1 Tuesday, 11 October 2022 2 (10.30 am) 3 Housekeeping 4 SIR WYN WILLIAMS: I thought we'd done away with standing, 5 you'd all forgotten. As you can see, Mr Page is with 6 me. Ms Eliasson-Norris is not, she can't be here today 7 but she'll be watching the proceedings and obviously 8 we'll have a transcript and so will be just as au fait 9 with what is going on as Mr Page and I. 10 I think we have a preliminary issue, if I can call 11 it that, which I'll ask Mr Beer to explain. 12 MR BEER: Thank you very much, I was due to begin opening 13 the issues that arise in Phase 2 to 7 of the Inquiry to 14 you now and to speak for the next day and a half about 15 them. 16 However, a pressing issue has arisen concerning 17 Post Office Limited's disclosure to the Inquiry, which 18 I shall spend 15 minutes or so introducing now, and then 19 give the floor to the legal representatives of those 20 Core Participants who have indicated that they wish to 21 speak about the issue. 22 As you know, sir, in order for it to be able to 23 carry out its work, the Inquiry is reliant on those 24 organisations who hold documents promptly to tell the 25 Inquiry that they hold such documents and then to turn 1 1 them over to the Inquiry, when requested to do so. 2 The Inquiry makes such requests by serving Rule 9 3 notices, that is notices pursuant to Rule 9 of the 4 Inquiry Rules 2006, to produce such material to the 5 Inquiry. The Inquiry may serve such notices seeking 6 particular names, documents or broader classes of 7 documents, perhaps those which concern an issue or which 8 are within a certain date range or which are held at a 9 certain location. When documents are handed over to the 10 Inquiry there then begins a process, which is set out in 11 the Inquiry's protocols, to assess them for relevance to 12 ensure that any information in them which ought not to 13 be disclosed is redacted before disclosure to Core 14 Participants, and then the documents are disclosed to 15 the Core Participants on an electronic disclosure 16 management system. 17 In order to be able to understand the document 18 retention schemes and systems of relevant organisations, 19 and the processes which they have undertaken in response 20 to the Inquiry's Rule 9 requests, the Inquiry may ask 21 such an organisation to set these matters out in 22 a comprehensive and complete manner in a witness 23 statement, a so-called "disclosure statement". This 24 must be signed by a sufficiently senior and responsible 25 individual within the organisation concerned. And it 2 1 must be supported by a signed statement of truth. This 2 allows the Inquiry to assess the steps that that 3 organisation has taken in response to its Rule 9 4 request, in particular to see whether there are gaps or 5 holes in the process. 6 The Inquiry has served 23 Rule 9 requests on Post 7 Office Limited. It is right to say that the Post Office 8 has disclosed to the Inquiry a vast quantity of 9 disclosure, almost half of all documents held by the 10 Inquiry. 11 On 8 May 2022, Scotland on Sunday published 12 an article by Nick Read, Post Office's chief executive 13 officer. In that article, Mr Read stated that the 14 Post Office had already provided over 3 million 15 documents to the Inquiry. That statement was incorrect. 16 In a letter to the Post Office, dated 13 May 2022, 17 the Inquiry noted that since its conversion back on 18 1 June 2021, the Inquiry had, in fact, received some 19 36,639 documents. Mr Read later apologised for this 20 error in a letter to the Inquiry, dated 27 May 2022, and 21 that letter of apology was published on the Inquiry's 22 website. 23 However, in the light of the discrepancy, and 24 because of a number of tranches of disclosure had by 25 then been completed by the Post Office, the Inquiry 3 1 sought an interim disclosure statement from the 2 Post Office. 3 On 27 May 2022, the Post Office provided 4 a disclosure statement from Ben Foat, its general 5 counsel. That statement which you've got, sir, as have 6 the Core Participants, discusses hard copy documents at 7 paragraphs 29 to 33 -- just for your note, there's no 8 need to turn it up now, that's tab 4, pages 16 to 17 -- 9 at a relatively high level. 10 It did not reveal the range of locations that we now 11 know at which hard copy documents are, in fact, located 12 nor the scale of the disclosure exercise connected with 13 hard copy documents that the Post Office needed to 14 undertake. Those matters have been revealed more 15 recently. 16 To explain further, the Post Office has disclosed to 17 the Inquiry that it is undertaking a significant 18 organisation and review of a large number of boxes of 19 hard copy documents and files held at various 20 Post Office locations throughout the United Kingdom. 21 Over a series of letters, the Inquiry tried to better 22 understand the scope of the exercise, so that we could 23 consider its potential impact on our work and our 24 timetables. We also tried to understand the overlap 25 between recent correspondence and the previous interim 4 1 disclosure statement. 2 In short, the Post Office's ongoing hard copy review 3 and related correspondence puts the Inquiry in a very 4 difficult position. We have limited information by 5 which we can determine how much of the hard copy review 6 is left to complete. We cannot know when we will be 7 satisfied that the Post Office has completed its 8 disclosure in response to all extant Rule 9 requests. 9 By way of example, some of Post Office's recent hard 10 copy document disclosures relate to Rule 9 requests that 11 the Inquiry issued as far as back as October of last 12 year. This makes it very difficult for the Inquiry to 13 know when the Post Office's disclosure will end and, 14 therefore, very difficult for the Inquiry to work 15 effectively and efficiently through the phases. We may 16 be provided with highly relevant Post Office documents 17 relevant to earlier phases after the hearings for those 18 phases are complete. Those documents may be relevant to 19 witnesses who have already given evidence and who may 20 therefore need to be recalled. 21 However, the Inquiry has taken a number of steps as 22 a result of recent events. Firstly, the Inquiry has 23 requested a second interim disclosure statement from the 24 Post Office, addressing their hard copy document review. 25 In relation to the hard copy documents, this must 5 1 address the following things: 2 A chronology of the work that the Post Office has 3 undertaken to locate, upload, review and then disclose 4 its hard copy documents since 1 June 2021, the 5 setting-up date of this statutory Inquiry. 6 The work that remains as at the date of the interim 7 statement. 8 It must set out all of Post Office's hard copy 9 repositories that the Post Office has been asked to 10 expressly state the name of each such location. 11 The number of documents or, if the total number is 12 unknown, to state as such and provide the number of 13 boxes or files held at each repository. 14 An explanation of the upload review or other 15 disclosure-related tasks being undertaken at each 16 repository, in other words an explanation of the review 17 progress made at each repository site. 18 That statement is due by no later than 4.00 pm on 19 18 October 2022, after the oral opening statements have 20 been completed. At this stage, the Inquiry is minded to 21 update representatives for Core Participants who have 22 signed undertakings on or shortly after receipt of this 23 second statement. The second step that the Inquiry has 24 taken, as you will have seen from the correspondence 25 before you, is that, as soon as the Inquiry was alerted 6 1 to the issue, it requested that the Post Office should 2 review the hard copy documents or material that was 3 relevant to Phase 2 of the Inquiry, and prioritise the 4 disclosure of that material. 5 For its part, the Inquiry has sought to prioritise 6 such material for onward disclosure to the Core 7 Participants when it is received from the Post Office. 8 It should be noted, however, that the Post Office 9 has a large number of Phase 2 documents, with providers 10 of documents at the moment and we have asked for some 11 ambitious turnaround times in order to give disclosure 12 ahead of relevant witnesses giving evidence. 13 Third, the Inquiry took the decision that it was 14 necessary, in the interests of openness and 15 transparency, to disclose all of the material about 16 which I've just spoken -- the disclosure assurance 17 statement, the correspondence that occurred since 18 then -- to all of the Core Participants. That happened 19 on Thursday last week and, of course, it was decided 20 that it was necessary to allow Core Participants the 21 opportunity to make any submissions on these important 22 issues today and so, accordingly, we have allowed time 23 for that to happen this morning. 24 Also the Inquiry assessed whether, in the light of 25 the information now provided by the Post Office, some of 7 1 which is not entirely clear, it was necessary to adjourn 2 the starting date of Phase 2 of the Inquiry, to allow 3 time for all of the disclosure of relevant material by 4 the Post Office to occur. 5 The ongoing work by the Post Office, in relation to 6 a large number of hard copy files and boxes across 7 various locations, the scope and significance of which 8 the Inquiry had not previously been made fully aware, 9 means that it's likely that some further documents that 10 are relevant to Phase 2 of the Inquiry will only be 11 disclosed during the course of the Inquiry. But what 12 I would say is that the Inquiry has always made clear 13 that the phases of the Inquiry are not hermetically 14 sealed and witnesses can be called and re-called at 15 later stages. Further witness statements can be sought 16 and evidence can be read into the record at any time. 17 This Inquiry will not conclude until all Core 18 Participants have met their disclosure obligations in 19 full. 20 In our view, there is not sufficient reason to 21 interrupt the good progress that this Inquiry is making. 22 It may be that, over the lifetime of the Inquiry, Core 23 Participants are provided with documents or with other 24 information shortly before the hearings but this will be 25 necessary to achieve or to help to achieve one of the 8 1 Inquiry's core aims: that is to establish what went 2 wrong as swiftly as possible so as to hold those 3 responsible accountable, to learn lessons and prevent 4 this tragedy from occurring again. 5 Fifth, sir, we suggest, as your legal team, that you 6 devote some time within Phase 2 of the Inquiry to 7 investigating the adequacy of the disclosure that the 8 Post Office has given to the Inquiry. It is, of course, 9 something of a paradox, if not a matter which is 10 dripping in irony, that I should begin this Inquiry by 11 a discussion over the adequacy of the Post Office's 12 disclosure to the Inquiry when one of the very matters 13 that the Inquiry is investigating is the Post Office's 14 past non-disclosure to the criminal and civil courts of 15 this country. 16 We appreciate that issues such as this may reinforce 17 the beliefs of many as to the sincerity and accuracy of 18 statements made by the Post Office, as to its intention 19 fully to cooperate with the Inquiry. However, we 20 suggest that this is not a basis on which to lose the 21 momentum which this Inquiry has gained, in particular 22 because it is likely to delay and frustrate the 23 important progress that is being made properly and 24 fairly to compensate all of the victims of this scandal. 25 Sir, that's all I say by way of introduction at the 9 1 moment. You know, sir, who has suggested that they wish 2 to make submissions now. I'll now give the floor to 3 them, beginning, I think, with Mr Stein. 4 SIR WYN WILLIAMS: I think, if it hasn't been made clear, 5 I will hear the submissions in the order that you were 6 each going to make your opening statements, if that 7 makes sense. So I think that's Mr Stein, then 8 Mr Moloney, then Mr Henry, and I believe Ms Gallafent 9 wants to speak, and that's about it at the moment, 10 though I will obviously ask any other Core Participants 11 whether they wish to say anything. 12 It should also be clear to you all that I have 13 expressed a provisional view about the suggestion that 14 I should adjourn the Inquiry and I'm not inclined to do 15 it. But that's not to say that some flight of advocacy 16 may not cause me to think hard and change my mind. But 17 that is my provisional view, essentially for the reasons 18 which Mr Beer has outlined in summary. So I'd be 19 grateful if those who are going to speak this morning 20 focus their submissions on why there should be 21 a postponement. They will have a further opportunity, 22 if I do not postpone, to address issues of disclosure 23 when they open their cases formally. 24 So I would like to focus this morning on whether or 25 not there should be an adjournment, all right? 10 1 So with those introductory remarks, Mr Stein. 2 Submission by MR STEIN 3 MR STEIN: Good morning, alongside Mr Jacobs, I am 4 instructed by Mr Enright and his team at Howe+Co 5 Solicitors and together we act for 153 Core Participants 6 for this Inquiry. 7 Sir, we're very grateful to you for allowing us the 8 opportunity to address you on these disclosure issues, 9 dripping with irony as they are. Our primary submission 10 is that to go ahead now is to allow the Post Office yet 11 again to dictate the pace and content of disclosure. 12 That's what they've been doing for 20 years and that's 13 what we suggest they're trying now and continue to do 14 with this Inquiry. 15 Our clients believe they have earned the right to 16 have a full investigation into this scandal, and we 17 strongly suspect that you agree. We suggest that, for 18 a full investigation to take place, that instead of 19 allowing the Post Office to disclose what it wants when 20 it wants, that you should adjourn this Inquiry, with all 21 of the inconvenience that that will cause, to everybody 22 that is connected with this matter, until at least the 23 disclosure process for these first few modules are 24 complete. 25 The Inquiry has been more than fair, extending the 11 1 time for the Post Office to provide hard copy documents. 2 Sir, the correspondence that we first saw last week on 3 Thursday -- I think it was -- on 6 October at 6.30 in 4 the evening, tells us that the Inquiry extended the time 5 for the Post Office to provide hard copy documents until 6 29 July 2022, and that's an email dated 25 July 2022. 7 The response to that from Herbert Smith Freehills is 8 a reminder to the Inquiry in its letter of 5 August that 9 much of the material that the Inquiry has requested in 10 recent Rule 9 requests is historical, making the point, 11 say Herbert Smith Freehills, that in many instances the 12 material is over 20 years old. Whilst that is 13 absolutely true, perhaps we need to briefly remind 14 ourselves that it is the Post Office that has been 15 fighting this matter tooth and nail for very nearly 16 a decade. It was in July 2013 that Mr Simon Clarke, 17 a solicitor from Cartwright King, who had prosecuted 18 many of the cases, explained to the Post Office itself 19 that the Fujitsu witness, Dr Jenkins, the mainstay of 20 many of its prosecutions, was not to be trusted. 21 It might have been thought that that put the Post 22 Office on some notice, that they may need, at that 23 stage, to gather the material that will be necessary to 24 consider what has happened. 25 Sir, you're also being told that at Chesterfield and 12 1 other sites, in the letter from Herbert Smith Freehills 2 dated 5 August, that the Post Office believes it can 3 decide to what extent disclosure can or will take place. 4 So I quote from the letter of Herbert Smith Freehills 5 dated 5 August of this year: 6 "Notwithstanding that there is a risk that 7 Chesterfield and other sites hold further material that 8 is relevant to the Inquiry's terms of reference, POL 9 considers that to complete a comprehensive hard copy 10 review of all of the material would neither be necessary 11 or proportionate, bearing in mind the volume of material 12 that would need time reviewed on site and the additional 13 time and expenses that would be incurred." 14 Understandably on behalf of the Inquiry, Ms Smith 15 asks in her letter, dated 26 August 2022: 16 "On what basis have you determined that further hard 17 copy reviews are not necessary in addition to not being 18 proportionate?" making a clear point that it is not for 19 them to make such decisions. 20 We've mentioned the fact that the Post Office 21 perhaps should have been on notice considering the 22 background of the matter, regarding the Clarke advices, 23 but not only that: the Second Sight reviews; the 24 judgment number 3 by Mr Justice Fraser in March 2019; 25 judgment number 6 in December 2019; this Inquiry was 13 1 established in non-statutory form on 29 September 2020; 2 in April 2021, the Court of Appeal overturned 3 convictions; and this Inquiry was then converted into 4 the statutory Inquiry on 1 June 2021. 5 There could be no doubt at all that the Post Office 6 has been on notice throughout all of that time that they 7 need to gather all material that would be relevant to 8 the purposes of all of those proceedings, and make sure 9 that they were ready to deal with whatever investigation 10 was required. 11 In the judgment of Lord Justice Holroyde in the 12 Court of Appeal, the failures of investigation and 13 disclosure were, in our judgment, so egregious as to 14 make the prosecution of any of the Horizon cases 15 an affront to the conscience of the court, repeating, 16 really, the point that we have both made -- myself and 17 my learned friend, Mr Beer -- that disclosure really has 18 been at the heart of all of these issues. 19 Now, sir, the terms of reference and scope to this 20 Inquiry state the Government wants to be fully assured 21 that through the Inquiry there is a public summary of 22 the failings associated with Post Office Limited 23 Horizon's IT system and says it will consider all other 24 relevant evidence, listen to those that have been 25 affected, understand what went wrong and assess whether 14 1 lessons have been learned and whether concrete changes 2 have taken place or are under way at the Post Office. 3 If you were sitting, sir, as a High Court judge in 4 this situation, dealing with matters in litigation, our 5 respectful submission is that there would be no 6 hesitation. This would be a matter dealt with by way of 7 an adjournment, an explanation that has already been 8 asked for and a query as to how the costs should be 9 borne. 10 Well, in principle, we submit that the same should 11 apply here. 12 SIR WYN WILLIAMS: Well, that's what I find difficult, 13 because I have all the flexibility of an Inquiry, not 14 a sort of four-week time slot or whatever, which will 15 mess up every other list, and so forth and so on. So 16 I know that analogy is being made but I do think that, 17 in an Inquiry, I have such a great deal of flexibility, 18 compared with a normal court case, that we ought to 19 forget about core procedures, Mr Stein. 20 MR STEIN: The analogy holds good, we say, because, in order 21 to proceed at this stage, without the relevant documents 22 having been disclosed, on which we can make judgments as 23 to how to put forward questions, how to deal with 24 openings, how to, in fact, consider the shape in terms 25 of submissions to the Inquiry, the shape of the Inquiry 15 1 itself, it goes to the questions of what has happened so 2 far, from Mr Cipione any the IT expert that has been 3 brought in, what material should go to him and his team 4 that has considered it over, I think, many months in the 5 summer. 6 So, sir, the difficulty is that the Inquiry may be, 7 in fact, saying "Well, we can deal with it as we go 8 along, this is a rolling Inquiry, we can catch up, we 9 can go back to matters, re-call witnesses". 10 Essentially, our clients say that is jumping to the 11 tune that is being played by the Post Office. 12 Now, you've asked for flights of advocacy to 13 consider the possibility of changing what is, so far, 14 your mind. Well, I'm not sure I'm up to that. What 15 I can, though, is do this, I can say this: the 16 Post Office has denied subpostmasters and mistresses any 17 choice in their lives. They demanded of them 18 investment; they demanded of them application in their 19 work; they demanded of them that they comply with 20 a contract that effectively said that they must pay up, 21 no matter whose fault it is. 22 They then, of those individuals, prosecuted them 23 before the civil courts and the criminal courts and many 24 went to prison. Their lives have been dogged by lack of 25 choice from the Post Office. It is a significant matter 16 1 that we ask you to take into account, sir, that their 2 choice is to adjourn. 