2.5 The project was unusual in that one of the joint purchasers is a service provider to the other. Post Office Counters Ltd provided benefit encashment services to the Department of Social Security, and both organisations sought to maintain a degree of commercial confidentiality from the other. As shown in Figure 4, the Department's objectives were primarily to reduce benefit payment costs through a fraud free system as quickly as possible. Post Office Counters Ltd's objectives were primarily longer term - to safeguard its commercial business and those of its agents in the sub-post office network. The risk was that the two purchasers might steer the project in different directions or not act in a co-operative manner. All three shortlisted suppliers told us that there were clear commercial tensions between the two project purchasers during the procurement phase.
2.6 To manage this risk the Department and Post Office Counters Ltd negotiated during the procurement stage a Memorandum of Understanding between themselves. Agreement took longer than expected, and delayed the issue of a statement of service requirements to the three shortlisted bidders by two months. The Memorandum, which was mainly used to summarise the business and commercial understanding between the parties, did not entirely resolve the fundamental differences in objectives, which later had to be resolved in the handling of detailed issues. For example, Pathway pointed to areas such as the design of the card, and the arrangements for allowing claimants to nominate agents to collect payments on their behalf, which highlighted continuing tension and disagreements between the purchasers. The purchasers co-operated to minimise the effect of such disagreements on Pathway's progress, for example by instructing them to proceed with designing the system on one basis and undertaking to reimburse their costs if the disagreements were resolved the other way.
2.7 The purchasers also sought to manage this risk by creating a joint project procurement and delivery team, staffed by both organisations and reporting to a joint project board and steering committee with senior Department of Social Security and Post Office officials. This provided a forum for the resolution of specific issues between the two purchasers, but the basic differences in their objectives for the project remained. Although the Authority resolved some differences itself, it had to refer some back to the purchasers for resolution at a higher level. Pathway told us that this resulted in substantial delays. The Authority's project management role was transferred to Post Office Counters Ltd in April 1998, in response to a recommendation by PA Consulting, (Figure 19). The Department of Social Security also felt that this would make Post Office Counters Ltd more directly responsible for project management as the system rolled out to post offices.
2.8 Post Office Counters Ltd and Pathway were aware from the outset that the Department saw bank transfers as the most cost-effective long term answer for social security payments. The Department had been administering bank transfers as an option for social security benefits since the early 1980s, an option which new claimants in particular were increasingly choosing. An important advantage of the Benefits Payment Card to Post Office Counters Ltd was that it committed the Department to make payments at a guaranteed level through post offices for the duration of the project. This guarantee constituted a potential financial risk to the Department. This divergence of interests at times led to some doubts about other parties' positions; for example that the Department was not committed to the project's success. This was regrettable because it was in the Department's interests that once commenced the project should succeed, in order to yield the planned savings in fraud and running costs as soon as possible.
2.9 We found that the Department had shown commitment to the success of the project. In 1997/98 they had employed up to 1100 staff plus consultants in designing and implementing their CAPS computer systems that were to link to the Payment Card. In late 1997, when the Benefits Payment Card project was clearly in deep trouble, they sensibly began contingency planning for a possible implementation of payment by bank transfers, in case the project should fail. Pathway told us that they had perceived that the Department's commitment had reduced from around this time. In their view the project no longer had such strong champions with the Department as before. The Department do not agree with Pathway's view; they consider that all the mechanisms and senior support remained in place up to May 1999 to drive the project forward at the pace which could be sustained by Pathway, and that they had delivered releases of CAPS software to time after the project replan in February 1997.