2.13 The Department's business case was periodically reviewed and updated over the life of the project. Figure 12 shows the extent to which its value for money to the Department was eroded by slippage. The original business case justifying the contract signature in 1996 indicated major savings by preventing fraud, and substantial potential to yield intangible benefits, but it was marginal in terms of reduced running costs once the costs of the related CAPS system were taken into account.
The erosion of the Department of Social Security's original business case, for the contract period 1996 to 2005 | Figure 12 |
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| Case as at Project | Case after Project | Case at | ||
| Payment Service costs | 1477 | 1464 | 1112 | ||
| less: Administrative Savings | 1180 | 1022 | 598 | ||
| less: Fraud savings | 1428 | 1395 | 765 | ||
| Net Saving | 1127 | 953 | 251 | ||
| Net Saving (Discounted)1 | 667 | 564 | 148 | ||
| Notes: 1. Costs and savings are expressed as net present values discounted at 6 per cent per annum compounded over the planned life of the project, and converted to constant May 1996 price levels. For comparability, all figures take the assumption that the contract ends in 2005. 2. The 1996 Business Case compared the costs and benefits of the Card project against those of continuing with the existing paper-based payment arrangements. At that time a comprehensive move to payment through transfers to claimants' bank accounts was not an option under policy, though it remained the most cost-effective method of payment to the Department. 3. In early 1997 the comprehensive introduction of payment through bank transfers was still not an option under government policy, though it remained the Department's preferred long term option. 4. By this stage, incoming Ministers had reopened the option of a comprehensive move to benefit payment through bank transfers, should the Card project fail. Also, Pathway had requested a contract extension or price increases. 5. Running cost savings included planned reductions in the Department's payments to Post Office Counters Ltd due to the introduction of the more efficient card system at post offices; and savings from replacing the operation of order books. | |||||
Source: Department of Social Security |
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2.14 The Department took only limited steps to evaluate this risk before signing the contract. Their May 1996 business case included no analysis to assess its sensitivity to major slippage in the project, since this was seen as largely outside the Department's control. It demonstrated the effect of three months slippage by the CAPS project on the Benefits Payment Card project, but no assessment of major slippage by the Card itself. The Department have estimated that slippage cost them some £5 million a month in additional administration costs and some £9 million a month in lost fraud savings. Any potential further running cost savings foregone by deferring the introduction of payment by bank transfers are additional to this estimate.