3 That doesn't mean that this matter should 4 necessarily be left today and we abandoned all of this 5 equipment that's been so kindly and time consumingly set 6 up. What it does mean is that you could go ahead with 7 what we can so far, by way of openings but then adjourn 8 before we get to evidence. 9 So before I sit down, let me just read you three 10 examples of the many emails that we have had concerning 11 this particular question from our clients. 12 From Malcolm Simpson: 13 "I'm emailing you by return to fully support your 14 actions following this development on the eve of the 15 Inquiry. As you have stated in your letter to Sir Wyn, 16 none of us is surprised by the Post Office's actions. 17 Just angry and disappointed that they have been playing 18 the same old games with absolutely no respect for 19 anyone, just protect the brand, despite their reputation 20 being continually shredded because of their consistently 21 behaving in the worst possible way for many years. 22 Abject arrogance. Please keep fighting tooth and nail 23 to bring these people to task." 24 Rita Threlfall: 25 "I fully support and trust any action you feel 17 1 necessary regarding the Inquiry. I'm mortified to hear 2 of Post Office behaviour. Have we not been proven 3 innocent? It is a living nightmare grieving for our 4 past lives and some redress. Will we ever be treated 5 fairly?" 6 John Stephens: 7 "The Post Office and their legal team's behaviour 8 comes as no surprise. The events of the last 20 years 9 have clearly shown they have no intention to do anything 10 but hide their actions from bottom to top up behind 11 smoke and mirrors. Justice Fraser could not have been 12 clearer on his opinion of their actions and we are yet 13 again dealing with their duplicitous behaviour." 14 Our clients want this Inquiry to proceed. They want 15 this Inquiry to proceed with all due celerity. They 16 want this matter to find who is responsible, who is 17 accountable. They want it done properly. They want it 18 done with this Inquiry in charge of disclosure, rather 19 than the Post Office in charge of disclosure. 20 This is the only opportunity to have this particular 21 matter looked at in its entirety. Our client's point 22 is: let's start it right. 23 Sir, those are our submissions. 24 SIR WYN WILLIAMS: Thank you, Mr Stein for powerful and 25 succinct submissions. 18 1 Mr Moloney. 2 Submission by MR MOLONEY 3 MR MOLONEY: Thank you, sir. 4 Sir, this joint application is pursued with 5 considerable regret. Until Thursday evening, our 6 understanding was that the Inquiry was satisfied with 7 the response to each of the Rule 9 requests and we don't 8 repeat the sorry history of the Post Office disclosure 9 failings over the years. They are extensive, as 10 outlined by my colleague Mr Stein, King's Counsel. In 11 that context, sir, the fact that disclosure issues have 12 arisen again is surprising, only in the sense that it 13 would have been hoped that Post Office would have got 14 its act together by now, but no. 15 To illustrate that, sir, might we just go to one 16 document that the Rule 9 process has generated, and 17 I think this can go on the screen, yes, I'm grateful, to 18 Mr Beer, King's Counsel. It's the "Minutes of the 19 Audit, Risk and Compliance Committee of Post Office 20 Limited" on 22 September 2020, and the reference for 21 those who seek to find it later is POL00021462. These 22 are the "Minutes of the Audit, Risk and Compliance 23 Committee from 22 September 2020. 24 If we could please go forward to page 5 and to the 25 bottom of that page, we see there at 4.8, this is the 19 1 commencement of this topic within the minutes, which is: 2 "GLO/Freedom of Information (FOI) Requests/GDPR and 3 data protection: The team is extremely busy dealing with 4 requests related to Historic Shortfall Scheme and 5 related/linked FOI requests. He advised of 39 FOI 6 enquiries considered vexatious which would be reviewed 7 accordingly." 8 But over the page, more importantly, from September 9 2020: 10 "Of serious concern and Committee discussion, was 11 the discovery of 31,000 boxes previously unknown to the 12 wider organisation, which are being reviewed ... 13 "The Committee questioned whether management had 14 a handle on data management controls such as archiving, 15 and remarked on the lack of accountability within POL. 16 "NR [that's Nick Read, the group chief executive 17 officer] remarked that this was an unacceptable incident 18 and that he did not expect this to brought to the 19 Committee's attention by compliance. A paper on data 20 controls is expected at GE for discussion. 21 "The Committee recommended a data amnesty be 22 organised for all Post Offices be considered." 23 Then if we just move forward to the action points on 24 page 13, we see at 4.8 that the recommendation is that: 25 "A paper on data controls ... is expected at GE for 20 1 discussion", following the identification of 31,000 2 boxes of data. 3 Over the page, 4.8 continued at page 14, that: 4 "The Committee recommended a data amnesty be 5 organised for all Post Offices be considered." 6 Sir, that was in the context and that was at a time 7 when disclosure was at its height in respect of the 8 criminal appeals. It provides context, we say, sir, for 9 the Post Office's latest citation of its administrative 10 arrangements in response to the Inquiry's requests. 11 We are years on from that unacceptable incident, 12 just over two years on, from that unacceptable incident, 13 and the Post Office has long known that this Inquiry 14 would need its full and careful cooperation. 15 We say that an adjournment is necessary in the 16 interests of preserving the integrity and effectiveness 17 of this Inquiry. 18 Sir, to focus now on the main question you ask: why 19 shouldn't you stick to your provisional decision, rather 20 than simply complaining about what Post Office has done 21 and in the past and is doing now? To proceed to opening 22 but, much more importantly, oral evidence in these 23 circumstances creates a real risk of prejudice, both to 24 Core Participants and to witnesses as well, sir, because 25 material emerges which might undermine the points that 21 1 I might, for example, wish to develop in questioning, 2 material may emerge which would alter the whole 3 structure of questioning by Core Participants, and 4 coming back to witnesses is never ideal. 5 Indeed, paradoxically, sir, in an attempt -- and 6 I don't say this is your motivation for your provisional 7 decision, sir -- but in an attempt to save time now, it 8 may extend the time that you have to sit to hear 9 evidence. 10 Moreover, perhaps, in keeping with the emails that 11 Mr Stein has just read out, far from allaying rumour and 12 suspicion, we say, with deep regret, that proceeding to 13 evidence would, rightly or wrongly, potentially generate 14 considerable speculation. 15 So in the context of the long period of time 16 preparing for this Inquiry, and the period of time that 17 this Inquiry will receive evidence, a short adjournment 18 would, we say be proportionate. Our client's, in the 19 impact hearings, have told you, sir, how important this 20 Inquiry is to them and they've put their faith in the 21 Inquiry and your team and, sir, they're impatient to 22 know why the Post Office acted as it did. It is because 23 the Inquiry is so important to them and to the public 24 interest that our clients would ask that it be done 25 right, as they might see it, and be seen to be done 22 1 right, and that an adjournment at this time of a short 2 duration would be proportionate. 3 That's all we wish to say, sir. 4 SIR WYN WILLIAMS: Thank you very much, Mr Moloney. 5 Mr Henry? 6 Submission by MR HENRY 7 MR HENRY: Thank you, sir. 8 The effect of this announcement has had 9 a psychological shock upon the Core Participants that I, 10 together with Ms Page and Mr Schwarz of Hodge Jones & 11 Allen, represent and have had the honour to represent, 12 because it, as it were, echoes appalling instances of 13 injustice that occurred in their own lives. 14 Take the case, for example, of Ms Felstead, who was 15 told that she could be part of the mediation process and 16 then was told that she could not, and it transported her 17 back almost 20 years to when, as a teenager, she was 18 sent to a Young Offenders' Institution. I suppose the 19 reason why I stand on my feet now and I support my 20 learned friends is for this reason: it's to treat these 21 people at last with dignity, a dignitarian approach, not 22 a pragmatic approach. 23 I do not, sir, submit that you are motivated by 24 saving time. You will take as much time as you need. 25 What you're concerned about is not losing momentum, but 23 1 what is momentum if we set the wrong tone at the outset, 2 if the angle of trajectory is distorted by 3 non-disclosure? Then you may not reach your ultimate 4 objective, the target that you, I submit, long for as 5 well, because it is evident from everything you have 6 said and done that you want this Inquiry to be effective 7 and that you have been, notwithstanding your many years 8 in the practice of the law and dispensing justice, 9 shocked by what you have already heard. 10 I'm afraid I can't use the analogy of a puppy 11 because, of course, the Post Office is a far more 12 sinister and, I regret to submit, malevolent animal, but 13 you have to train an unruly participant and the only way 14 you can train it is by actually not acceding to its 15 continuing contempt for the process. It has 16 demonstrated time and time again that it cannot be 17 relied upon or trusted to comply with court orders. 18 Once more, it has demonstrated that it is unwilling or 19 unable to meet deadlines which have been set and it is 20 utterly incorrigible. 21 So really, I suppose, my submission is Pavlovian, 22 that yes, we do lose, to some extent momentum, but we 23 will regroup and then we will attack this subject with 24 even greater momentum and confidence, knowing that 25 a marker has not simply been laid down but imposed upon 24 1 an institution which seems incapable of acting fairly 2 towards those it has maimed and marred. 3 As you know, sir, in the case of the Core 4 Participants we represent, the Post Office exercised 5 almost total power over them. It treated them 6 contemptuously, it subverted the rule of law to suit its 7 own agenda. It twisted, distorted and overrode vital 8 processes in both civil and criminal courts, depriving 9 the Core Participants of vital rights, which meant that 10 the law could not protect them, which meant that the 11 system of justice that we fondly believed would 12 intervene, in fact, was enlisted in support of the 13 Post Office's vendetta, because it did flatten people 14 who sought to challenge the narrative. 15 It is therefore now time, we respectfully submit, 16 that control is imposed upon them, that they are treated 17 with firm and obdurate -- well, not obdurate, but with 18 firm and rigorously imposed resolution that this must 19 not be allowed to take place because, otherwise, 20 I respectfully submit, as the history of the Horizon 21 litigation in the High Court has shown and also the 22 criminal litigation in the Court of Appeal, that the 23 Post Office will fail to comply. 24 So out of dignity for those we represent, and for 25 all the Core Participants represented by my learned 25 1 friends, and also out of, I suppose, a Pavlovian 2 imperative, you have to impose control now, sir, upon 3 them. This is a seismic moment and I respectfully 4 submit that your laudable desire for momentum has to be 5 sacrificed to ensure that the Post Office do not 6 continue to act in its arrogant and imperious way. 7 Those are my submissions. 8 SIR WYN WILLIAMS: Thank you, Mr Henry. 9 Is there any other Core Participant present who 10 wishes to support the application for an adjournment, 11 other than the Post Office? I don't know what they're 12 going to do. Let's see if there's anyone else who wants 13 to say anything for the moment. 14 Right. Well, then, I think Ms Gallafent, you wanted 15 to make submissions. 16 Submission by MS GALLAFENT 17 MS GALLAFENT: Thank you, sir. 18 We're grateful for the opportunity to respond to 19 concerns raised by representatives of the postmaster 20 Core Participants. The allegation made in the 21 application that we received on Monday is that Post 22 Office is continuing in what is alleged to be a pattern 23 of late and partial disclosure of relevant documents as 24 well as continuing to obfuscate attempts by others to 25 attain those documents. 26 1 We emphatically deny that Post Office has 2 deliberately sought to make late and partial disclosure 3 of relevant documents. To put Post Office's disclosure 4 exercise in relation to hard copy documents into 5 context, it's important to note that, to date, first as 6 Mr Beer indicated, there have been 23 separate Rule 9 7 requests issued to Post Office. In response, 8 approximately 95,000 documents have been produced by 9 Post Office to the Inquiry. That's across more than 10 60 separate productions. 11 The production of those documents has taken place 12 from a review pool of approximately 50 million documents 13 and then a review of approximately 213,000 documents 14 deemed to be relevant from the initial search. 15 The documents that have been disclosed were collated 16 from an assessment of 173 Post Office databases, 17 201 Post Office SharePoint sites, eight external digital 18 repositories and 248 physical locations. 19 It is understood that there is some suggestion by 20 Mr Stein that Post Office's disclosure has resulted 21 already in delay to the start of this phase. For the 22 avoidance of any doubt, our understanding, sir, from 23 your public announcements in relation to the starting 24 date of this phase, is it was because of the volume of 25 disclosure that the Inquiry had received and would wish 27 1 to consider, that of course is not only by Post Office 2 but by other Core Participants, certainly not a failure 3 to make disclosure. 4 What we say the correspondence between my 5 instructing solicitors and the Inquiry team demonstrates 6 is that Post Office did draw the Inquiry's attention to 7 some of the challenges faced in relation to hard copy 8 documents in the interim disclosure statement dated 9 27 May 2022. 10 At the beginning of August, Post Office updated and 11 proactively updated the Inquiry as to the progress that 12 it was making in relation to hard copy documents. In 13 mid-August, it indicated it would shortly be in 14 a position to produce the first tranche of additional 15 relevant hard copy documents, noting that fewer than 16 100 further responsive documents have been identified 17 relating to the various Rule 9 requests that have been 18 received at that time. There were 16 at that point. 19 By 6 September, the number of additional hard copy 20 documents which were provisionally identified as 21 relevant to Phase 2 was around 625. After review, 22 documents which were identified as relevant to Phase 2, 23 as well as Phase 4 were provided to the Inquiry on 24 13 September 2022. 25 The disclosure of those documents was made as soon 28 1 as it reasonably could have been, having regard to the 2 nature of the exercise being undertaken, and there was 3 certainly no intention to delay their disclosure. There 4 was equally no intention to obfuscate attempts by the 5 Inquiry to obtain those documents. On the contrary, in 6 correspondence, Post Office set out in detail the steps 7 that it was taking in order to review potentially 8 relevant documents so that it could make disclosure of 9 any such documents to the Inquiry. 10 We understand from Mr Beer's submission this morning 11 that the Inquiry team felt that further detail could and 12 should have been provided but that is something that was 13 and can continue to be addressed both in correspondence 14 and, of course, in the disclosure statement, the second 15 interim disclosure statement, which will be supplied to 16 the Inquiry on or before next Tuesday. 17 So we emphatically refute any suggestion that we 18 have intended to obfuscate attempts by you, sir, and 19 your team to obtain these documents. 20 There are two ongoing areas in which the exercise of 21 identifying and reviewing potentially responsive 22 documents has not yet been completed and these appear in 23 the correspondence and let me summarise them. 24 The first concerns unindexed or inadequately indexed 25 boxes and files. Now, this issue was first identified 29 1 in the interim disclosure statement from May of this 2 year, which identified the lack of indexing or the 3 inadequacy of certain indexing, at the time understood 4 to be about 5,000 documents at its offshore storage 5 provider's site. It's said that those had recently been 6 indexed as part of a program undertaken by Post Office, 7 and the indices which had been produced were in the 8 process of arranging to be reviewed. 9 It subsequently transpired that, in total, there 10 were about 5,000 unindexed boxes and files but also 11 about another 4,000 boxes where the indexing was 12 inadequate, and Post Office via my instructing 13 solicitors updated the Inquiry about that on 5 August of 14 this year. 15 The new indices, including those where the indexing 16 was inadequate, were provided to Post Office's 17 solicitors on a rolling weekly basis, in order for them 18 to review each new index and identify if the boxes or 19 files contained any documents responsive for the Rule 9 20 requests it had received by that date. 21 Having reviewed the new indices produced during 22 August, Post Office's solicitors identified an initial 23 tranche of documents, which it considered might relate 24 to Rule 9s, responsive to Phase 2 of the Inquiry and 25 these, as I've indicated, were provided to the Inquiry 30 1 in early September. 2 A tranche of 278-items was also identified in August 3 which they considered may relate to Rule 9s responsive 4 to Phase 3 of the Inquiry. Now, these documents are in 5 the process of being scanned and, in some cases, 6 reviewed and Post Office expects to be in a position to 7 provide any relevant documents identified well in 8 advance of the start of Phase 3 of the Inquiry. 9 In addition, after reviewing a further tranche of 10 indices, received throughout the month of September -- 11 as I've indicated, they were provided on a rolling basis 12 as the process continued -- during the week commencing 13 26 September of this year, a further 111 boxes and 14 19 files of hard copy documents were identified from 15 those new indices as being potentially relevant to 16 Rule 9s that had previously been received. 17 Of those boxes and files, as at today's date, 18 16 items, either boxes or files, have been identified as 19 being potentially relevant to Phase 2, 89 potentially 20 relevant to Phase 3 and 25 potentially relevant to 21 Phase 4. 22 There have since been two supplemental indices 23 received from the indexation exercises completed by 24 Post Office. These have been reviewed for relevance to 25 current Rule 9 requests. None of those documents have 31 1 been relevant, identified as relevant to Phase 2. 2 For completeness, sir, I note that the indexing 3 exercise being undertaken by Post Office is nearing 4 completion. We understand there may be additional 5 indices which it's anticipated will be provided to those 6 instructing me once finalised and they will be reviewed 7 for potential relevance in the same way as previous 8 indices. 9 Can I go back, then, to the additional 111 boxes and 10 19 files? It had initially been intended for these 11 relatively recently identified items to be scanned 12 before being reviewed. Post Office has now arranged for 13 a team of five of its solicitors from Herbert Smith 14 Freehills and a senior employee of Post Office to travel 15 to the offsite storage provider's site in Winchester 16 tomorrow and Thursday, if necessary, to conduct the 17 review in person. 18 The team will prioritise the review of any documents 19 potentially responsive to Rule 9 requests in relation to 20 Phase 2 and, if any are identified, Post Office will 21 obviously provide copies of such documents to the 22 Inquiry at the earliest possible opportunity. 