomax) It took time for the scale of difficulties
to become apparent. There was a major "no fault" replan
in February 1997, people completely rescheduled this project.
Then by July it was clear that there was slippage on the replan.
Then there was the PA Review, which suggested there was some serious
issue. Roundabout December of that year, I think, ICL came back
and said that essentially there had to be a major renegotiation
of the contract terms, this was going to cost 30 per cent more
or it would take five years longer and cost five per cent more.
We were immediately into major interdepartmental discussions about
the way forward. It would either involve more money, or whatever,
so the Treasury comes in at that stage. We then have, I have to
say, various reshuffles going on in the background at various
points. Some of the key political personalities changed, which
delays things a bit. We had a change in chief secretaries along
the way, the DTI Secretary of State, the Social Security Secretary
of State. Not surprisingly when we get to a major interdepartmental
issue like this, there is an interdepartmental group set up. Adrian
Montague, Head of the Treasury Task Force, is brought in to give
advice on whether this project is deliverable at all, and, if
so, on what sort of time scale. Then roundabout mid-1998, after
a lot of work looking into it, he says, "Yes, it is probably
deliverable, but not on this time scale". There is a long
period where people are trying to renegotiate the terms. Correct
me if I am wrong, Mr Graham Corbett was brought in to try and
broker a new deal, without, ultimately, success. The answer I
gave to the Chairman when he essentially put the same point to
me was, "What took you so long?" That these were very
big issues, involving lots of different interests around the Government
and big things about the future of the Post Office, which you
will remember were intensely, politically sensitive. Also, the
commercial future of ICL at various points. It took a long time.
We went through many elaborate reviews in an attempt to get the
right answer. Given the scale of the project and the issues at
stake that was defensible.
169. Fair enough. It seems to be wise after
the event, does it not?
(Ms Lomax) Indeed.
170. What lessons has the Department learned
from the report of the Cabinet Office? Is there now a single,
responsible owner of the above project? To what extent has the
Department sought to ensure that the projected costs and time
scale decided upon by the suppliers are realistic and achievable?
(Ms Lomax) I hope we have learned a lot, from our
own experience, which we have fed into the Cabinet Office Review
and the reviews we have done internally where we have fallen down.
I think we accept all of the Cabinet Office recommendations and
we are attempting to implement them. None of this is easy. Someone
was saying earlier, can you give me an assurance that there will
never be any mistakes again, but I could give you an assurance
that we have done our best to learn the lessons of our past mistakes.
171. With PFI projects there is a pressure
to accept bids from a company who are willing to contribute the
necessary funding. How great an influence is that on choosing
whether to accept an offer from a company? Surely this could lead
to prioritising the costs over quality when deciding on targets
for PFI projects? What is being done to ensure that long-term
value is assessed rather than short-term costs and expedience?
(Ms Lomax) I think we learned the hard way, that cheap
never is on big projects like this. What is being done is a serious
attempt to assess the quality of the bid against a wide range
of value-for-money criteria, the competence of the bidders. We
have to look for value for money and not cheapness on these things.
The review process which the Cabinet Office have put in place
is a serious discipline on us.
172. You think you have overcome this pressure
to accept bids from companies that are willing to contribute the
necessary funding and it is not going to unduly influence your
decision-making in the future?
(Ms Lomax) I did not say that. It is always tempting
to save money if you are short of money, it is always tempting.
That is why I say the external review process is quite helpful
in keeping you honest.
173. I have a couple of round up questions
arising from matters that came up during the course of the Committee.
Mrs Lomax, Mr Griffiths asked you at one point about whether new
ministers in 1997 were told about the project being on track.
You diverted your answer by saying you were not allowed to divulge
advice given to former governments, he was asking about the current
(Ms Lomax) It does not make any difference. I did
mis-speak there, that is quite right, however ought I to be giving
you insights into advice given to ministers?
174. This goes directly to the operation
of this project, were ministers made aware of the status of this?
(Ms Lomax) Ministers were certainly made aware of
the status of this project and by July 1997 clearly made aware
of where things were going. At that stage we were instituting
the PA Consulting Review, they would certainly have been told
about that. The question you asked, "Were they given an assurance
this project would work?" I do not know what was said in
(Mr McCorkell) Certainly when they were advised in
the middle of 1997 that we were experiencing further difficulty,
they were not advised that the project would work, they were advised
we were experiencing further difficulty and that the timetable
was going back. They supported us in arranging the external review
by PA at that time.
(Ms Lomax) I think one would never have given the
Permanent Secretary one hundred per cent assurance that something
will work. You would say there are some problems, I do not think
I would ever say this is bound to work. That is just rash.
175. You are breaching the spirit of Sir
Humphrey Appleby. Can I ask you a further question, in response
to Mr Rendel you said that you did not know how many people, how
many benefit recipients would not have bank accounts after the
Universal Bank was set up. Given that, how on earth can you know
what magnitude or capacity systems you require to deal with these
people, given these will be some of your difficult customers,
the illiterate, the disabled, the mentally problematic and so
on? How are you going to make plans without that knowledge?
(Ms Lomax) I could have been more helpful than what
I said to you. In terms of orders of magnitude we are thinking
about thousands on the basis of the research we have done already.
We are looking at people who received early payments, people with
genuine emergencies, bankrupts, that is the sort of category of
people we have in mind for whom bank accounts are not suitable.
I cannot forecast the numbers, because we are talking three years
down the track. We will be looking into it and doing more work.
We will be thinking about ways in which they can be paid. This
is something that might go out to tender, it would be perfectly
possible. It may be able to access special payments at the Post
Office. There are a number of possibilities. We have not got to
the stage to say this is what we are going to do.
176. It would be helpful if we had a note
on that in terms of what is your best estimate and what research
you are going to do.
This may relate to people who choose not to have bank accounts
as well, which may be larger than thousands.
(Ms Lomax) There is going to have to
be a big marketing effort here.
Chairman: We would be grateful for a note on
that. It remains for me to thank you for coming. It is one of
those difficult hearings, nevertheless a constructive one. Our
particular thanks to Mr Oppenheim for the clearest piece of evidence
we have had this year. Thank you.
10 Note: See Evidence, Appendix 1, page 20 (PAC 200-2001/158). Back