2.11 The purchasers managed the risk of cost increases by entering into a Private Finance arrangement with Pathway. Under the terms of the contract, Pathway were responsible for the design, build, finance and operation of the system. Pathway's development, trialling and roll-out costs were only to be recoverable from transaction charges that, for the most part, would commence after acceptance of the system and national roll-out had commenced. On this basis the purchasers would be liable for their own cost overruns during the development phase. In their 1997-98 financial statements published in 1999, ICL reported that they had made a provision of £180 million for losses arising from this contract. In a conventional contract, development costs would have been met by interim payments from the purchasers. It is Pathway's view, disputed by the Department and Post Office Counters Ltd, that because risks of delay had been transferred to them, this led to a less than urgent attitude on the part of the purchasers to resolving "agreements to agree" and carrying out their responsibilities.
2.12 The risk of cost increases in the development of the Benefits Payment Card also had to be managed during the implementation phase of the project when Pathway requested an increase in prices in 1997. The Department managed this by keeping their business case updated and using this to inform the interdepartmental negotiations with Pathway during 1998 and 1999 that led to cancellation.