23 The second area in which the disclosure exercise has 24 not yet been completed, and again the background is set 25 out in the correspondence, concerns files which were 32 1 uploaded to the online document hosting platform 2 Omnidocs. At the time of Herbert Smith Freehills' 3 letter of 6 September when these were referred to, more 4 than 28,000 files had been uploaded, of which 17,862 had 5 been identified, using a basic search, as containing the 6 word "Horizon". 7 It has subsequently proved harder than anticipated 8 to review those files, due to the limited search 9 functionality of the particular platform onto which they 10 had been uploaded, and it was Post Office's initial 11 view, as communicated to the Inquiry on 29 September, 12 that it would be unlikely to be possible to review the 13 files in a timely or proportionate manner. 14 After further consideration, Post Office determined 15 last week that it should review a sample of those 16 documents to reach a more informed view of the extent to 17 which these files might contain potentially responsive 18 documents. 19 Its solicitors will therefore now be undertaking 20 a review of 500 documents from the Omnidocs set, which 21 they expect to be able to complete by next week. 22 On the basis of the outcome of that review, Post 23 Office will be in a position to update the Inquiry as to 24 whether it considers that the public interest in 25 obtaining the information outweighs the cost and time, 33 1 bearing in mind how important the information is likely 2 to be. That, of course, reflects the test which is 3 established by section 21.4(b) of the Inquiries Act, in 4 relation to a claim by a person, it's not reasonable in 5 all the circumstances to require them to comply with 6 a section 21 notice to produce a document in their 7 custody or control. Of course, no such notices had been 8 issued in relation to any of the Rule 9s to date but, in 9 our submission, it is appropriate to have regard to the 10 same threshold test when considering whether it is 11 reasonable for Post Office to respond to a Rule 9. 12 Of course, we make no submissions at this time, 13 prior to the sample, as to whether it would or wouldn't 14 be. 15 We fully recognise that if the sample exercise 16 indicates that the public interest would outweigh cost 17 and time, it would have to move with all possible 18 expedition to complete an appropriate review of the full 19 shade of files to minimise the impact on the oral 20 hearings in Phase 2. 21 All of the issues that I've identified in terms of 22 recent developments and updates from the end of the 23 correspondence trail will, of course, be covered in the 24 second interim disclosure statement due next Tuesday. 25 In these circumstances, our position is first that 34 1 there is no basis for adjourning the hearings this week, 2 and the application to do so should be declined. 3 Post Office would wish to reiterate it remains 4 committed to responding fully to all Rule 9 requests, 5 unless there are particular circumstances where it 6 considers it's not reasonable to do so, which it will 7 then invite the Inquiry to consider and offer a view on. 8 It will continue to flag up to the Inquiry in 9 correspondence any difficulties or potential delays with 10 disclosure exercises, not limited to Phase 2 but 11 otherwise, and seek to find practical and workable ways 12 through. 13 It very much apologises for the fact that it is 14 necessary for this issue at the take up time at the 15 outset of the hearing but we recognise, of course, the 16 concerns and the rationale for them raised by my learned 17 friends. 18 We fully recognise that the Inquiry will wish to 19 review the situation once it is in receipt of the second 20 interim disclosure statement and we note Mr Beer's 21 suggestion that some time during the forthcoming phase 22 can be taken on the issue. Obviously, we don't object 23 to this action. In the circumstances, we respectfully 24 agree that there is no basis on which to lose the 25 momentum provided by the start of this phase, in 35 1 particular not to adjourn today, and we say matters 2 thereafter are matters that can properly and fairly be 3 considered during the course of Phase 2 and, of course, 4 the Inquiry will make such directions or such decisions 5 as it considers appropriate in due course. 6 Thank you. 7 SIR WYN WILLIAMS: Thank you. 8 Before I ask Mr Beer if he wishes to say anything, 9 are there any Core Participants present who wish to 10 support the view that I should not adjourn or postpone 11 the hearings? Right. 12 Mr Beer. 13 Reply by MR BEER 14 MR BEER: Sir, two things. Firstly, it probably wouldn't 15 profit you for me to go through the file of 16 correspondence that you've got to pick out of it areas 17 of contrast between the information that has now emerged 18 and what the Inquiry was told earlier in the piece from 19 May onwards. I can do that if it's necessary but 20 I think it probably wouldn't be. 21 SIR WYN WILLIAMS: Well, I'm going to ask you the direct 22 question, Mr Beer: in the light of what the various 23 parties have said, do you wish to modify, in effect, the 24 advice you were giving me in your opening statement? 25 MR BEER: No, thank you, sir. 36 1 The second thing I wanted to say is that we will, of 2 course, give close scrutiny to the information that 3 Ms Gallafent has just provided, which, to an extent, 4 goes beyond that which we already knew. 5 SIR WYN WILLIAMS: Right. It's 11.25. I will take a little 6 time to reflect upon what is being said to me. So 7 I shall come back at 11.40 or thereabouts, and tell you 8 how I propose to proceed. Thank you. 9 MR STEIN: Sir, may I raise one matter? My instructing 10 solicitors have prepared a schedule, a short schedule, 11 you'll be pleased to hear, of client comments. This 12 represents only a sample of what we've been told. 13 Obviously, it is a matter for the Inquiry to look at, 14 and can be disclosed to my learned friends. 15 SIR WYN WILLIAMS: Well, I'm very happy to receive it as 16 you'd expect, Mr Stein, but I can well understand that 17 many of your clients are happy with what you've told 18 me -- "happy" is the wrong word -- are content with what 19 you've told me, and that they're fairly represented by 20 the three specimens you gave. But if you think that 21 I would be further assisted by it, of course I will 22 receive it. 23 MR STEIN: Sir, we certainly think you should read it. 24 SIR WYN WILLIAMS: Fine, then I will. 25 MR STEIN: Thank you. 37 1 SIR WYN WILLIAMS: Is that in hard form or what? Because 2 I take it you'd like me to read it before I announce my 3 decision? 4 MR STEIN: It's been emailed to your solicitors, sir. 5 SIR WYN WILLIAMS: Fine, and no doubt they will pass it on 6 very quickly. 7 So it'll be 11.40 or thereabouts, depending upon the 8 speed of transfer. Thank you. 9 (11.26 am) 10 (A short break) 11 (11.42 am) 12 SIR WYN WILLIAMS: Mr Stein, just to clarify what I had 13 received, I was given a hard copy document which has 14 representations from 17 of your clients, if my adding up 15 is accurate, beginning with Ms Palmer and ending with 16 Ms Hazzleton, and then my solicitors to the Inquiry had 17 a separate document with nine names on it, sent by 18 email, most of which are different from these but there 19 are two or three overlaps. So I'm proceeding on the 20 basis that I have read approximately 25 representations. 21 Is that a fair summary of the position? 22 MR STEIN: Sir, yes. I think what has happened is that 23 because this has been quite a fast response -- 24 SIR WYN WILLIAMS: Yes, sure. 25 MR STEIN: -- us having been put on notice last Thursday, 38 1 you've had the full list but the smaller schedule is, in 2 fact, the ones that we decided should go to the Inquiry. 3 SIR WYN WILLIAMS: Right. 4 MR STEIN: The full list was one, in fact, I believe was 5 sent to the team here so that I could get a hard copy. 6 SIR WYN WILLIAMS: Fine. 7 MR STEIN: But I don't think it does cause us any problems 8 at all and you've seen -- 9 SIR WYN WILLIAMS: No, and unless you say otherwise, I think 10 it's only right, since you asked me to take this into 11 account, that both documents go to the Core Participants 12 in due course. 13 MR STEIN: Yes, I've briefly taken instructions and we 14 agree. 15 SIR WYN WILLIAMS: Fine. Thank you. 16 RULING 17 SIR WYN WILLIAMS: Let me say at once that, in reaching my 18 decision, I have taken account of the representations 19 which I have read from a number of Core Participants 20 and, as I've said, the full document begins with 21 representations from Ms Palmer and ends with 22 representations from Ms Hazzleton. 23 The representations support an application which has 24 been made to me to adjourn or postpone the start of 25 Phase 2 of the Inquiry. I say start because it became 39 1 clear, during the course of the oral submissions, that 2 at least some of those supporting a postponement would 3 be content for opening statements to be made but do not 4 accept that I should begin to hear evidence. 5 It is obviously regrettable that disclosure of 6 documents potentially relevant to Phase 2 is not yet 7 complete. That seems to me to be clear from the 8 correspondence which everyone has seen and from the oral 9 submissions which I have heard today. 10 That was not a surprise to me, in the sense that my 11 team has been reviewing this issue over the last number 12 of many weeks, and my legal team has been considering 13 over that time, whether or not it was appropriate to 14 start these proceedings on this date. As Mr Beer 15 explained in his opening remarks, notwithstanding the 16 fact that disclosure in relation to Phase 2 was not 17 complete, he and the legal team had reached the 18 conclusion that, nonetheless, it was appropriate and 19 reasonable to begin today. 20 I issued a provisional view to the same effect after 21 I had received the written representations made on 22 behalf of the Core Participants who sought 23 an adjournment. 24 I say now that, despite the powerful advocacy which 25 had been displayed before me this morning, I am still of 40 1 that provisional view. 2 A public inquiry is a flexible creature. I think 3 those of you who have appeared before me regularly know 4 that I am a flexible creature. I do not think it 5 appropriate to be hamstrung by straitjackets or anything 6 of the like. The issue for me, as I see it, is whether 7 or not I can proceed fairly, reasonably and 8 appropriately, notwithstanding that disclosure is not 9 yet complete. I believe that with appropriate 10 management and assistance from everyone, which includes 11 my legal team and every other legal team, I can proceed. 12 The plain fact is that when one is investigating 13 events which occurred 20 years ago, as we are in this 14 phase, it is of no surprise that sometimes there are 15 glitches in relation to disclosure. I appreciate that 16 there are many people listening to my words who might 17 wonder whether or not I am going to control disclosure 18 in the way that I have been invited to do so. 19 Let me assure them that I do intend to control 20 disclosure. No one should be under any illusions. The 21 obligation to disclose relevant documents is ongoing and 22 will persist throughout this Inquiry until the very day 23 when I hand over my report to the Minister. 24 I wish to make it clear that, if I reach 25 a conclusion at any time that there is either accidental 41 1 or, even worse, deliberate, non-disclosure of relevant 2 documents, I will use all the extensive powers at my 3 disposal to obtain the documents which have not been 4 disclosed. 5 Everyone should understand, and I know that the 6 lawyers do understand, that proper disclosure is crucial 7 to the success of this Inquiry. 8 Those are general remarks. I have considered 9 whether we have reached a point where we need to pause 10 because there is a danger that the non-disclosure which 11 has occurred to date will interfere with my aims for 12 this Inquiry. For the reasons essentially articulated 13 by Mr Beer, I have reached the conclusion that that 14 stage has not been reached. 15 I am satisfied that I can manage disclosure. If it 16 is necessary, I will set aside days in this phase or any 17 other phase to consider disclosure as a discrete topic. 18 If it is necessary, I will attribute blame to any 19 party where that is justified in relation to 20 non-disclosure. I will not deflect from being critical 21 if it is necessary to do so. So this is a crucial part 22 of this Inquiry and I wanted to lay down those 23 guidelines, as I will call them, in the hope that 24 I never need to get to directions or even more draconian 25 use of powers. 42 1 I also have to bear in mind the effect that 2 an adjournment or postponement would have at this stage 3 of the Inquiry. With respect to those who suggested 4 that it might be a short adjournment, I beg to differ. 5 The reality of an adjournment would be a reasonably 6 lengthy period of time while I satisfied myself that 7 every single relevant document had been disclosed. That 8 would have a very significant impact upon those 9 timetables which have already been drawn up with 10 considerable care by my team and it would have a very 11 significant impact, therefore, going forward on every 12 other phase of this Inquiry. 13 While expediency about timetables is not 14 an overriding consideration, it is an important 15 consideration for all those subpostmasters -- and I use 16 the term generically, as we always have -- because they 17 do need answers as soon as is reasonably practicable, as 18 I have been at pains to stress in virtually every public 19 statement I've ever made. 20 So balancing all the relevant considerations and 21 despite the powerful advocacy of those promoting 22 a postponement, I've decided we should carry on. But 23 let me make one thing clear: the disclosure duty is 24 a continuing one and I will supervise it with as much 25 vigour as I can. Throughout my years as a lawyer and 43 1 judge, I have been in too many cases where disclosure 2 difficulties have started to become, let's say, very 3 difficult to reconcile with proper objectives. I will 4 not allow that to occur in this Inquiry. 5 Thank you. 6 Mr Beer? 7 Opening statement by MR BEER 8 MR BEER: Sir, thank you. If I may, I'll open the remaining 9 phases of the Inquiry. 10 The long fought -- 11 SIR WYN WILLIAMS: Actually, Mr Beer, before you start and 12 to save my aged hand, there used to be in this Inquiry 13 almost a more or less contemporaneous transcript of what 14 you are saying, which saved me from having to make 15 extensive notes, even though in an old-fashioned way, 16 I used to try. Is that facility still available? 17 MR BEER: Sir, it is and it should be on the screen in front 18 of you, I think. I'll just pause. 19 SIR WYN WILLIAMS: Even pressing the button, which is about 20 as much technology as I'm good for, doesn't seem to 21 bring that up. 22 MR BEER: I'll pass no comment on that last remark, other 23 than to recognise it. I wonder whether somebody from 24 RTS could help. 25 Ah, I understand that you've got an evidence -- sir, 44 1 you've got a transcript screen not an evidence screen. 2 That will be rectified. 3 SIR WYN WILLIAMS: So at least before lunch I have to resort 4 to the old-fashioned note taking, Mr Beer? 5 MR BEER: Well, not completely, because obviously 6 a transcript will be available in due course. 7 SIR WYN WILLIAMS: Fine. 8 MR BEER: As I was saying, the long-fought group litigation 9 in Bates & Others v the Post Office came to an end in 10 December 2019. 11 On 26 February 2020, the then Prime Minister, Boris 12 Johnson, committed to getting "to the bottom of the 13 matter" and by 10 June that year, the Government had 14 confirmed that there would be what was first called 15 an independent review to be led by an independent chair. 16 The Post Office Horizon IT Inquiry was first 17 established in a non-statutory form on 29 September 18 2020. On 5 October 2020 the Inquiry published an open 19 letter, aimed at seeking information from the public, 20 and started discussions with individuals and 21 organisations, and the process of gathering of evidence. 22 A number of developments occurred in the months that 23 followed. Most significantly, on 23 April 2021, the 24 Court of Appeal Criminal Division handed down its 25 judgment in the case of Josephine Hamilton & Others 45 1 v The Post Office, which quashed the convictions of 2 39 subpostmasters where the reliability of Horizon data 3 had been essential to their prosecution. 4 As you did, sir, I should say at this point, I will 5 refer to "subpostmasters" throughout this opening. That 6 is to be taken to include subpostmistresses, managers 7 and assistants. 8 That judgment, as I will set out in due course, 9 included new information which had not previously been 10 disclosed, including what has become known as "the 11 Clarke advice", namely advice to the Post Office from 12 a barrister, Simon Clarke, which highlighted serious 13 failings with expert evidence that had been relied upon 14 by the Post Office in prosecutions and further failures 15 in respect of the duty to record and to retain 16 information. On 19 May 2021, it was announced that, 17 having digested the judgment of the Court of Appeal and 18 returned to the judgments of Mr Justice Fraser, you had 19 requested the conversion of the Inquiry into a statutory 20 Inquiry and had suggested amendments to the terms of 21 reference. 22 It was considered that the powers available to 23 a statutory inquiry, including the power to compel 24 evidence and hear evidence on oath, were necessary to 25 support a proper assessment of the relevant facts. The 46 1 Inquiry was therefore formally converted from 2 1 June 2021. Since that date, the Inquiry has published 3 a range of protocols, including a protocol for providing 4 oral evidence at hearings, a protocol on witness 5 statements, a protocol on redaction, anonymity and 6 restriction orders, amongst others. 7 Two assessors have been appointed as you know, David 8 Page of Solirius Consulting, who sits next to you as 9 an assessor in relation to digital product management, 10 IT strategy for large and complex technical projects, 11 usability and associated business processes, in essence 12 our technical assessor; and Erika Eliasson-Norris of 13 Beyond Governance, as a governance assessor. As you 14 have said, sir, she joins today remotely. 15 On 17 November 2021, a completed list of issues was 16 published, following a process of consultation with Core 17 Participants and other interested persons and in the 18 light of written and oral representations. The next 19 day, the Inquiry sought permission to investigate 20 matters relating to the devolved administrations, 21 following concerns that had been raised, during the 22 consultation, on the list of issues, as to whether and 23 to what extent there had existed divergences in the 24 policies and practices adopted within the four countries 25 of the United Kingdom when taking action against 47 1 subpostmasters. 2 Permission was granted by the then Minister for 3 Small Business, Consumers and Markets, Paul Scully MP, 4 on 30 March 2022. 5 Meanwhile, we began the human impact hearings on 6 14 February this year. Those hearings focused on the 7 human impact of the adoption, implementation, operation 8 and continued use of the Horizon System, and the human 9 impact of the approach taken by the Post Office to 10 subpostmasters when the system showed shortfalls, 11 including their suspension, the termination of their 12 contracts, the closure of their branches, proceedings 13 for the recovery of so-called shortfalls, bankruptcy 14 proceedings, criminal investigations and, ultimately, 15 criminal proceedings. 16 The reason that we commenced the hearings of the 17 Inquiry by listening to the accounts of those who were 18 and continue to be affected by the flaws in Horizon and 19 the flaws in the Post Office's approach to it is that 20 they must be front and centre of this Inquiry. 21 As I set out in my opening to this phase, although 22 the underlying subject matter of the Inquiry is 23 information technology, this Inquiry is not and will not 24 become a dry technical investigation into an IT project 25 gone wrong. 48 1 That's because it's an Inquiry that's actually about 2 people: about people whose mental and physical health 3 has been impacted; about people whose marriages and 4 partnerships have deteriorated and failed; about people 5 who thought about taking their own lives; and, in some 6 cases, who took their own lives. 