Post Office pays price over Pathway

The joint Post Office/Benefits Agency project to computerise the Post Office network and automate the payment of benefits was launched in 1996 as a flagship public finance initiative project, but it was abandoned last month amid much acrimony.

This week the Post Office announced losses of £264m for 1999 compared to a profit of £608m in 1998.

A Commons committee report into Pathway said the project was "blighted from the outset" and listed a catalogue of errors.

There were delays from the start. Simply agreeing the schedule of service specifications took eight months rather than the planned three.

This was compounded by arguments over technology. In 1996 ICL proposed a smartcard system, but the Post Office and Benefits Agency insisted the system should be designed to use older, more established magnetic strip technology as a stepping stone to a full smartcard system.

The result was a series of missed deadlines, with suppliers and customers blaming each other for the delays.

The debacle ended when trade and industry minister Stephen Byers announced that the Benefits Agency was pulling out of the project, and that the magnetic card element was being dropped.

The scheme was then rejigged into a £900m fixed-price contract for ICL to computerise the Post Office counters network. The contract was announced the day before ICL declared its annual results, which included a £180m write-off on Pathway.

The Commons committee had no doubt this was "an essentially political deal to ensure ICL had a substantial contract with the Post Office Éas a means of making up some of the £180m written off by ICL."

Under the reconstituted project, dubbed Horizon, ICL is automating 300 post offices a week.

Pathway to failure

May 1996
ICL wins contract to automate benefits delivery over a secure network to 19,000 post offices. Project delivery set for end of 1998

November 1997
Project deadline slips to 2000 as Post Office, Benefits Agency and ICL argue over project scope and changing requirements

July 1998
Treasury orders project review

May 1999
Government axes the automated benefits payment from the project

2001
Revamped project to automate Post Office Counters is scheduled for completion