2.40 The Department considered that ICL's objectives were to reach a deal that recovered its sunk costs and removed as much risk as possible, either by specifying the requirements to a level of detail that provided it with certainty or by transferring risks back to the Department. At the beginning of the Memorandum of Understanding period in October 2001, ICL's price was £283 million but there were known to be additional costs for items left out of that price. These included major items such as family and licensing, bulk printing and consumables, estimated by the Department to be in the order of £30 million, together with a large number of minor items. The £283 million figure was reached after ICL's financial model was updated to reflect costs, timescales, the revised term of the contract and ICL's assumptions about scope and functionality. At this stage both the Department and ICL believed, on the basis of these provisional assessments, that there were good prospects of a successful completion of the re-negotiations which would sustain the full Libra project within acceptable boundaries of affordability and value for money.
2.41 However, on 8 February 2002, ICL quoted a new price of £400 million for the enhanced infrastructure and full core application. The price assumed that the Department would pay significant sums throughout the period of development to minimise ICL's borrowing requirement. The Department considered that this price was not affordable and did not provide value for money. This conclusion was endorsed by a second Gateway Review carried out in February 2002 (Appendix 3). On 26 February 2002, after further negotiations, ICL reduced its price to £384 million although it was not a finalised price. ICL later offered an alternative solution with a different technical architecture and delivery plan and further reduced scope. But the Department considered the plan to be flawed. The reduction in scope was not considered acceptable and the projected timescales unachievable. Considering this outcome of its due diligence investigation, the Department decided not to proceed any longer with one contractor for the Libra project but to undertake fresh negotiations with a view to a disaggregated approach securing infrastructure, application and integration services from separate suppliers.