7 Between February and May of this year, we heard from 8 those affected. The Inquiry travelled to Cardiff, to 9 Leeds, to Glasgow and to Belfast and heard powerful 10 accounts from victims and, in some cases, family 11 members, including from those whose loved ones did not 12 live long enough to see their convictions overturned. 13 In terms of disclosure, the Inquiry has sent 14 91 requests for information under Rule 9 of the Inquiry 15 Rules 2006, requested witness statements from 16 309 witnesses and disclosed to Core Participants a total 17 of 10,237 documents. This work will, of course, 18 continue over the coming months. 19 Along with Julian Blake, Catriona Hodge, Sam Stevens 20 and Ruth Kennedy, I act as Counsel to the Inquiry. As 21 you may know but others may not, our role is to assist 22 you in the conduct of these investigations. We are 23 entirely independent and impartial and do not represent 24 the interests of any of the Core Participants in the 25 Inquiry or indeed of any other person. 49 1 Also appearing today -- and I'll only introduce them 2 once in the course of the Inquiry -- and in no 3 particular order, are the following representatives of 4 Core Participants: 5 Tim Moloney, King's Counsel and Angela Patrick, 6 instructed by Hudgell Solicitors for 64 subpostmasters. 7 Sam Stein, King's Counsel and Chris Jacobs, 8 instructed by Howe+Co for 153 subpostmasters. 9 Edward Henry, King's Counsel and Flora Page 10 instructed by Hodge Jones & Allen for five further 11 subpostmasters. 12 Kate Gallafent, King's Counsel, instructed by 13 Herbert Smith Freehills for the Post Office Limited. 14 Richard Whittam, King's Counsel and Tim 15 James-Matthews instructed by Morrison Foerster for 16 Fujitsu. 17 Paul Mertens instructed by Eversheds Sutherland for 18 UK Government Investments or UKGI. 19 Nick Chapman, instructed by the Government Legal 20 Department for the Department for Business, Energy and 21 Industrial Strategy or BEIS. 22 Samantha Leek, King's Counsel instructed by Mishcon 23 de Reya for Paula Vennells. 24 Phase 2. I now turn to address the matters which 25 will be examined during the Phase 2 hearings, which 50 1 commence with evidence next week. 2 As you know, sir, Phase 2 of the Inquiry is 3 concerned with the first iteration of Horizon, known as 4 Legacy Horizon. During Phase 2, the Inquiry will 5 examine how this first iteration of the Horizon IT 6 system came into being and will be focused upon decision 7 making in relation to the following four overriding 8 themes: firstly, the procurement of the Horizon IT 9 system; secondly, its design and development; thirdly, 10 the Treasury review and cancellation of the benefit 11 payment card or BPC; and, fourthly, the acceptance and 12 rollout of Horizon. 13 The significant modifications which were later made 14 to Horizon will be examined in further depth during 15 Phase 3 of the Inquiry. You will also hear during 16 Phase 3 from witnesses who were involved in the early 17 decision making relating to Horizon and who continue to 18 have direct involvement in the operation and management 19 of the system after it was rolled out to Post Office 20 branches nationwide. 21 Their evidence will, of course, be of relevance to 22 the issues that you will be determining as part of 23 Phase 2 as well. 24 Can I now then turn to address each of the four of 25 the Phase 2 themes that I mentioned in turn. 51 1 Procurement of the Horizon IT system. The plan to 2 bring modern technology to the entire Post Office 3 Network was first conceived in the early 1990s. At that 4 stage, the Post Office consisted of three principal 5 businesses: Post Office Counters, Royal Mail and 6 Parcelforce. Post Office Counters was the business 7 responsible for running the national network of 8 Post Offices which, at that time, comprised of 9 approximately 19,700 branches. 10 Over 95 per cent of those branches were run as 11 private businesses by agents of the Post Office, known 12 as subpostmasters. For many years, Post Office Counters 13 had worked in close partnerships with the Benefits 14 Agency, facilitating the payment of state benefits over 15 the counter at Post Office branches nationwide. In the 16 early 1990s, the method of paying state benefits via the 17 Post Office was paper based and reliant upon the use of 18 order books or green giro cheques. It was expensive for 19 the Benefits Agency to administer benefit payments in 20 this way and the system was considered to be very 21 vulnerable to fraud. 22 An alternative method of paying state benefits 23 directly in relation to a recipient's bank account had 24 already been established by the Benefits Agency. This 25 method was known as, with capital letters, Automated 52 1 Credit Transfer, ACT, and was less expensive than paying 2 payments via the Post Office. Transferring payments to 3 recipients via ACT would have reduced the administrative 4 cost borne by the sponsoring department of the Benefits 5 Agency, which at that time was known as the Department 6 of Social Security, the DSS. 7 However, the income associated with the payment of 8 state benefits accounted for more than one-third of 9 Post Office Counters' business, and was considered at 10 the time to be essential to the survival of the Post 11 Office Network. For this and other reasons, the option 12 of making payment via by ACT compulsory was not pursued 13 by the DSS. Instead, Post Office Counters and the DSS 14 embarked upon a joint venture to automate the payment of 15 state benefits over the Post Office counter, via the use 16 of an electronic payment card. 17 The Benefits Agency acted as the sponsor of the 18 automation project on behalf of both the DSS and the 19 Northern Irish Department of Health and Social Care, as 20 well as other agencies. From the perspective of the 21 Benefits Agency, the principal objectives of the project 22 were: (i) to eliminate encashment fraud; (ii) to reduce 23 their administrative costs substantially; and (iii) to 24 improve their financial accounting and management of 25 information. 53 1 Although one of the principal objectives of Post 2 Office Counters was to retain the business of the 3 Benefits Agency, the automation project had the broader 4 objective of modernising the Post Office Network. At 5 the time, Post Office Counters operated a paper-based 6 accounting system across its network of, as I've said, 7 nearly 20,000 branches, which was costly to reconcile 8 and was considered to act as a barrier to attracting new 9 business. 10 Automating the sale of Post Office products and Post 11 Office Counters' other client transactions was intended 12 to increase efficiency, improve business competitiveness 13 and enable Post Office Counters to attract new clients. 14 The process of procuring a new IT system to automate 15 the payment of benefits at Post Office branches was 16 managed by a joint programme team with significant input 17 from external lawyers and consultants. The joint 18 programme team was staffed with representatives drawn 19 from the two project sponsors: Post Office Counters and 20 the Benefits Agency. It was led by a programme 21 director, Andrew Stott, who had previously worked as 22 a senior official within the DSS. 23 Mr Stott reported to a programme steering committee, 24 which comprised of the chief executive and finance 25 director of the Benefits Agency, the managing director 54 1 and commercial/resources director of Post Office 2 Counters, as well as senior officials drawn from Her 3 Majesty's Treasury, as it was then known, the Department 4 of Trade and Industry, the DSS, the Northern Irish 5 office, the Private Finance Executive. It was the 6 preference of the government of the day that funding for 7 the project should be sought from the private sector and 8 the new IT system therefore be procured under the 9 private finance initiative. 10 The procurement process was launched on 11 30 August 1994 by the publication of a notice in the 12 Official Journal of the European Communities. For the 13 transcript, but not needing to be displayed, the 14 reference to that notice is [WITN03770102]. One of the 15 businesses which expressed an interest in the project 16 was International Computers Limited, ICL, a British 17 manufacturer of computer hardware and software, and 18 a provider of computer services, which was partially 19 owned by Fujitsu Limited, a Japanese information and 20 communication technology company. 21 ICL established a subsidiary company known as 22 Pathway, in order to bring together a consortium of 23 businesses which could jointly bid for the project. The 24 other members of the consortium included De La Rue and 25 Girobank. 55 1 The process of shortlisting the potential service 2 providers which had responded to the OJEC notice was 3 undertaken in the autumn of 1994 and resulted in the 4 selection of five companies: BT Syntegra, Cardlink, EDS, 5 IBM and Pathway. 6 On 13 April 1995 the project sponsors issued to the 7 five shortlisted companies a statement of service 8 requirements known as an SSR, which, amongst other 9 things, described the functional requirements which each 10 of the sponsors expected the project to deliver. That 11 SSR can be found but needn't be displayed at 12 POL00028135. 13 The SSR summarised the principal tasks of the 14 service provider as follows: (i) to provide, operate, 15 support and manage an IT infrastructure which would 16 enable the automation of services at Post Office's; (ii) 17 to automate the end-to-end benefit payment system; (iii) 18 to integrate with the computer systems of Post Office 19 Counters and the Benefits Agency as well as those of 20 their agents and clients; (iv) to migrate the project 21 sponsors' existing automated systems; and (v) to 22 integrate Post Office Counters, the Benefits Agency and 23 third-party software applications. 24 Each of the five shortlisted suppliers' responses to 25 the SSR were assessed by an evaluation team against 56 1 three sets of criteria, addressing the characteristics, 2 the viability and commercial aspects of the suppliers' 3 proposals. 4 That exercise can be found but needn't be displayed 5 at POL00028282. At the conclusion of their assessment, 6 the evaluation team produced a report for the members of 7 the Project Evaluation Board to assist them in selecting 8 a final shortlist to move to the more detailed 9 demonstrator and negotiation phase of the process. That 10 can be found but needn't be displayed at POL00028149. 11 The evaluation board comprised representatives of 12 Post Office Counters, the Benefits Agency, the Social 13 Security Agency of Northern Ireland. It was chaired by 14 Robert Peaple, executive director of Post Office 15 Counters. 16 In its report to the evaluation board, the 17 evaluation team identified two principal areas of risk 18 in Pathway's proposed solution. The first area of risk 19 was technical and associated with Pathway's proposal to 20 adopt a distributed solution which would enable 21 transactions to be processed at the Post Office counter, 22 without requiring continuous connection to a central 23 processing system. The technical risks which were seen 24 to be inherent in such a solution were twofold: firstly 25 the greater complexity of the system software required 57 1 to manage such a system; and secondly the greater 2 complexity of administering benefit payments at any Post 3 Office branch, other than the one specifically nominated 4 by the recipient. 5 The second area of risk identified by the Evaluation 6 Team was commercial and related to Pathway's apparent 7 refusal to accept any risks for financial losses arising 8 from fraudulent copying or counterfeiting of the benefit 9 payment card. However, the Evaluation Team did not 10 consider that this commercial risk ought to preclude 11 Pathway from proceeding to the demonstrator and 12 negotiation phase of the procurement exercise, where the 13 method of card holder verification could be examined 14 more fully. 15 Ultimately, in July 1995, Pathway was shortlisted 16 alongside Cardlink and IBM to continue to the next phase 17 of the exercise. 18 The demonstrator and negotiation phase of the 19 procurement exercise was intended to serve three 20 principal objectives: firstly, to clarify and define 21 more precisely the requirement of the two sponsors; 22 secondly, to obtain a clearer understanding of the 23 suppliers' proposed solutions to them; and, thirdly, to 24 prepare draft contracts defining the rights and 25 obligations of the right contracting parties. 58 1 These activities were underpinned by a Service 2 Provider Risk Register, which was regularly reviewed and 3 updated as new risks in the suppliers' proposed 4 solutions were identified and steps taken to mitigate or 5 to eliminate those risks. 6 That can be found but needn't be displayed at 7 DWP00000036. 8 The risks associated with each of the suppliers' 9 proposed solutions were ranked according to their 10 severity, with the most critical risks being classified 11 as category A. That can be seen but need not be 12 displayed at Fujitsu, that's FUJ00078056. Each of the 13 shortlisted suppliers was notified of the risks 14 identified in their solutions and all afforded 15 an opportunity to respond to the concerns raised by the 16 programme team, either in writing or during their weekly 17 demonstrator meetings with representatives of Post 18 Office Counters and the Benefits Agency. You can see 19 some examples of those, we needn't display them, at 20 FUJ00078002 or WITN05970140. 21 You'll be hearing evidence from Jeremy Folkes, 22 a software developer employed by Post Office Counters 23 who participated in this demonstrator work stream. He 24 will say that Pathway appeared defensive in its meetings 25 with the project sponsors and appeared keen to avoid 59 1 scrutiny. We will see that in his witness statement at 2 WITN05970100 at paragraph 43. 3 You will wish to consider, Chair, whether these 4 observations mirror trends noted later in the 5 development of the project. 6 In order to proceed to the final stages of the 7 procurement process known as the Invitation to Tender, 8 each of the service providers were required to revise 9 and develop their solutions to ensure that they met or 10 exceeded: firstly, the minimum service requirements 11 acceptable to the project sponsors; secondly, the 12 minimum requirement for partnership with Post Office 13 Counters and the development of new business 14 opportunities; thirdly, sufficient transfer of risk for 15 an acceptable risk profile, in particular relating to 16 fraud; and, lastly, an acceptable funding method and 17 finance structure. One can see those criteria at 18 POL00028297. 19 One of the principal methods by which the joint 20 programme team determined whether or not these hurdles 21 had been met was by reference to the Service Provider 22 Risk Register, which I've mentioned already, the stated 23 intention of the project sponsors was to exclude from 24 the invitation to tender any shortlisted suppliers who 25 had category A risks or "an unacceptable profile of 60 1 other risks" outstanding at the conclusion of the 2 demonstrator and negotiation phases of the procurement. 3 We can see that that is so, ie, as a stated intention to 4 exclude suppliers who had any category A risks from 5 POL00028297. 6 An assessment of Pathway's proposed solution in 7 November 1995 identified four outstanding category A 8 risks, as well as 20 category B risks that were 9 described as "significant". 10 The greatest area of concern to the joint programme 11 team related to Pathway's proposed reliance on 12 a software platform known as Riposte, which had been 13 developed by a small software company called Escher 14 based in the United States. The project sponsors had 15 serious concerns about the scalability of Riposte and 16 perceived that ICL did not have a sufficiently deep 17 understanding of the software to answer their questions. 18 It was noted that Pathway had the highest number of 19 category A and B risks of the three shortlisted 20 suppliers and that further work needed to be done to 21 clear the risks if Pathway was to be permitted to 22 proceed to the invitation to tender. One can see that 23 at POL00028148. 24 The demonstrator and negotiation phase came to an 25 end in February 1996. An analysis of the Service 61 1 Provider Risk Register carried out on about 19 February 2 1996 suggested that Cardlink and IBM had no outstanding 3 category A risks and accordingly should not be included 4 from the invitation to tender. 5 By contrast, Pathway had two outstanding category A 6 risks and was therefore considered not to qualify for 7 the final stage of the procurement process. 8 I think we could look at that document usefully, 9 please, at POL00028150. You'll see the date in the top 10 right-hand corner, 19 February 1996, and if we go to 11 page 3 of the document, one can see a table here. This 12 is of the Pathway risks. You'll see that under the 13 column "Risk severity A" there were two outstanding. 14 I should say this is not our highlighting. The 15 highlighting is as it appeared in the document that we 16 have been given. And you will read, at paragraph 2.3.2: 17 "Pathway has two A risks. In accordance with the 18 procurement policy concerning A risks, the Programme 19 should not invite Pathway to tender." 20 You'll see a scribbled note on the right-hand side, 21 "now changed and cleared 26" -- and that's a "2", 22 I think -- "told at evaluation board." We will come to 23 that in a moment. 24 So the two outstanding category A risks recorded 25 against Pathway related, on the one hand, to Pathway's 62 1 continuing refusal to accept any risk for financial 2 losses arising from fraudulent copying or counterfeiting 3 of the benefit payment card, and on the other, to 4 Pathway's proposed financial and funding arrangements 5 which were considered to represent an unacceptable risk 6 to the project sponsors. 7 We can take that document down now. 8 In addition to the two outstanding category A risks, 9 Pathway had nine outstanding category B risks reflecting 10 a higher aggregate risk profile than either of its other 11 two competitors. The significant category B risks 12 associated with Pathway's proposed solution related to 13 a variety of technical and contractual issues arising 14 from Pathway's reliance on the Riposte software produced 15 by Escher, and the adequacy of its proposals to ensure 16 payment security and to eliminate fraud. As I've said, 17 in the light of the Pathway's outstanding category A 18 risks, it was recommended that the consortium be not 19 invited to tender. 20 The ultimate decision as to whether any of the 21 shortlisted suppliers ought to be excluded from the 22 invitation to tender rested with the Evaluation Board. 23 Prior to the meeting of the board on 26 February 1996 -- 24 remember, that was the date in that handwritten 25 comment -- further efforts were made by Pathway to 63 1 mitigate its two outstanding category A risks, and 2 contractual negotiations with all shortlisted suppliers 3 continued to take place. We can see that, but it need 4 not be displayed, at POL00028290. 5 Although Pathway was deemed by the time of the 6 meeting on 26 February to have cleared the hurdle of 7 satisfying the minimum service requirements acceptable 8 to the project sponsored, there remained concerns on the 9 part of the joint programme team about Pathway's 10 management and its technical capability which raised 11 fears about their ability to deliver the contracted 12 services on time and to quality. We can see a reference 13 to that, a record of that, in POL00028291. 14 At a meeting of the Evaluation Board on 26 February 15 1996, which was chaired by Robert Peaple, the board 16 expressed "severe reservations about the number and 17 significant risks against the Pathway proposal" and 18 "questioned whether the cumulative effect would not lead 19 to potentially late delivery and/or operational 20 problems, and as such, was cause for Pathway to be 21 excluded from the invitation to tender." 22 We can see that, and I'd ask for it to be displayed, 23 at POL00028288. 24 This is a note of the meeting on 26 February of the 25 Evaluation Board. You can see that in the fifth line in 64 1 the heading the Chair of it is Robert Peaple, Bob 2 Peaple, and if we go forward, please, to page 3, and 3 look at paragraphs 2.7 and 2.8: 4 "With respect to the certificate for Pathway, the 5 Evaluation Board expressed severe reservations about the 6 number of significant risks against the Pathway 7 proposal. It questioned whether the cumulative effect 8 would not lead to potentially late delivery and/or 9 operational problems, and as such was cause for Pathway 10 to be excluded from the invitation to tender. 