2.36 For these reasons, in August 2001, the Department began a series of pre-negotiation meetings with ICL which led to a Memorandum of Understanding which set out the scope and principles for the negotiations. New governance arrangements for the project were agreed, including the appointment by the Department of a new project director and the establishment of a business design authority in the Court Service.9 Involvement of users from Magistrates' Courts Committees increased in order to complete the requirements definition work.
2.37 The Memorandum was legally binding in respect of those terms that related to the period of the Memorandum and its terms were much less favourable to the Department than the existing contractual arrangements. For example, the scope of the project and contract term were reduced and the liquidated damages and termination clauses were suspended. The Department's legal advisers, Bird & Bird, expressed concern that the Memorandum also exposed the Department to significant financial risks. The Department sought advice from counsel who advised that to proceed with the Memorandum of Understanding was a sensible decision for the Accounting Officer to take. The Memorandum of Understanding was signed on 5 October 2001 and required the negotiations to be completed by 31 January 2002. The key features of the Memorandum are shown in Figure 13.
13 |
| Key features of the Memorandum of Understanding signed by the Department and ICL in October 2001 |
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| The Memorandum of Understanding set out the principles to form the basis for negotiation. These principles included: ■ The contract would run to March 2007. The Department chose this end date because its other PFI IT projects, ARAMIS (resource accounting and management information) and LOCCS (IT services for the Crown and county courts) were due to end at that time. ■ The Department would consider the use of flexible finance to provide ICL with a cash injection. ■ The governance arrangements would be amended. ■ The functionality for family and licensing would be removed. ■ A revised development plan would be agreed. ■ A new financial model would be shared. ■ The Memorandum also made clear that the price in the financial model was based on a number of listed assumptions. |
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| Source: Lord Chancellor's Department |
2.38 Under the Memorandum of Understanding the Department was required to pay half ICL's ongoing development costs up to a maximum of £2.25 million a month, less half the Department's costs up to a maximum of £0.25 million a month. These payments were agreed because ICL had intended to stop all further work on software development until an agreement had been reached. The Department wanted to keep its options open by allowing development to continue until it had made a decision on the way forward; these sums would be netted off against charges under any agreed revised contract. If for any reason (other than ICL seeking changes outside the assumptions on which ICL based its financial model at the start of the Memorandum period) Treasury approval was not obtained for a business case based on the final agreed financial model, the Department would have had to pay in full ICL's costs up to a maximum of £4 million a month. If for any reason approval of Fujitsu (ICL's parent company) was not obtained, the company would have to pay in full the Department's costs up to a maximum of £0.5 million a month. The Memorandum did allow the parties to recover these payments if the contract was terminated, but recovery would have become part of the litigation process.
2.39 The Memorandum of Understanding was due to run from 5 October 2001 until 31 January 2002. When agreement was not reached by that date, both parties agreed to extend the Memorandum period until 8 March 2002. The Department paid ICL £10.5 million under the Memorandum of Understanding, with the sum to be taken into account in any new agreement.
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9 The Court Service, an Executive Agency of the Department, took over responsibility for the project in July 2001 when it took over other responsibilities for magistrates' courts. The Chief Executive of the Court Service took on the Senior Responsible Officer role for the project.