Type of risk | Actual allocation | Comments |
Design and implementation |
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1. Implementation lasts longer than expected. | BT | Even if BT fail to complete migration by the dates given in the contract, the Department will benefit from the lower amounts payable under the new tariff regime (paragraph 3.4) unless the delay in migration is caused by the Department or is due to an event of Force Majeure. |
2. Implementation proves more expensive than expected. | BT | BT will meet any increased costs unless the cost increase was as a result of the Department. In this case the Department will meet the costs. |
3. Failure to provide the new service to specification. | Shared | If BT fail to meet the specified design requirements and the problems are wholly within their control, BT have to correct these at their own cost. If the problems are within the Department's control, the Department may have to pay. |
4. The new system is not Year 2000 compliant. | Mainly BT | BT are responsible for ensuring compliance except in respect of the assets that they bought from the Department. The Department were to meet the cost of correcting in these assets non-compliances that have been identified prior to their transfer to BT. The Department incurred no such costs. |
5. Assets purchased from the Department are faulty. | Shared | BT meet the cost of repairing all faults apart from two exceptions. The Department were responsible for meeting the costs of correcting any faults identified by BT between the signing of the contract and the transfer of the assets to BT, and any serious failure of the UNITER and BOXER systems within the first six months of BT taking these over. The costs of faults falling to the Department amounted to some £316,000. |
Operation |
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6. Operating costs are more than expected. | Department | BT can charge the Department extra if, as a direct result of the Department's technical, security or operational requirements, BT incur additional costs in providing the services by a method which is different from their normal method of delivery. In practice both BT and the Department agree that this will only take effect if the Department directs BT to operate in such a way. |
7. BT's charges are out of line with market rates. | Shared | BT's initial charges were determined competitively. They will be adjusted during the contract using formulae which closely link the different costs incurred in providing services with general market trends (paragraphs 3.10 to 3.12). However the adjustments for services where costs are expected to rise occur more frequently than the adjustments for services where costs are likely to fall (paragraph 3.15). |
8. BT's charges fail to provide value for money. | BT | If the Department believe that a service is not delivering value for money, they can in exceptional circumstances ask for BT's charges for that service to be benchmarked and any adjustments necessary agreed (paragraphs 3.13 to 3.17). The Department are limited to asking for a maximum of three such reviews for each service during the contract. |
9. BT fail to meet performance standards. | Shared | Once services are fully migrated, payments to BT will be subject to service credits if BT fail to meet agreed performance standards. However BT's liability to credits is capped at a maximum of between twenty to fifty per cent, depending on the service involved, so that they will still receive some payment in the event of poor performance. Nor does the contract define the level of poor performance at which the Department can suspend payment to BT or terminate the contract, if necessary. In certain circumstances BT can be excused poor performance altogether (paragraphs 3.20 to 3.23). |
Availability |
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10. Availability of service is lower than expected. | Shared | The performance standards which BT are paid to meet include standards for service availability. See risk 9 above. |
Volume |
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11. The Department's use of telecommunication services varies from expected levels. | Shared | Payments by the Department will depend in part on the number and size of sites taking each service and the number of individual users (paragraph 3.27). The Department will also pay by the minute for each call made under the Circuit Switched and Secure Speech services. This call tariff varies depending on the time of day the call is made and whether the call is national or local, but each call is subject to a minimum charge of 3.3 pence. |
12. BT gain additional income from using the defence system to provide telecommunications for third parties. | Shared | The Department will be entitled to a ten per cent discount on the tariffs for the Packet Switched and Point-to-Point services if the number of users increases by twenty per cent. This includes additional use by third parties. Prices paid per call for the Call Reception and Delivery service fall if the number of calls exceeds certain defined thresholds. However no discounts for the use of the system by third parties are available on other services and the number of discounts is limited to two for the Packet Switched service (paragraph 3.28). |
13. Demand for telecommunication services falls to such an extent that there is no need for the services. | Department | There are minimum service thresholds for the telecommunication services (paragraphs 3.29 to 3.30). If demand falls below these, BT can re-negotiate their charges with the Department or even terminate the contract and be reimbursed any unavoidable loss that they incurred because of this, including a reasonable rate of profit. |
14. The Department require new services. | Department | The Department will pay for any new services outside the scope of the project but are not required to seek these new services from BT (paragraph 3.24). If the Department do use another supplier, they have to provide BT with evidence in support of their decision. |
Technology/obsolescence |
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15. Improvements in technology make the service or the method of its delivery obsolescent. | BT | BT are not obliged to introduce new technology or carry out periodic reviews of technology (paragraph 3.25). However BT will have incentives to introduce new technology to reduce costs. The price baskets to which their charges for telecommunication services are linked will be reviewed each year to take account of services available in the market which use new technology (paragraph 3.12). Also at the end of the contract neither the Department nor any new supplier are required to take on BT's assets in the provision of this service (paragraphs 3.34 and 3.35). |
Residual value |
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16. The assets providing the service have little or no use at the end of the contract. | Shared | Neither the Department nor any new supplier are required to take on BT's assets in the provision of this service. If BT's assets are bought by these, the transfer values they will have to pay are determined by formulae contained in the contract. There is therefore a risk that BT could be paid twice for the same assets; once via the service charge under the contract, and again via transfer payments (paragraph 3.37). |
Legislation / regulation |
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17. Changes in legislation increase BT costs. | Shared | BT can modify or withdraw a service if required to do so by law or regulation and will not be in breach in doing so. |
18. Corrupt payment by BT to Department official. | BT | The Department can terminate the contract and recover from BT any loss they incur in doing thus plus the amount of the corrupt payment involved. |
Employment |
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19. Department staff surplus to requirements at the transfer of responsibility for services were made redundant. | Department | The Department met the cost of these redundancies. |
20. Staff surplus to requirements after their transfer to BT are made redundant. | Shared | The rights of Department staff transferring are protected under the Transfer of Undertaking (Protection of Employment) Regulations (TUPE). The Department will meet the costs of redundancies that BT have initially planned. BT will then meet the cost of any redundancies after this. |
21. Changes in Department staff terms and conditions prior to their transfer increase their costs. | BT | BT will meet any such cost increases. However the Department have to seek BT's consent before introducing any such changes, except for those in the normal course of the Department's business. |
Finance |
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22. The costs of providing finance increase. | BT | BT are funding the development of the new telecommunications system from their own resources. |
23. Changes in tax regime increase BT costs. | Shared | If such changes increase telecommunication prices generally, the indexation arrangements will ensure that the charges under this contract will also increase (see risk 7). |
Disposal |
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24. Sale of surplus Department assets raises less than expected. | Mainly with BT | BT can sell any surplus assets they have bought from the Department but must pay the Department ninety per cent of the sale proceeds after deducting VAT. They are to retain ten per cent to cover the costs of the sale. |