11 Particular concerns were expressed about the card 12 technology with shortcomings in the associated 13 management of fraud and about the dependence on Escher 14 as a small company subcontracted to Pathway." 15 Then at 2.8: 16 "Tony Johnson explained that these issues had indeed 17 been given much consideration by the demonstrator team. 18 It had concluded that the Pathway solution was not 19 fundamentally flawed and that from a strictly technical 20 viewpoint the hurdle had been cleared. 21 "In its overall decision, the Evaluation Board might 22 wish to take into account the cumulative effect of any 23 contractual issues with those from the requirements 24 area." 25 Having been informed by the programme team that 65 1 Pathway's two outstanding category risks were capable of 2 being cleared following further contractual 3 negotiations, the Evaluation Board concluded that the 4 other outstanding risks registered against Pathway's 5 proposed solution did not warrant their exclusion from 6 the Invitation to Tender and therefore, on 29 February 7 1996, the Invitation to Tender was issued to all three 8 of the shortlisted suppliers. 9 The final stage of the procurement process was known 10 (again, capitals) as the Evaluation and Selection Phase. 11 Its purpose was to make a final assessment of the 12 relative merits of each of the shortlisted supplier's 13 bids and ultimately to lead to the award of a contract, 14 provided that a suitable provider could be identified. 15 The evaluation process comprised of three principal 16 work streams: first, a review of the extent to which the 17 suppliers' bids complied with the requirements of the 18 Invitation to Tender (this was known as contract 19 assurance); secondly, an evaluation of the financial 20 impact of awarding the contract to each of the three 21 shortlisted suppliers known as "the financial 22 evaluation"; and lastly, thirdly, an assessment of the 23 characteristics and viability of the suppliers' proposed 24 solutions, known as the "Value Factor Assessment". 25 In addition to these three aspects of the evaluation 66 1 process, assessments were made both of the suppliers' 2 partnership capabilities and also of the extent to which 3 their bids made provision for risk transfer that was 4 sufficient to comply with the requirements of the 5 private finance initiative. 6 Paul Rich, who was then the partnership development 7 director of Post Office Counters and a member of the 8 Evaluation Board, will be giving evidence to the Inquiry 9 in which he will say that the level of risk transfer 10 mandated by the private finance initiative was 11 "a critically important criterion" as neither of the 12 project sponsors had the resources to fund the design, 13 manufacture, installation and operation of the new 14 system, and wished to transfer those risks, together 15 with the risk of fraudulent encashments, over to the 16 supplier. We will see that at WITN04030100 at 17 paragraph 33. 18 The Value Factor Assessment, capital letters, 19 represented the key area of qualitative analysis and was 20 initially undertaken after the Invitation to Tender, but 21 prior to receipt of the suppliers' bids. It drew 22 heavily on the knowledge and understanding of the 23 suppliers' proposed technical solutions which the 24 project team had gleaned during the demonstration and 25 negotiation phase. 67 1 We can see a table at POL00028294. If we go 2 forward, please, to the third page of that document, in 3 tabular form, we can see that out of the three 4 shortlisted suppliers, Cardlink, which occupies the 5 second and third columns, obtained the highest overall 6 score, and that although Pathway's performance, which 7 are the last two columns, was broadly aligned with its 8 competitors in devising a solution which was acceptable 9 to the project sponsors and their agents, it scored 10 substantially less against a number of important 11 matrices including credibility of delivery, management, 12 capability, reliability and support, and stability and 13 coherence. 14 So overall, in qualitative terms, Pathway was 15 assessed by the programme to be the weakest of the three 16 candidates. 17 That can be taken down, please. 18 On 21 March 1996, each of the three shortlisted 19 suppliers submitted their responses to the Invitation to 20 Tender. Upon analysis of their bids, it transpired that 21 each had been priced at a level which was higher than 22 the indicative figures which had been produced at the 23 time of their original proposal and risked rendering the 24 sponsors' respective business cases unviable. In the 25 light of this risk, an invitation to re-tender was 68 1 issued to all three candidates on 16 April 1996, and 2 their revised bids were provided to the programme on 22 3 April 1996. 4 The process of financial evaluation was carried out 5 by the Joint Project Team upon receipt of the suppliers' 6 revised bids. Its purpose was to establish the 7 quantitative differences between the bids in purely 8 financial terms. Cardlink emerged from the evaluation 9 as substantially the most expensive of the three 10 suppliers, with IBM marginally outperforming Pathway on 11 the total costs of its offer. We will see that Pathway 12 came in as the cheapest at POL00028153. 13 In tandem with this financial evaluation, a review 14 of each suppliers' re-tender was conducted by something 15 called "contract assurance". Of each of the three 16 suppliers, Pathway was found to have assumed the 17 greatest level of risk for fraud associated with card 18 counterfeiting, hacking, and customer validation. 19 According to the contract assurance team, the limits 20 which the other two candidates had placed on the scope 21 of their contractual liability for fraud rendered their 22 bid "difficult, if not impossible, to accept". It was 23 the conclusion of the contract assurance team that 24 Cardlink should not be awarded the contract "at any 25 price". Of the remaining candidates, it concluded that 69 1 Pathway ought to be preferred to IBM, unless IBM's bid 2 offered "a considerable price advantage". 3 We will see that at POL00028152. 4 The process of selecting the successful candidate 5 commenced on 26 April 1996 at a meeting attended by six 6 representatives from the Evaluation Team. You will be 7 hearing from David Miller, a deputy director of the 8 programme in 1996, and a member of the Evaluation Team 9 who attended that meeting. Mr Miller states he was 10 unaware at any time of any issues with ICL's ability to 11 assist with the automation process. That's in his 12 statement at WITN03470100 at paragraph 24. 13 You, Chair, will wish to examine what might be 14 a surprising assertion in the light of the strong 15 concerns that have been earlier articulated by the 16 programme about Pathway's overall management capability, 17 its failure to demonstrate leadership within the 18 consortium, and its ability to deliver services to time 19 and to quality. 20 At the meeting on 26 April 1996, the Evaluation Team 21 concluded that Cardlink ought to be eliminated from the 22 competition. Of the two remaining candidates, IBM's 23 performance in the qualitative Value Factor Assessment 24 remained substantially better than Pathway's, despite 25 Pathway's scores improving as a result of the re-tender. 70 1 Moreover, these two suppliers were virtually equal on 2 price. However, IBM's contractual stance, in particular 3 on fraud risk transfer, was deemed to place it at 4 a material disadvantage to Pathway and its bid was 5 therefore regarded as non-compliant with the private 6 finance initiative. 7 If we can turn up POL00031153, and turn to page 22, 8 please. 9 Back a page, please. Yes. If we look, please, at 10 9.7, the record of the approach and conclusions of the 11 Evaluation Team was that the group recognised that an 12 award to Pathway "would imply a need for a proactive 13 management stance" -- that's a phrase that we will see 14 quite a lot in Phase 2 of the Inquiry -- "would imply 15 a need for a proactive management stance by sponsors, 16 notwithstanding the improvement noted by the Contracts 17 Stream ^ is this Contracts Team ^ since the 18 restructuring immediately prior to the Invitation to 19 Tender issue. It would also require sponsor staff to 20 work closely with Pathway on fraud prevention measures, 21 although given the changes on fraud risk made by the 22 other two bidders in their re-tenders, most of this work 23 was likely to be required whichever supplier was 24 chosen." 25 And therefore we can see at 9.9: 71 1 "The group therefore unanimously concluded that it 2 should be recommended to the Evaluation Board that any 3 contract award should be made to Pathway". 4 SIR WYN WILLIAMS: Can I just check, Mr Beer, is the 5 highlighting in these passages on the original document 6 or subsequently? 7 MR BEER: All original. We've not marked up any document at 8 all. We have in our personal notes obviously but that 9 is not what is being displayed. This is the state in 10 which we received them. 11 SIR WYN WILLIAMS: Right. 12 MR BEER: That can be taken down, thank you. 13 Shortly thereafter, the Evaluation Board met under 14 the chairmanship of Robert Peaple to discuss the 15 findings of the Evaluation Team and to reach a decision 16 on the selection of a supplier. For substantially the 17 same reasons given by the Evaluation Team, the board 18 reached the unanimous conclusion that if the project 19 sponsors were to decide to award a contract, the award 20 should be made to Pathway. The board reiterated that 21 the selection of Pathway would "require a proactive 22 management stance by sponsors, thereby acknowledging the 23 identified weaknesses in areas such as the credibility 24 of delivery by Pathway and weaknesses in Pathway's 25 management capability." 72 1 We can see that, but needn't turn it up, at 2 POL00028450. 3 Robert Peaple will be giving evidence to the Inquiry 4 in the coming weeks, and he will state that the approach 5 adopted by the sponsors to the procurement was 6 "extremely thorough" and that the evidence made 7 available to him does not indicate that there were any 8 flaws in the evaluation process. He says that in his 9 statement at WITN04020100. 10 You, Chair, may wish nonetheless to explore why it 11 was that Pathway's solution, whose implementation was 12 known to involve a higher level of technical risk than 13 its competitors, was chosen by the Evaluation Board. 14 Endorsement of the board's recommendation was 15 subsequently sought from the Programme Steering 16 Committee which met on 1 May 1996 under the chairman of 17 Peter Mathison, chief executive of the Benefits Agency. 18 The committee unanimously endorsed the conclusion of the 19 Evaluation Board that Pathway should be selected as the 20 chosen supplier of the services. Although the committee 21 observed that Pathway's technical solution involved "an 22 added element of technical risk", the committee 23 expressed confidence that Pathway's performance could 24 "be managed effectively" by the joint project management 25 arrangements which had been agreed between Post Office 73 1 Counters and the Benefits Agency. We will see a record 2 of that recommendation at DWP00000029. 3 Within the Post Office, the proposal to select 4 Pathway as the chosen provider was scrutinised by both 5 the Major Projects Expenditure Committee (known as 6 MAPEC_ and the Post Office board. MAPEC (whose members 7 comprised Richard Close, Jeremy Cope and John Roberts, 8 chief executive of the Post Office Group) met on 9 30 April 1996 and noted that Pathway's technical 10 solution was "the least preferred" of the three and 11 "presented a higher risk to delivering the programme" by 12 reason of its complex design, which was unproven on 13 a large scale deployment and involved bespoke code which 14 would have to be modified. 15 The committee observed both short-term and long-term 16 risk in selecting Pathway included: late delivery; the 17 pressure to accept incomplete functionality; premature 18 rollout, which would prove to be unreliable; and, 19 lastly, a fragile software system. However, the 20 committee concluded that such risks were "manageable and 21 could be effectively mitigated by stronger technical 22 assurance, rigorous user and system testing and 23 appropriate contingency planning by the supplier." 24 In the expectation that appropriate conditions would 25 be imposed to give effect to these measures, the 74 1 Committee endorsed the selection of Pathway. We can see 2 a record of that, and it needn't be turned up, at 3 POL00028451. 4 You, Chair, may wish to consider whether the 5 Committee's expectations in relation to strengthening 6 technical assurance of the system were realistic in view 7 of the inherent constraints, which arose from the 8 transfer of risk to the supplier, for the system's 9 design and development. 10 At a meeting of the Post Office Board on 7 May 1996, 11 authority was granted to the Post Office Counter to 12 enter into contracts with the Benefits Agency and 13 Pathway, subject to the resolution of a funding issue 14 affecting the Social Security Agency (Northern Ireland). 15 Having approved the selection of Pathway and having 16 obtained authority from the Treasury for funding of the 17 contract, Peter Lilley, the then Secretary of State for 18 Social Security, made a public announcement on 15 May 19 1996 confirming the selection of Pathway as the chosen 20 contractor to finance, supply and operate the new 21 automated system for Post Office transactions and 22 benefit payments. 23 Can we look at that, please, at POL00089859. 24 The Secretary of State announcement says: 25 "The Secretary of State for Social Security has 75 1 today announced that the joint program to bring 2 technology to Post Offices and benefit payments, 3 Benefits Agency and Post Office Counters Ltd has chosen 4 Pathway as the contractor to finance, supply and operate 5 the new automated system. This is a milestone of major 6 significance to our organisations. Mr Lilley also 7 announced the design of the benefit payment card which 8 is integral to the new method of payment. The card will 9 simply be known as the payment card. 10 "Pathway is a consortium led by ICL Plc, including 11 such companies as De La Rue and Girobank. All 12 consortium members are specialists in their own fields. 13 They complement each other and ourselves by offering 14 expertise in areas such as plastic card production and 15 distribution and we shall now be starting a period of 16 intense activity to further develop and test the new 17 system. 18 "We expect the first benefit payment cards to be 19 used in Great Britain by people in receipt of Child 20 Benefit starting from the autumn." 21 That's autumn 1996. 22 "Although there has been some rescheduling of the 23 timetable we still expect to have all post offices 24 automated and all benefit payments, including those of 25 the War Pensions Agency, being paid by card by 1999. 76 1 "For the Benefits Agency, changing the way benefits 2 are paid at post offices will reduce benefit fraud 3 because the computer system will confirm the amount to 4 be paid to the customer and enhance the service to 5 customers by providing a more secure and convenient 6 alternative to giro cheques and order books. It will 7 also support the Benefits Agency's change programme, 8 which aims to deliver our service more effectively and 9 efficiently. 10 "For Post Office Counters Ltd, automation means 11 greater choice, convenience and personal service to 12 customers and clients, bringing it into line with the 13 best retail practice. Automation will protect the 14 nationwide network of Post Offices by securing 15 a contract with the Benefits Agency for the next 16 eight years. The introduction of this new technology 17 will also help extend Post Office Counters Ltd's product 18 range and help it to retain and grow core and new 19 business. 20 "We've come a long way since 1993 when Post Office 21 Counters Limited and the Benefits Agency joined forces 22 to introduce a new way of paying benefits at 23 post offices. We still have a lot of work to do, but by 24 continuing to work together we will remain on target to 25 achieve the first payments by card at the first 77 1 post offices later this year." 2 Can I turn then to the second topic in Phase 2: 3 design and development. Having been selected as the 4 preferred candidate to bring modern technology to Post 5 Office branches and benefits payments, Pathway entered 6 into three related agreements. The first was with Post 7 Office Counters, and the Department of Social Security 8 acting jointly, and was known as "the Authorities 9 Agreement". We can see that -- needn't turn it up -- at 10 POL00028175. 11 The second agreement between Pathway was with Post 12 Office Counters alone, and we can see that at 13 POL00028181. And the third agreement was solely with 14 the DSS. 15 We can see that at POL00028178. 16 Each of the three agreements specified the project 17 sponsor's functional requirements at a high level, 18 leaving responsibility for the detailed design and 19 development of the hardware and software necessary to 20 deliver those services to Pathway itself. 21 There were essentially two key aspects to the 22 automation project which Pathway undertook to deliver. 23 Firstly, Pathway was obliged to devise a service which 24 would enable the automation of benefit payments at Post 25 Office Counters. The names given to the core element of 78 1 this service were the Benefit Payment System, BPS, or 2 Benefit Encashment System, BES, which were used 3 interchangeably. 4 The purpose of BPS or BES was to enable those who 5 ran Post Office branches to make payments to customers 6 of the Benefits Agency upon presentation of their 7 benefits payment card. The system was supported by 8 additional backend systems developed exclusively for the 9 Benefits Agency, which included a card management system 10 and a payment authorisation system. In addition to the 11 BPS, Pathway developed an additional optional service at 12 the request of the Benefits Agency which was known as 13 the Order Book Control Service, OBCS. 14 This provided a temporary mechanism designed to 15 prevent fraudulent encashment of cancelled or stopped 16 order books pending their complete replacement by the 17 benefits payments card. 18 The second major aspect of the project related to 19 the automation of other services and transactions at 20 Post Office branches. This aspect of the solution was 21 devised exclusively for Post Office Counters, and 22 comprised of, firstly, an Electronic Point of Sale 23 service, an EPOSS and, secondly, an Automated Payment 24 Service, an APS. EPOSS was intended to process the 25 purchase of Post Office products and services by 79 1 customers of Post Office branches whilst the APS was 2 designed to enable the incremental payment of bills by 3 the customers of Post Offices, counter clients, such as 4 utilities companies and the recharging of cards and keys 5 used to access such facilities. 6 Part of the considerable complexity inherent in the 7 project arose from the need to integrate these various 8 services with parallel computing systems being developed 9 internally by the Benefits Agency and Post Office 10 Counters. One of the systems which Pathway was required 11 to integrate was the Customer Accounting and Payment 12 System, CAPS, which was being developed by the Benefits 13 Agency in order to create a uniform method of recording 14 and disseminating information relating to customer 15 payments. 16 In order to ensure the accuracy of payments being 17 made via the benefit card, it was necessary for data 18 stored on CAPS to be fed to the systems which Pathway 19 was developing to support the BPS. 20 The principal systems in the Post Office domain with 21 which Pathway was required to integrate were firstly the 22 Reference Data System which recorded details of, for 23 example, Post Office branches, products and prices. 24 Secondly, the Host Automated Payment System, HAPS, which 25 managed Post Office Counter's existing automated 80 1 systems. Thirdly, Transaction Information Processing, 2 TIP, which was required to extract data from Pathway's 3 systems in order to reconcile it with Post Office 4 Counters' own accounting and management information 5 systems. 