Many of the risks have crystallised (Part 2 of the Report)

7  Although SBS's bid was eight per cent lower than the other final bidder's, it expected to make a return of 8.7 per cent on the contract. It was prepared to accept more risks and take on the critical risk of re-engineering NS&I's business processes. To introduce NS&I's Individual Savings Account product to a very tight timescale, SBS chose Thaler, a commercially available banking IT platform. After it discovered that NS&I's in-house programme would not deliver a re-engineered IT system and the Individual Savings Account product was successfully introduced, SBS selected Thaler as the IT element to re-engineer NS&I's operational processes.

8  Key risks accepted by SBS under the contract have crystallised. SBS is unlikely to make its projected returns on the project as it was unable to deliver the full business transformation as soon as it had planned. It has incurred more capital expenditure than planned and although it has increased productivity, it has failed to reduce staff numbers in line with its original plans and has not created as many third party jobs as planned, only 650 against an expectation of 1,200. It is also spending more than planned on the upkeep of the three sites at Blackpool, Durham and Glasgow.

9  SBS underestimated the challenge of transforming NS&I's old business and found existing processes were complex and difficult to change. It encountered a number of problems when it began to transfer NS&I products from legacy systems to Thaler, and as it took a long time to find solutions, weaknesses in the migration process continued. NS&I expressed its concern at the situation and SBS is now developing solutions before it transfers the remainder of NS&I products, including Premium Bonds, to Thaler.

10  NS&I requires SBS's operational performance to meet high and increasingly challenging standards. Although SBS had not completed the business transformation by the target date, it continued to bear the risk of delivering services to the required standards. In the first three years of the contract, SBS achieved 98 per cent of the targets NS&I set and incurred performance deductions of £2.1 million.