1.30 The delays to the Card project and the consequences of its cancellation affect benefit claimants, the Department of Social Security, the Post Office and ICL.
1.31 The effects of the delays to the Card project between 1996 and 1999 were such that the Department's positive business case for the project reduced from £667 million net present value to £148 million, due mainly to the delay in achieving estimated fraud savings. The Department also lost its planned savings in the cost of administering order books, but these were broadly matched by savings in lower than expected payments to Pathway for processing card transactions. Benefit claimants have not received as soon as originally intended certain quality of service improvements claimed for the payment card, such as quicker response to changes in their entitlement.
1.32 The effects of the cancellation of the Payment Card project are more diverse, though the Government's new strategy for benefits payment is intended to address these.
1.33 For Benefits Claimants, the precise future arrangements for payment will depend on how the Department decide, in agreement with Post Office Counters, to take forward the phased migration to bank transfers. The minority of claimants who cannot operate bank accounts will require alternative arrangements, also using the bank transfer system, which are currently being considered.
1.34 For the Department of Social Security some £127 million of the £270 million costs of their CAPS programme, which was to link to the Card, may be wasted because not all the system will now be required. Some of this investment may be able to be redirected to support the new bank transfer payment systems. Until the full introduction of payment by bank transfers in 2005, the Department's financial accounting and audit will continue to be hindered by the absence of full reconciliation between benefit encashment and entitlement. Conversely, by introducing an electronic system for the control of order books, the Department expect to eliminate 85 per cent of fraudulent misuse of order books, pending the full introduction of bank transfers. By moving over to payment by bank transfer between 2003 and 2005, the Department will also make administrative savings earlier than if the Payment Card project had continued.
1.35 Post Office Counters Ltd and their sub-postmasters are exposed to different risks, including progressive loss of benefit payment business from 2003, (two years earlier than the end of the Benefits Payment Card contract), and acceptance as sole purchaser of the risks involved in the automation of post offices. In November 1999, Post Office Counters Ltd recorded in their accounts an exceptional charge of £571 million "for acquiring an asset which does not at this stage yield sufficient income to justify the cost." This reflects the fact that under standard accounting practice, the Post Office cannot take account of income that may be generated from the system but cannot be guaranteed. The Treasury has adjusted the Post Office's financing to reflect the higher up-front cash requirement of the revised deal. Automation is being funded by £480 million of the Post Office's cash investments that had previously been earmarked for surrender to the Treasury in 2002-03, but a wider review of the Post Office's finances is ongoing.
1.36 ICL wrote off project development costs of £180 million in June 1999. Further development costs not written off may not be recoverable from their revised contract to automate post offices. Their experience may increase caution and aversion to risk on the part of ICL and other bidders for other Private Finance IT projects. This project has received much publicity in the national, business and specialist press. Much has been negative, and based on only selective information.
1.37 The cancellation of the Card element of the project is one of a series of failures in government's procurement of Information Technology. In January 2000 the Committee of Public Accounts published a report drawing out lessons from more than 25 cases from the 1990s where the implementation of IT systems has resulted in delay, confusion and inconvenience to the citizen and, in many cases, poor value for money to the taxpayer. The Committee's main conclusions are summarised in Appendix 4 of this report. Some are of particular relevance to this project.
1.38 The Prime Minister requested that a study be undertaken by the Cabinet Office IT Unit to examine in detail the experiences the UK Government has had of major IT projects, both successful and unsuccessful, and to compare them to those of the private sector and governments overseas. The study completed its work in May 2000 and has produced recommendations for improving the way in which the government approaches and manages such projects. These recommendations are summarised in Appendix 5 and in our view would, had they existed and been implemented in the case of this project, have substantially reduced the risk of failure. In April 2000 the Treasury Task Force on Private Finance published new guidance for departments undertaking procurement of Information Technology through the PFI. Amongst other changes, the guidance recommended that major, complex, system development projects should be designed through separate, more conventional contracts, before being built and operated through Private Finance arrangements.