6 Shortly after the contract was awarded, ICL 7 purchased the shares which De la Rue and Girobank owned 8 in Pathway, and changed the company's name to ICL 9 Pathway Limited. And I will, from now on, refer to the 10 relevant company as the "ICL Pathway". 11 Responsibility for overseeing the development, 12 delivery and integration of this complex web of 13 integrated systems and services rested with something 14 called the Programme Delivery Authority, PDA; which was 15 staffed by representatives from both Post Office 16 Counters and the Benefits Agency. The PDA was governed 17 by a board whose membership was drawn from the senior 18 management of ICL Pathway, from Post Office Counters, 19 from the Benefits Agency, and from Social Security -- 20 the Social Security Agency of Northern Ireland. 21 A Programme Steering Committee provided direction 22 and guidance to the programme. Its membership comprised 23 Stuart Sweetman, the managing director of Post Office 24 Counters; Peter Mathison, who, as I've said, was the 25 chief executive of the Benefits Agency; Alec Wylie 81 1 (spelt with a C), the chief executive of the Social 2 Security Agency in Northern Ireland; and Keith Todd, the 3 chief executive of ICL. 4 The first key milestone of the programme was the 5 development and implementation of a pilot scheme known 6 as Initial Go Live, IGL, the primary purpose of IGL was 7 to demonstrate the successful functioning of the 8 benefits payment card by the target date of 9 23 September 1996, scarcely four months after the award 10 of the contract. 11 By reason of the very compressed timetable for 12 delivery of the benefit payment system and its 13 associated backend services, only very limited 14 functionality was available. Therefore, the service was 15 initially rolled out to a single Post Office in Stroud, 16 Gloucestershire, and only permitted the payment of Child 17 Benefit to 14 people. We can see that at FUJ00058278. 18 You'll be hearing evidence from John Meagher, who 19 acted as the Horizon product assurance manager. He 20 describes this Initial Go Live as a "PR exercise" which 21 "distracted from the primary objective and wasted 22 valuable time and resources". The cross-reference to 23 that is WITN04150100. 24 You, sir, may consider that delivering the Initial 25 Go Live by the September deadline was a Pyrrhic victory 82 1 in the light of the chronic delays which subsequently 2 beset the programme and to which I will turn, if it 3 pleases you, after lunch. 4 SIR WYN WILLIAMS: Impeccable timing. Thank you. 2.00, 5 everyone. Thanks very much. 6 MR BEER: Thank you, sir. 7 (12.58 pm) 8 (Luncheon Adjournment) 9 (2.00 pm) 10 MR BEER: Sir, I hope by now, that you and Mr Page have got 11 a live transcript -- 12 SIR WYN WILLIAMS: We have indeed. 13 MR BEER: -- on a screen in front of you. 14 SIR WYN WILLIAMS: Yes, thanks very much. 15 MR BEER: Before lunch I dealt with the Initial Go Live, 16 namely rolling out to a single Post Office in Stroud of 17 Child Benefit alone to 14 people. 18 The original timetable stipulated in the Authorities 19 Agreement envisaged that an operational trial of all key 20 services would take place between September 1996 and 21 November 1997 and that rollout of both the benefit 22 payment and Post Office Counter services would commence 23 in July 1997. We can see that at POL00028173. 24 Although the Initial Go Live, such as it was, had 25 been delivered on time, it soon became apparent that the 83 1 original contractual timetable was unduly optimistic and 2 by February 1997 the three contracting parties had 3 entered into a "no-fault replan" of the program, which 4 provided for phased implementation of the ICL Pathway 5 services, with a view to completing the operational 6 trial of the system by 21 November 1997, and commencing 7 a national rollout to the Post Office Network on 8 24 November 1997. We can see that, no need to turn it 9 up, at Fujitsu00097062 and Fujitsu00078186. 10 However, ongoing concerns about delays to the 11 project prompted the three contracting parties to 12 Commission a review of the program by PA Consulting 13 Group, a management, information and technology 14 consultancy, between August and September 1997. 15 The objectives of the review were to obtain an 16 independent assessment of, firstly, the current 17 weaknesses and risks in the program; secondly, the 18 implications for its future delivery; and, thirdly, 19 options available to guarantee delivery capability. 20 In a report delivered in October 1997, PA Consulting 21 Group, concluded that ICL Pathway had "seriously 22 misjudged" the scale of the development required to meet 23 its contractual obligations and had, as a result, 24 underestimated the resources and time required to 25 deliver the technical solution, whilst recognising that 84 1 delays had occurred in the CAPS program, which was being 2 developed in parallel by the Benefits Agency, and that 3 Post Office Counters needed to address deficiencies in 4 its own resources, the PA Consulting Group concluded 5 that the principal driver of further delay to the 6 program was likely to be ICL Pathway and expressed doubt 7 about the company's ability to deliver the system for 8 rollout by the summer of 1998, observing that ICL 9 Pathway was proposing to defer known problems and system 10 functionality to later software releases. We can see 11 that, no need to turn it up, at POL00028092. 12 The precise causes of delay to the program remained 13 a matter of dispute between the three parties. It was 14 no secret that bugs, errors and defects were being 15 detected during software testing. They were recorded by 16 ICL Pathway in an incident management system known as 17 PinICL, Pin-I-C-L in capital letters. Their existence 18 was disclosed to the Programme Delivery Authority to 19 enable an assessment of their business impact to be made 20 and a decision taken as to whether efforts to resolve 21 them could be deferred until a later software release. 22 We can see that at FUJ00078989. 23 The mere fact that such errors were being detected 24 during software testing was not generally thought to be 25 a cause for significant concern, at least in the early 85 1 stages of the software development. One issue of 2 particular concern to the Programme Delivery Authority, 3 however, was their ability to access ICL Pathway's 4 design documentation, in order to satisfy themselves 5 that ICL Pathway was delivering a solution which would 6 meet the project sponsors' requirements. 7 Jeremy Folkes, who migrated to the PDA assurance 8 team upon award of the contract to ICL Pathway and who 9 will be giving evidence to the Inquiry in the coming 10 weeks, will say that ICL Pathway senior management 11 repeatedly refused to disclose documentation to the 12 assurance team, citing as their reasons the terms of the 13 private finance initiative upon which the party's 14 contractual arrangements had been based and the 15 resultant transfer to ICL Pathway of the risks 16 associated with design and development of the system. 17 Both Mr Folkes and John Meagher attribute this 18 obstruction, at least in part, to Terry Austin, the ICL 19 Pathway systems director, and we will see that in due 20 course on Mr Folkes's part at WITN05970100 at 21 paragraph 77 to 79, and on Mr Meagher's part at 22 WITN04150100 at paragraph 15. 23 For its part, ICL Pathway's stance, as articulated 24 in a position paper, dated 5 March 1998, was that Post 25 Office Counters and the Benefits Agency were improperly 86 1 interfering in the design process and thereby causing 2 significant delays to the programme. You can see that 3 position paper at POL00031117. 4 Sir, you may wish to consider in due course whether 5 ICL Pathway's apparent reluctance to grant PDA access to 6 design documentation reflected concerns about the 7 quality of such documentation or, indeed, the absence of 8 such documentation. 9 But whatever the true causes were of the 10 considerable slippage in the programme timetable, it's 11 apparent from the evidence obtained by the Inquiry that 12 the delay in rollout of the system had a very 13 detrimental effect upon the finances of each of the 14 contracting parties. We can see that, by way of 15 example, at POL00028495. 16 The business case for the Department of Social 17 Security had been predicated upon achieving substantial 18 fraud savings which were not being realised during the 19 prolonged development of the system. Moreover, the 20 department was itself incurring additional 21 administrative costs in funding the work of the PDA and 22 the parallel CAPS program. ICL Pathway's remuneration 23 for designing and developing the system was deferred 24 under the authorities agreement until the system had 25 been rolled out, whereupon it was entitled to recover 87 1 charges measured by reference to the volume of 2 transactions processed by the system. 3 In the meantime, ICL Pathway faced a significant 4 increase in its projected development costs by reason of 5 the additional time and resources required to design and 6 develop the system. Although Post Office Counters was 7 arguably less exposed than the other contracting 8 parties, it was also vulnerable to cost inflation, and 9 was losing out on anticipated new sources of income. 10 You may wish to consider, in due course, what if any 11 effect these financial pressures had upon later decision 12 making as to the timing of the acceptance and rollout of 13 the system. 14 As a result of the weaknesses in project management 15 exposed by the PA Consulting Group review, the decision 16 was taken to abolish the Programme Delivery Authority in 17 April 1998 and transfer responsibility for managing the 18 development and delivery of ICL Pathway services to 19 a dedicated team within Post Office Counters, named 20 Horizon. This team was led by David Miller, the newly 21 appointed Horizon programme director. 22 One aspect of ICL Pathway's solution, which was 23 critically important to Post Office Counters, was the 24 Electronic Point of Sale Service, the EPOSS, as I've 25 already explained this element of the service was 88 1 responsible for processing the transactions carried out 2 within Post Office branches by customers purchasing 3 products and services of the Post Office. 4 EPOSS represented the new automated mechanism by 5 which subpostmasters would be required to account to the 6 Post Office for the products and services sold in their 7 branches. The reliability of the data process by EPOSS 8 was therefore essential to enable the accurate 9 reconciliation of the physical cash and stock held in 10 the branch with the transactions performed by the 11 subpostmaster at the counter. It would appear, however, 12 that from a relatively early stage in the development 13 process, ICL Pathway had itself concerns about the 14 reliability of the EPOSS application. 15 You'll be hearing from Terry Austin, systems 16 director at ICL Pathway, who will state that he became 17 aware of "a quality issue" with the early versions of 18 EPOSS software, which have been developed using what's 19 described as a rapid application development technique 20 which I understand to be an approach to software 21 development that focuses more on ongoing software 22 projects and user feedback and less on following 23 a strict plan of development and testing cycles. 24 Mr Austin will explain that this agile but immature 25 technique was rarely used in the development of large IT 89 1 systems that had been developed by ICL Pathway, due to 2 the very tight timescales for deliver of the service and 3 the absence of a detailed business requirements 4 specification. 5 Due to concerns about the robustness of the EPOSS 6 application, ICL Pathway decided in July 1997 to 7 instruct Escher, you'll remember they were the small 8 American company responsible for developing the Riposte 9 platform, to reengineer the EPOSS code. According to 10 Mr Austin, the EPOSS product was returned in 11 November 1997, whereupon further functional changes and 12 software fixes were applied to it by ICL path. We'll 13 see that in due course at WITN04190100 at paragraphs 22 14 to 23. 15 It would appear from the evidence obtained by the 16 Inquiry that these measures did not resolve the problem 17 of the EPOSS software's underlying instability. As 18 a result of ongoing concerns about the volume of bugs, 19 errors and defects detected in the EPOSS publication. 20 Terry Austin requested that a team of developers be 21 established, known as the EPOSS PinICL taskforce, in 22 order to identify the nature and cause of the 23 outstanding defects in EPOSS and to fix them. 24 The taskforce operated between August and 25 September 1998 with the principal objective of reducing 90 1 to zero the number of PinICLs recorded against the EPOSS 2 application. 3 In a report produced in September 1998 by Jan 4 Holmes, ICL Pathway quality and audit manager, and Dave 5 McDonnell, senior software developer, it was observed 6 that "There were significant deficiencies in the EPOSS 7 product, its code, and design". 8 The cross-reference to that is FUJ00080690. 9 The authors of this report attributed this 10 deficiency to "a combination of poor technical design, 11 bad programming and ill thought out bug fixes". 12 Moreover, they observed that "the negative impact of 13 these factors will continue and spread as long as the 14 PinICL fixing culture continues, partly due to the 15 nature/size of the bug fixing task and partly due to the 16 quality and professional of certain individuals within 17 the team". If we can just look at that please, it's 18 FUJ00080690. If we can turn to page 17, please and look 19 at paragraph 7.3. 20 "Although parts of the EPOSS code are well written, 21 significant sections are a combination of poor technical 22 design, bad programming and ill-thought out bug fixes. 23 The negative impact of these factors will continue and 24 spread as long as the PinICL fixing culture continues. 25 This is partly due to the nature/size of the bug-fixing 91 1 task and partly due to the quality and professionalism 2 of certain individuals within the team." 3 Then some examples are given. The report warned 4 that the application of what we'll describe as fixes to 5 the code, which had in 1997 been reengineered by Escher, 6 created additional risks to the underlying stability of 7 the product. The authors of the report expressed the 8 fear that "code decay", as it was called, which 9 I understand to mean the tendency for computer software 10 to be gradually worse in performance or responsiveness 11 over time, eventually leading it to become completely 12 faulty, unresponsive or unstable, and code decay might 13 be caused because the code has been updated or altered 14 in ways that have introduced more bugs and errors over 15 time, especially in the light of the increasing 16 difficulty or intricacy of the code modifications. 17 So the authors expressed fear that code decay will, 18 assume it hasn't happened already, cause the product to 19 "become unstable" and they observed that "there is no 20 guarantee that a PinICL fix or additional functionality 21 can be made without adversely [affecting]" -- as I think 22 it the report was meant to read but it says "affect" -- 23 another part of the system. 24 We can see that earlier in the same document at 25 page 7. 92 1 Under "EPOSS code" at the top there: 2 "It is clear that senior members of the Task Force 3 are extremely concerned about the quality of code in the 4 EPOSS product." 5 Then reading on a sentence: 6 "Since then many hundreds of PinICL fixes have been 7 applied to the code and the fear is that code decay 8 will, assuming it hasn't already, cause the product to 9 become unstable. This presents a situation where there 10 is no guarantee that a PinICL fix or additional 11 functionality can be made without adversely [affecting] 12 another part of the system." 13 It is currently unclear whether the concerns that 14 were being voiced internally by employees of ICL Pathway 15 were, in the autumn of 1998, communicated to Post Office 16 Counters or, indeed, appropriately addressed within 17 ICL Pathway by the senior management of the company. 18 You may wish to consider in due course whether there 19 was a failure by the senior management of ICL Pathway to 20 be candid with Post Office Counters about the nature and 21 scale of the problems which it encountered during the 22 development of the EPOSS product and, if so, what if any 23 effect this had upon Post Office Counters' later 24 decision to proceed with the project in spite of the 25 Benefits Agency's decision to withdraw from it. 93 1 Whether or not ICL Pathway were concealing from Post 2 Office Counters the true extent of any issues they were 3 experiencing with EPOSS, it is apparent that senior 4 managers within Post Office Counters were aware of some 5 concerns about the development of the EPOSS application. 6 We can see some examples of that, no need to turn them 7 up now, at POL00028587 and POL00028323. During Phase 3 8 of the Inquiry, you will be hearing evidence from David 9 Smith, the head of automation transformation, who will 10 state that: 11 "It was known that work on the desktop started in 12 London but was then sent across to the US before being 13 sent back to the UK for completion. This created some 14 suspicion that Pathway weren't up to the task." 15 The reference for that is WITN05290100 at 16 paragraph 35. 17 Mr Smith will explain that he later commissioned 18 a report from a consultant employed by French Thornton, 19 as they were then called, who was briefly granted access 20 to ICL Pathway to details of the EPOSS design. The 21 consultant reported back that ICL Pathway had not 22 adopted a modular design in the development of EPOSS but 23 rather a method by which all transactions were routed 24 through a core Horizon. The consequence of adopting 25 this approach was that when a new transaction was added 94 1 he said, it would, through its core, be linked to other 2 transactions and it could introduce error into 3 pre-existing transactions. 4 The senior management at Post Office Counters were 5 advised that the problems posed by this method of design 6 could not easily be remedied and the adoption of a new 7 approach would require the EPOSS application to be 8 rewritten. The cross-reference to that is WITN05290100, 9 at paragraphs 41 to 45. 10 By reason of continued slippage in the project 11 timetable, Post Office Counters and the Benefits Agency 12 had, by early 1998, begun to prepare for potential 13 litigation with ICL Pathway, in the event that the 14 Horizon System could not be delivered to a satisfactory 15 state or within a reasonable timescale. 16 In order better to understand where responsibility 17 lay for ICL Pathway's failure to complete the 18 operational trial by the revised deadline of 19 November 1997 and the overall strengths and weaknesses 20 of their case, Post Office Counters and the Benefits 21 Agency instructed a firm called Project Monitors (sic), 22 who were an independent firm of consultants, to provide 23 expert assistance. 24 Having initially conducted a number of 25 investigations into the causes of delay to the program, 95 1 Project Mentors were instructed to carry out 2 an assessment of the requirements analysis undertaken by 3 Pathway for the benefit payment service. In carrying 4 out that analysis, Project Mentors did not have access 5 to ICL Pathway's own internal documentation and instead 6 relied upon documents in the possession of the project 7 sponsors, which had either been disclosed to them or 8 produced by ICL Pathway the cross-reference for that is 9 POL00031114. 10 In a report dated 18 December 1998, Project Mentors 11 found that ICL Pathway had "made no attempt to undertake 12 requirements analysis in accordance with normal industry 13 practice", despite having access to the sponsors' 14 requirements for the benefit payments service at the 15 time of entering into the contract. 16 As a result of this failure, the sponsor's expert 17 concluded that ICL Pathway had designed and partially 18 built a system without knowing whether it fully met the 19 requirements of the Department of Social Security. 20 Project Mentors acknowledged in their report that 21 the analysis which they had undertaken was restricted to 22 the benefit payment service. However, they expressed 23 "grave concerns" that the same lack of professional 24 analysis would be apparent in other areas of the system, 25 and articulated a particular concern about the EPOSS 96 1 application. The cross-reference to that is POL00031114 2 at paragraphs 2.2 and 2.3.4. 