Box 2

Allocation of major risks under the contract

Risk

National Savings

SBS

Operational risks:

Failure to meet key performance standards.

National Savings has discretion to waive performance deductions.

SBS faces substantial performance deductions for failing to meet KPIs.

Post Office Counters Automation

SBS will bear the risk of POCA not being achieved by its expected target date.

Failure to implement business transformation by the dates specified.

SBS will have to employ more staff than expected and cannot recover those costs in the contract price. It will also have to pay National Savings 70 per cent of the contingency provision it has not used.

Failure to further improve KPIs if business transformation programme not in place by December 2000.

SBS still has to meet the improved KPIs even if it has not completed the programme by the required target date.

Year 2000 compliance

SBS has indemnified National Savings for all loss or damage resulting from breach of this obligation. Contract can be terminated and SBS will pay the cost of a third party to undertake the work. SBS will be penalised through failure to meet KPIs, but can gain relief from such penalties if third party computer systems non-compliance leads to poor performance.

Euro compliance

National Savings gave only very broad indications of what it wanted for Euro compliance. SBS may charge up to £9 million for meeting this requirement once National Savings has decided what it wants in more specific terms.

SBS is responsible for development of a suitable Euro Compliance Plan. If SBS misses a Key Date in the plan, it must take steps at its own cost to fulfil that Key Date. If it fails to do so, National Savings can arrange for a third party to carry out the work and SBS shall reimburse costs incurred.

Fraud

National Savings will bear the first £250,000 cost of fraud in any one year.

SBS will bear higher losses resulting from fraud and will indemnify National Savings in respect of any claim and loss of any person arising out of operational error.

Commercial risks:

Product variations

SBS implements at own cost except where an adjudicator judges the change is necessary because of negligence by National Savings.

New National Savings products and channels

SBS will not be able to charge National Savings more than it bid and National Savings can share in lower costs below a given threshold.

Transaction volumes

The unitary payment is adjusted if transaction volumes fall outside a nil adjustment band. SBS bears the risk that the cost of additional transactions exceeds the price for those transactions.

Change of law risk

SBS will bear all this risk unless the change of law is only directed at National Savings.