3 Reflecting on the impact that this failure was 4 likely to have upon the future of the programme, Project 5 Mentors made an important observation. I wonder whether 6 we could look at POL00031114 and in particular page 7. 7 Try page 11, please. Then one more page, please. 8 Thank you. 9 Perfect. 10 Under its conclusion "Impacts on the Programme in 11 the Future", Project Mentors said: 12 "Our experience of systems where requirements have 13 not been analysed satisfactorily is that the system 14 fails to meet the users' needs. An effective acceptance 15 test will identify many such failings necessitating 16 considerable rework. The result is a significant 17 extension of the time and cost required to complete the 18 system and roll it out. The alternative is to allow 19 unacceptable processing in the operational environment, 20 with unpredictable and potentially damaging results." 21 "In our opinion the failure to satisfactorily 22 analyse the requirements for the Benefits Payment System 23 makes it unlikely that the users' needs will be met by 24 the current Pathway system." 25 We can take that down. The findings of this report 97 1 were circulated to senior managers within the Benefits 2 Agency and also within Post Office Counters, including 3 David Miller, the Horizon's programme director, who will 4 be giving evidence during Phase 2 of this Inquiry. The 5 evidence of distribution is given in POL00038829. 6 It's presently unclear what action was taken by Post 7 Office Counters, and the Benefits Agency, to address the 8 concerns which had been articulated by their independent 9 expert, Project Mentors, in December 1998. You, sir, 10 may wish to explore what, if any efforts, were made by 11 those who had knowledge of these concerns, to bring them 12 to the attention of senior officials and ministers 13 within Government, who were at that stage charged with 14 making decisions about the future of the Horizon 15 project. 16 Can I turn, then to the third topic in the Phase 2 17 opening, namely the Treasury review and cancellation of 18 the benefit payment card. 19 I'd like to begin by saying a few words about the 20 relationship that existed at this time between the Post 21 Office and the Government. By the late 1960s, the Post 22 Office had ceased to be run as a Department of State and 23 had instead been transformed into a statutory 24 corporation. Its governing body consisted of a chairman 25 and board members, each of whom were appointed by the 98 1 Minister of Posts and Telecommunications, subsequently 2 the Secretary of State for the Department of Trade and 3 Industry. See section 6 of the Post Office Act 1969. 4 The day-to-day operations of the Post Office were 5 largely managed independently of government. However, 6 the Secretary of State was empowered to give directions 7 to the Post Office, with which the chairman and board 8 were applied to comply. See section 11 of the Post 9 Office Act 1969. 10 As its sponsoring department, the DTI exercised 11 oversight of the Post Office thorough its Postal 12 Directorate and was kept abreast of significant 13 developments in the programme to automate Post Office 14 Counters and the payment of benefits. 15 As I've already explained, ICL Pathway had failed to 16 meet the revised contractual deadline to complete 17 an operational live trial of the new Horizon System by 18 21 November 1997. As a result of this default, the 19 Programme Delivery Authority wrote to John Bennett, 20 managing director of ICL Pathway, on 24 November 1997 21 formally notifying him, on behalf of both the DSS and 22 Post Office Counters, that ICL Pathway was considered to 23 have breached its contractual obligations. We can see 24 that at POL00028442. 25 ICL Pathway disputed that it was in breach of 99 1 contract, and attributed the delays to a variety of 2 factors, including: (i) insufficient specification in 3 the sponsors' requirements; (ii) later attempts by the 4 sponsors to enhance those requirements; (iii) improper 5 interference by the sponsors in the design of the 6 system; and (iv) delays in the CAPS program. We can see 7 that response from ICL Pathway at POL00031117. 8 By early February 1998 the Department of Social 9 Security was sufficiently concerned about the state of 10 the project that Harriet Harman, then Secretary of 11 State, wrote to Tony Blair, the then Prime Minister, to 12 notify him that there was "a serious risk" that the 13 project would fail either to deliver its objectives at 14 all or to do so within a worthwhile timescale. I wonder 15 whether we can look at that, please, at CBO00000041. 16 Ah, perfect. 17 Thank you very much. This is the letter from 18 Harriet Harman to Tony Blair. 19 "Prime Minister ... 20 "I am writing to alert you to problems with a 21 private/public sector project designed to improve the 22 benefit payment system and automate the Post Office 23 network. In a nutshell, there is a serious risk this 24 project will fail to deliver its objectives -- or will 25 not do so within a timescale that will make it 100 1 worthwhile. 2 "We have inherited this £1 billion project from our 3 predecessors. Understanding the PFI programme, ICL were 4 contracted by my Department jointly with Post Office 5 Counters ... to fund the development of a system which 6 will provide an automated means of paying benefits 7 through a Benefit Payment Card to replace our current 8 expensive and insecure paper-based methods; and, on the 9 back of this, to provide some additional technology to 10 Post Offices, with the aim of helping [Post Office 11 Counters Limited] to extend the range of their future 12 business. The project was supposed to be fully 13 operational in all Post Offices by the end of this year. 14 But due to a long history of problems, ICL have been 15 unable to deliver to this timetable, so the completion 16 date has been extended by two years to 2000 at the 17 earliest, with a consequential loss to us of around 18 £200 million in fraud savings foregone. 19 "This two-year delay also brings with it funding 20 consequences both for ourselves and the private 21 contractor. These and some continuing major concerns 22 about the project's deliverability have led us to the 23 view it would be prudent to take stock before committing 24 to further investment. In doing so, it must be right to 25 look at the medium and longer-term Government objectives 101 1 for a modern welfare system and the best way to sustain 2 a rural Post Office network into the millennium and 3 beyond. 4 "The questions this will raise have far-reaching 5 consequences, which could impact on our future capacity 6 to deliver the benefit payment service people want, and 7 on the future of the Post Office network, vital to so 8 many of our communities. You will anyway wish to be 9 aware because of the wide-ranging Ministerial interests 10 involved, and the need to reach a cross-Government 11 consensus on the best route forward. The primary 12 Departmental responsibilities fall to Margaret Beckett 13 and me, but there are also significant issues around 14 rural policy, the Government IT infrastructure and 15 strategies to promote social cohesion. 16 "It is now urgent to reach a decision on the best 17 way forward, because further investment will be required 18 if the project is to continue. It is also possible that 19 ICL, the private contractor concerned, may give their 20 version of the story to the press at any moment, in 21 an attempt to influence of the outcome. There are 22 inherent dangers of damaging media speculation, 23 especially around the future of Post Office: as you 24 know, the Post Office involvement means there could be 25 matters here arousing strong public interest -- and 102 1 opinions. There is already some speculation in the 2 specialist Press. 3 "You may also wish to be kept informed because ICL 4 are part of the Fujitsu empire, with whom you have had 5 some contact on your recent visit to Japan and there is 6 also a constituency dimension for you." 7 More about that later: 8 "The immediate urgency on the financing of the 9 project means that John Denham (who is leading this work 10 here) will need to write very shortly to Alistair 11 Darling on the funding issues. Although we have a clear 12 view about the best route forward, I am clear that we 13 should at all costs seek to avoid getting focused too 14 closely on individual Departmental interests, and that 15 we should aim to establish an agreed view from the 16 start, avoiding the potentially damaging effects that 17 our quite legitimately differing Departmental views can 18 have, when exposed to the public eye. On this basis, 19 I shall be seeking to discuss with Alistair and Margaret 20 in the near future." 21 Ms Harman's letter to the Prime Minister appears to 22 have prompted the intervention of Alistair Darling, the 23 Chief Secretary to the Treasury and triggered the 24 establishment, in early March 1998, of the 25 interdepartmental Horizon project review group. The 103 1 group comprised of senior officials drawn from the 2 Treasury, the Department of Trade and Industry, the 3 Department of Social Security, and the leadership of the 4 group was provided by senior treasury officials, as 5 a result of which the work undertaken by the group came 6 to be known as "the Treasury review". 7 During its inaugural meeting, the group identified 8 two distinct stages to the review: the first was 9 a project assessment intended to evaluate the viability 10 and likely cost of continuing with the Horizon 11 programme. The second stage involved contingency 12 planning to establish the alternative options open to 13 government in the event that the decision was taken to 14 cancel the project. We can see that planning at 15 CBO00000017 and BEIS0000104. 16 Responsibility for the project assessment was 17 entrusted to three individuals who collectively became 18 known as "The Treasury review panel". The panel was 19 chaired by Adrian Montague, chief executive of the 20 Treasury PFI taskforce, and also comprised Bill Robins, 21 Director General of Communications and Information 22 Services in the Ministry of Defence, and Alec Wylie, 23 chief executive of the Social Security Agency for 24 Northern Ireland. 25 PA Consulting Group, the consultancy firm which had 104 1 earlier produced a report back in October 1997 into the 2 causes of the project delays, was also instructed to 3 support the work of the panel by conducting 4 an assessment of the technical viability of the Horizon 5 programme. 6 In a report dated July 1998 the Treasury review 7 panel concluded that the programme was "technically 8 viable", meaning, I think, viable from a technological 9 point of view and perspective, as opposed to 10 theoretically viable. Whilst recognising that there 11 were some risks relating to the scalability and 12 robustness, given that the system had been tested only 13 at the level of its component parts, the panel stated 14 that it was satisfied that these risks were being "well 15 managed" by ICL Pathway. The panel also observed that 16 "The basic infrastructure is very robust for the 17 future", and in the main, industry standard products 18 have been used. The cross-reference to that is 19 POL00028094. 20 Adrian Montague, the chair of the panel, who will be 21 giving evidence to the Inquiry, will state "None of the 22 shortcomings of the Horizon System that came to dog the 23 project in later years were or could have been evident 24 at the stage that the panel made its assessment". 25 He explains, amongst other things, that much of the 105 1 system's functionality was still under development at 2 that stage and it wasn't possible at that stage to 3 undertake acceptance testing of the system in the live 4 operation. 5 The cross-reference to that is WITN04000100, at 6 paragraph 11. 7 You will also be hearing from Peter Copping, 8 a director of PA Consulting Group, who conducted the 9 technical aspects of the project's assessment on behalf 10 of the panel. He will explain that he carried out 11 several investigations for the panel involving meetings 12 and one-to-one discussions with ICL Pathway, the 13 Benefits Agency and Post Office Counters. 14 The cross-reference to that is WITN03970100. As you 15 will recall, ICL Pathway was sufficiently concerned by 16 this time about the robustness of the EPOSS application, 17 that it would, within a matter of weeks, establish 18 a dedicated taskforce to address the significant volume 19 of suspected errors, bugs and defects in the EPOSS 20 system. The cross-reference is Fujitsu00080690. 21 Given the extent of the concern within ICL Pathway 22 about the reliability of the EPOSS application, you, 23 sir, may wish to explore the extent to which these 24 matters were brought to the attention of the Treasury 25 review panel and how, if at all, they affected the 106 1 panel's assessment of the developing the systems fitness 2 for purpose. 3 The Treasury Review Panel ultimately concluded that 4 termination of the entire project was not a viable 5 option on the grounds that it would further delay the 6 automation of Post Office Counters leading to the likely 7 loss of future income and would cause significant 8 reputational and financial harm to ICL Pathway. 9 In the alternative, the panel proposed 10 a restructuring of the programme, in which either the 11 benefit card would be rolled out and transfer to payment 12 by ACT would be deferred until Post Office Counters' 13 infrastructure had adapted to support banking, financial 14 services and other applications, with an agreed contract 15 extension, which would reduce the overall loss to 16 ICL Pathway -- this was described by the panel as 17 option 1 -- or (b) the benefit payment card would be 18 abandoned and the paper-based method of paying benefits 19 would continue until Post Office Counters was ready to 20 complete for delivery by ACT with compensation being 21 made to ICL Pathway for the reduction in the scope of 22 its contract. This was described by the panel as 23 option 2. 24 The cross-references there are POL00028094 in 25 annex A. 107 1 Upon receipt of the panel's recommendations, the 2 Horizon Project Review Group, which had now been renamed 3 as the Horizon Working Group, produced is own report in 4 which the divisions within Government over the future of 5 the project were very plainly exposed. Neither the DSS 6 nor the social security team within the Treasury were in 7 favour of pursuing option 1, on the grounds that it 8 would postpone full migration to payment via ACT by up 9 to five years, it would involve two significant changes 10 in the method of payment to benefit recipients over the 11 space of a few years and it would leave the DSS exposed 12 to the costs of further delay. The cross-reference 13 there is HMT00000034 at paragraph 4.3.2. 14 The DSS favoured cancellation of the benefit payment 15 card, whereas the social security team within the 16 Treasury favoured terminating the entire project, we can 17 see that in the same reference at paragraph 1.7. By 18 contrast, the remaining members of the Working Group, 19 including the Department for Trade and Industry, were in 20 favour of proceeding with the benefit payment card, 21 subject to agreeing suitable terms with ICL Pathway. 22 They envisaged that a contract extension would be needed 23 but stipulated that there should be no increase in the 24 level of remuneration paid to ICL Pathway. They said 25 that, if ICL Pathway was not prepared to accept these 108 1 terms or the negotiation of terms for a contract 2 extension were unsuccessful, it was recommended that 3 Post Office Counters and the DSS should terminate the 4 contract on the grounds of ICL Pathway's 5 non-performance. The same reference, paragraph 1.7. 6 The report produced by the Horizon Working Group 7 requested "an early steer" from ministers, but 8 acknowledged that there were a number of competing 9 considerations and that any litigation with ICL Pathway 10 would "inevitably be messy and uncertain". Same 11 reference, paragraph 1.5. 12 Ministers ultimately sanctioned a time limited 13 period of negotiation with ICL Pathway with a view to 14 agreeing suitable terms for the continuation of the 15 project in its original guise. Stephen Byers, then 16 Chief Secretary to the Treasury appointed Graham 17 Corbett, deputy chairman of the Monopolies and Mergers 18 Commission to act as a "troubleshooter" and to 19 facilitate the negotiations. 20 By October 1998, Graham Corbett reported back to the 21 chief secretary that the parties had been unable to 22 reach agreement on a commercial basis for continuing the 23 full project. 24 As a precondition for delivering the contractual 25 services, ICL Pathway had demanded a positive return on 109 1 its investment. This position was unacceptable to 2 ministers, as it sought to reverse the contractual 3 allocation of risk, which Pathway had agreed in the 4 spring of 1996 and was therefore accordingly reject. 5 The cross-references to that report are BEIS0000284 and 6 POL00028098. 7 Further attempts to salvage the project were made by 8 Post Office Counters and ICL Pathway in late autumn 9 1998. As part of those ongoing negotiations, ICL 10 Pathway proposed changes to the contractual terms for 11 the acceptance of the system. I shall address those 12 contractual terms a little later in the opening. 13 However, for present purposes, it's sufficient to note 14 that ICL Pathway's proposals envisaged the system being 15 accepted, and the project sponsor's rights of 16 termination being lost, upon the conclusion of technical 17 and model office tests, rather than an operational live 18 trial. 19 Moreover, ICL Pathway proposed a relaxation in the 20 criteria for acceptance, which would have resulted in 21 the system being rolled out nationwide with a much 22 higher incidence of unresolved technical defects. The 23 cross-reference there is POL00028679. 24 Whilst these proposals were under consideration, the 25 results from ICL Pathway's latest round of software 110 1 testing were being assessed by Mr David Miller, the 2 programme director for Horizon, and found to reveal 3 "Significant problems with the way Horizon passes 4 information through to TIP", that is transaction 5 information processing. 6 We can see that in his memo dated 16 November 1998. 7 I wonder whether we could turn that up, it's 8 POL00028421. You can see the date of 16 November 1998, 9 the distribution list at the top, and in the second 10 paragraph, Mr Miller says: 11 "We are due to start the Model Office Test proper 12 and the final pass of End to End on 14 December 1998. 13 My present assessment is that there are some significant 14 problems with the way Horizon passes information through 15 to TIP. These relate to the provision of balanced 16 outlet cash accounts and the processing of the ensuing 17 information via TIP. Whilst we allocated some extra 18 time during the Corbett review to sort out any 19 outstanding issues, we need to be aware of a potential 20 threat to the 14 December date." 21 As I explained in my introduction to the design and 22 development of Horizon, TIP (transaction information 23 processing) was a system development by Post Office 24 Counters to obtain cash account and transaction data 25 from Horizon, in order to feed that data back into Post 111 1 Office Counters' existing accounting systems. It is 2 evident from Mr Miller's memo that these results were of 3 significant concern to Post Office Counters, and 4 threatened to cause delay, further delay, to the 5 software testing cycles, which needed to be completed, 6 prior to entry into the operational live trial of the 7 system. 8 In the light of the poor results which had emerged 9 from the software testing in the autumn of 1998, you, 10 sir, may wish to consider whether ICL Pathway's proposal 11 to make significant changes to the conditions for 12 acceptance reflected, in fact, a lack of confidence in 13 the integrity and robustness of their own solution. 14 That document can come down, please. 15 One of the principal reasons why the Treasury Review 16 Panel had discounted the option of terminating the 17 entire contract in July 1998 was the harm which ICL 18 would have suffered to its reputation and finances. By 19 October 1998, ICL was projected to sustain losses of 20 more than £200 million, in the event that the project 21 was cancelled. We can see that from POL00028098. 22 Losses of that magnitude were not only a cause of 23 serious concern to ICL but also to Fujitsu Japan, which 24 by this stage had acquired all of the company's 25 shareholding. 112 1 In early December 1998, Michio Naruto, the vice 2 chairman of Fujitsu and chairman of ICL, contacted 3 Sir David Wright, the British ambassador to Japan, to 4 articulate Fujitsu's concerns about the progress of 5 negotiations over the future of the Horizon project. 6 Mr Naruto warned the British ambassador that the failure 7 of the project would have "serious repercussions for 8 Fujitsu's international standing, lead to major internal 9 difficulties with Fujitsu, and the collapse of ICL". 10 The cross-reference there is BEIS0000336 and 7. 11 In a subsequent report sent to the Cabinet Office, 12 the Treasury, the DTI and the DSS, dated 4 December 13 1998, Sir David Wright, the ambassador, expressed the 14 view that Fujitsu were not making idle threats about the 15 future viability of ICL which, he said, if permitted to 16 fail, would "have profound implications for jobs in the 17 UK and for bilateral ties". 18 He observed that the failure of the Horizon project 19 would "be damaging politically, at home, and to the UK's 20 position of strength in Japan as against its European 21 competitors". The cross-reference there is again 22 BEIS0000336. 23 Within a matter of days, the question of the 24 project's future was escalated to the then Prime 25 Minister, Tony Blair. I wonder whether we could look, 113 1 please, at CVO001401. 2 There seems to be a problem with that; evidence that 3 not all IT projects move smoothly. Although it's early, 4 this is a relatively important document and I just ask 5 for ten minutes, if we take our break early, and I'll 6 seek to ensure that's uploaded to the system and 7 viewable by everyone concerned. 8 SIR WYN WILLIAMS: Excellent. Right. Ten minutes. 9 (2.52 pm) 10 (A short break) 11 (3.02 pm) 12 MR BEER: Thank you for the time you allowed me. 13 You'll remember that I had just spoken about 14 communications from Michio Naruto to Sir David Wright, 15 the British ambassador in Japan, and then the escalation 16 of those concerns to the Cabinet Office, to the Treasury 17 and the DTI, and then the reference made by Geoff Mulgan 18 to the Prime Minister. Can we turn up, please, 19 CBO0010001. 20 This is the minute or memorandum about which I was 21 speaking before the break, from Geoff Mulgan, a senior 22 civil servant in the Cabinet Office and a member of the 23 Horizon Working Group, as it had then been called. 24 SIR WYN WILLIAMS: Could I just have the reference number 25 again, it's gone off the top of the -- 114 1 MR BEER: CBO00100001, "CBO" indicating that this was 2 disclosed by the Cabinet Office. 3 SIR WYN WILLIAMS: Yes, I've got it yes. 4 MR BEER: You'll see it's addressed to the Prime Minister in 5 the copy list on the top right-hand side. In 6 paragraph 1, Mr Mulgan says: 7 "A decision now needs to be taken on whether to 8 proceed with the Horizon project. You will recall this 9 is the initiative to automate the Post Office network, 10 involving ICL. The project is nearly three years behind 11 schedule, having been plagued with problems. 12 Negotiations have been underway since the summer to find 13 a way to continue the project." 14 Then over the page at paragraph 4: 15 "However, the decision is not clear-cut. The 16 problems that have beset this project may well continue; 17 continuation would lock the government in for 10 to 18 12 years to what may many see as a flawed system; 19 cancellation on the other hand would enable the Post 20 Office to take advantage of newer, cheaper and more 21 flexible technology, while the DSS could move rapidly to 22 paying benefits into people's bank accounts. 23 Cancellation would also release about [£2 to £3 billion] 24 over the next decade to be spent in other ways to 25 support and automate the Post Office." 115 1 Paragraph 6: 2 "In making a judgement, the following issues are 3 paramount ..." 4 First: 5 "The virtues of the project itself: overall, Horizon 6 now looks increasingly flawed. It is centred around 7 a technology, the Benefit Payment Card (BPC), that's 8 both overengineered -- and very expensive -- and likely 9 soon to be obsolete. Indeed, ICL acknowledge that the 10 BPC will have no commercial value to them at the end of 11 the project. Although they remain underdeveloped, the 12 alternatives, which involve simpler off-the-shelf 13 banking technology, look increasingly attractive, 14 offering a route to universal banking, automated 15 Post Offices and better provision of government 16 information." 17 Secondly: 18 "The effects on the Post Office network: 19 cancellation would undoubtedly be destabilising. 20 Subpostmasters fear that without Horizon they will lose 21 their customer base. Their concerns can be partially, 22 but not wholly, addressed through commitments on subsidy 23 and promises that there will be government support for 24 an alternative automation system. Rural subpostmasters' 25 fears will be particularly acute. Subsidies could be 116 1 structured to keep the great majority of these open but, 2 whatever happens, there will be a continuing stream of 3 closures." 4 Third: 5 "Effects on ICL: Cancellation would directly affect 6 270 jobs in ICL and more in suppliers. It would destroy 7 ICL's prospects of flotation and lead to a heavy 8 (£200 million) loss this year, although even if the 9 project continues, the £250 million losses incurred so 10 far may at some point may have to be written off (NB the 11 figures in the attached paper are wrong on this issue). 12 Cancellation would also have a big effect on their 13 reputation. It would probably force the resignation of 14 the Chief Executive and put them into a protracted legal 15 battle with government, in which they would seek to pin 16 the blame on government in general, and DSS in 17 particular." 18 Fourth: 19 "Effects on Fujitsu: Fujitsu have provided the 20 financial commitment to secure a deal. This is a sign 21 of how important the project is for them. There would 22 undoubtedly be a cost in terms of UK relationships with 23 them in particular, and possibly with Japanese investors 24 in general. They would argue that the government was 25 guilty of a breach of faith: blaming ICL for what is in 117 1 effect a change of policy." 2 Fifth: 3 "Effects on PFI: continuation would set a precedent 4 for renegotiating PFIs that are failing; cancellation 5 would make funding of large IT projects harder in the 6 future." 7 Then, finally, over the page, the sixth point: 8 "Effects on Benefits Agency and welfare reform: 9 continuation would hold up ACT. DSS estimate that they 10 would save £800 million if the project was cancelled. 11 Government would lose the opportunity to bank the 12 unbanked." 13 In paragraph 7, Mr Mulgan observed that government 14 departments remained divided on the project: 15 "Alistair Darling remains strongly opposed to 16 continuing. Ian McCartney for DTI will argue strongly 17 for accepting a deal (Peter Mandelson has largely kept 18 out of the discussions). The Treasury is divided at 19 an official level, but Stephen Byers will probably, on 20 balance, want to accept the deal for pragmatic reasons, 21 even though he would prefer to cancel." 22 At paragraph 8 he said: 23 "At first glance, most of these factors point 24 towards continuation. However my view, which 25 Lord Falconer broadly shares, is that although 118 1 short-term considerations and expenditure point strongly 2 towards making a deal, this will in the long-run prove 3 unsatisfactory, leaving the Post Office and government 4 dependent on a hugely expensive, inflexible, 5 inappropriate and possibly unreliable system. 6 "In our view, the best outcome would be a deal with 7 ICL to continue with an automation strategy which drops 8 the Benefit Payment Card but focuses instead on helping 9 the Post Office to provide banking services. This would 10 enable a rapid move towards ACT and Post Office 11 automation, but without the many problems associated 12 with the [Benefit Payment Card]. It would enable good 13 relations to be maintained with ICL and Fujitsu. The 14 costs to government and ICL resulting from the [Benefit 15 Payment Card] could legitimately be blamed on the 16 previous government. 17 "However, it would not be possible to reach this 18 position without first rejecting ICL's offer and making 19 it clear that the government no longer wishes to 20 continue with Horizon in its present form. There would 21 then be a danger that ICL would refuse to negotiate over 22 a deal which included the [Benefit Payment Card]. In 23 other words, this option is only feasible if the 24 government is prepared to accept the significant risk 25 that it would in practice lead to complete cancellation. 119 1 "Our view is that the case for cancellation is, 2 just, strong enough to warrant that risk, although it 3 would need to be announced alongside a strong package of 4 support for Post Offices and for an alternative 5 automation strategy ... 6 "There are essentially three options: 7 "Option 1: Attempt to conclude a deal, broadly along 8 the lines offered by ICL. 9 "Option 2: Seek a deal with ICL but excluding the 10 Benefit Payment Card. 11 "Option 3: Reject ICL's offer, move to terminate the 12 offer and press forward with an alternative. 13 "Do you wish to give a steer?" 14 Then the handwritten addition appears to say: 15 "I would favour option 1 but for GM's statement 16 [perhaps] that the system itself is flawed. Surely 17 there must be a clear view on this. Speak to me on 18 [Monday], ie reading the enclosed paper, it all ... on 19 the financial deal. But the risks are pretty even, 20 probably coming down on the side of continuing. The 21 real heart of it is the system itself." 22 We can get some further light on that on the next 23 document that I would like you to look at, please, which 24 is CBO00000009, thank you. 25 This is the formal response to Geoff Mulgan's 120 1 submission coming from the late Jeremy Heywood, the 2 Prime Minister's Principle Private Secretary, on 3 14 December 1998 in the following terms. You'll see 4 it's addressed to Mr Mulgan from the Prime Minister's 5 Principle Private Secretary, Jeremy Heywood: 6 "The Prime Minister was grateful for your minute of 7 9 December. 8 "The Prime Minister was concerned about your view 9 that the Benefit Payment Card is over-engineered and is 10 likely soon to be obsolete. His clear preference would 11 be to avoid cancelling the project, but to go for 12 a variant of your Option 1 and 2. We should retain the 13 Benefit Payment Card but seek to ensure that over time 14 it delivers real benefits and provides an effective 15 transition path to a satisfactory long-term position. 16 If necessary the Prime Minister thinks it may be 17 sensible to give ICL a financial incentive to improve 18 the [Benefit Payment Card] project in this way." 19 That can come down, thank you. After further 20 interdepartmental negotiations reached an impasse in 21 late December 1998, the Prime Minister was again invited 22 to make a decision on the future of the project. Again, 23 this was communicated through his Principal Private 24 Secretary, Jeremy Heywood, who again wrote to Geoff 25 Mulgan, this time on 6 January 1999. Can we look, 121 1 please, at CBO00000009. 2 You'll see the addressee and the author, Jeremy 3 Heywood: 4 "The Prime Minister was grateful for your minute of 5 24 December." 6 I've skipped over that in the interests of some 7 speed: 8 "The Prime Minister thinks that we should proceed as 9 follows: 10 "(i) we should indicate to ICL as soon as possible 11 that we want to have further discussions with them on 12 how the BPC project can be developed to facilitate the 13 earliest possible move to smart cards. 14 "(ii) but we should also make clear to them that, if 15 agreement cannot be reached within a specified time 16 period on a development of the current project along 17 these lines, the Government will stick with the current 18 project. 19 "Notwithstanding (ii), the Prime Minister is clear 20 that we should seek to move as quickly as possible to 21 paying benefits directly into bank accounts via 22 a smartcard facility that can be used in Post Offices." 23 You will be hearing from Ian McCartney, Minister of 24 State in the Department of Trade and Industry, who will 25 say that these decisions of the Prime Minister to "take 122 1 cancellation off the table" was an important moment. It 2 was an important moment, he says, in the 3 cross-governmental debate over the future of the Horizon 4 project. The cross-reference for that is WITN03770100. 5 The Prime Minister's intervention did not, however, 6 lead to an immediate resolution of the stalemate within 7 government, as the DSS remained firmly opposed to the 8 continuation of the Benefit Payment Card. Alistair 9 Darling will give evidence to the Inquiry about the 10 opinion which he forms of the project, upon being 11 appointed Secretary of State for the DSS in July 1998. 12 You will hear his view that the Benefit Payment 13 Card, he considered, whether it was the right throughout 14 the period of negotiation, was the right way to achieve 15 the reform of the Benefit Payment System. 16 As the negotiations with ICL Pathway dragged on into 17 the spring of 1999, further pressure was brought to bear 18 on the UK Government by Fujitsu. Tadashi Sekizawa, 19 chairman of Fujitsu, wrote to the Prime Minister in 20 a without prejudice letter of 7 April 1999, claiming 21 that Fujitsu would be required to make a provision in 22 its accounts of approximately £300 million, unless 23 a legally binding agreement for the future of Horizon 24 was in place by 23 April 1999. 25 Mr Sekizawa warned the Prime Minister that neither 123 1 ICL nor Fujitsu would be prepared to make any further 2 investment in the development of the Horizon System if 3 Fujitsu were obliged to make such a provision in its 4 accounts, and expressed a hope that a resolution of the 5 commercial negotiations could be reached. That's 6 CBO00000033. 7 Mr Sekizawa's letter was followed by a meeting 8 between the Prime Minister himself and Mr Michio Naruto, 9 as I've said, the then Vice-Chairman of Fujitsu and 10 chairman of ICL Plc, on 12 April 1999, in which 11 a discussion took place relating to the future of the 12 Horizon project, so within five days of the receipt of 13 the Fujitsu letter. The cross-reference for that is 14 CBO00000059, at page 5. 15 You'll be hearing from Steve Robson, a senior civil 16 servant in the Treasury, who was instructed to lead on 17 the negotiations with ICL in early 1999 and who attended 18 the meeting between the Prime Minister and Mr Naruto on 19 12 April 1999. He will state that the Prime Minister 20 gave no commitment to Mr Naruto at that meeting. 21 You will wish to consider what, if any, influence, 22 the pressure brought to bear by Fujitsu had upon the 23 outcome of cross governmental negotiations about the 24 future of the project. 25 On 11 May 1999, Jeremy Heywood the Principal Private 124 1 Secretary to the PM, wrote to the Chief Secretary to set 2 out the Prime Minister's requirements for a resolution 3 of the prolonged negotiations. The cross-reference is 4 CBO00000053. The letter explained that: 5 "Any solution should meet three political 6 requirements. 7 "(i) we do not want a huge political row with the 8 Post Office or the subpostmasters lobby claiming that 9 the entire rural network has been put in danger by the 10 government. 11 "(ii) we should not put ICL's whole future at risk. 12 "(iii) it would be important to ensure that the 13 Government had a fully defensible position vis à vis the 14 Public Accounts Committee." 15 By this stage, the proposal which commanded the 16 greatest cross governmental support envisaged the 17 cancellation of the Benefit Payment Card and the 18 purchase by Post Office Counters of the Horizon 19 platform, including the EPOSS and to OBCS systems. This 20 proposal did not however find favour with Post Office 21 Counters or the Post Office Board, with the latter, the 22 Post Office Board, only agreeing reluctantly to sign 23 heads of agreement with ICL Pathway to continue the 24 project without the BPC, the cross-references to that 25 are POL00028612 and POL00028609. 125 1 It's currently unclear to the Inquiry precisely what 2 those responsible for deciding on the future of the 3 project knew about the technical integrity and the 4 robustness of the system. However, in a briefing from 5 the Treasury to the Prime Minister's office, dated 6 23 April 1999, there can be found a document entitled 7 "ICL Pathway: list of failures", in which the following 8 is recorded. 9 Can we look, please, at CBO00000058 and at page 11. 10 Whether we could expand on that a little bit, thank you. 11 Just to explain, sir, some of these documents are in 12 a better format than others because some of them have 13 been retrieved by photographing at The National Archives 14 the document, rather than being able to take them up and 15 scan them. This is one in the former category. 16 So "ICL Pathway: list of failures", this a briefing 17 from the Treasury to the Prime Minister: 18 "Independent reviews of the Horizon project by 19 external IT experts have all concluded (most recently 20 this week) that ICL Pathway have failed and are failing 21 to meet good industry practice in taking this project 22 forward, both in their software development work and in 23 their management of the process. 24 "To date in the development stages of the project: 25 "All planned release dates have been missed, 126 1 including the key contractual milestone for completion 2 of the operational trial, which ICL Pathway were placed 3 in breach in November 1997 ..." 4 Skipping the next one: 5 "Every release has been subject to reductions in the 6 originally plant functionality." 7 Next bullet point: 8 "And even when each release has gone live, there 9 have been faults and problems which have resulted in the 10 need for Pathway to reimburse DSS." 11 Next bullet point: 12 "In the current trials, the known problems have 13 risen from 46 in November 1998 to 139 at the end of 14 March 1999; and currently 146 have not been resolved." 15 It is therefore clear that some senior officials 16 within the Government were aware of technical issues 17 with Horizon, which called into question the integrity 18 and robustness of Horizon. You, sir, will wish to 19 explore how widespread this knowledge was within 20 Government and then what was done with that knowledge. 21 Can I turn to the fourth and final stage of my 22 opening in relation to Phase 2, acceptance and rollout. 23 That document can come down. Thank you. 24 This concerns the acceptance of the Horizon System 25 by Post Office Counters and the decision to commence 127 1 rollout of the system nationwide in January 2000. 2 I shall begin what I mean by explaining acceptance 3 of the Horizon System. As I explained earlier, the 4 detailed design and development of the Horizon System 5 was entrusted under the terms of the related agreements 6 to ICL Pathway, who bore the risk that the system which 7 it produced would ultimately fail to meet the 8 requirements of Post Office Counters and the Benefits 9 Agency, and would consequentially be rejected. 10 Responsibility for determining whether the system 11 that had been development by ICL Pathway in fact met 12 their requirements rested with Post Office Counters and 13 the Benefits Agency. However, their right to terminate 14 the agreement for failure of the system to comply with 15 these requirements was narrowly subscribed in schedule 16 AO7 of the authorities agreement. There is no need to 17 turn it up, but the cross-reference is POL00028163. 18 The right to terminate was narrowly circumscribed as 19 follows: 20 "The authority's right of termination for failed 21 acceptance shall only apply ... in the event that (a) 22 one or more high severity deficiencies, or (b) 10 or 23 more medium severity deficiences remain uncorrected at 24 the end of the operational trial period." 25 The effect of this provision was that Post Office 128 1 Counters and the Benefits Agency would have been legally 2 obliged to accept the system if, on completion of the 3 operational live trial, the conditions for acceptance 4 had been satisfied, namely that there existed no 5 outstanding high severity deficiencies and less than ten 6 outstanding medium severity deficiencies within the 7 system. 8 By the spring of 1999, one of the key areas of 9 dispute which emerged between Post Office Counters and 10 the Benefits Agency, concerned the readiness of the 11 Horizon System to enter the operational live trial. 12 Between February and March 1999, ICL Pathway had for 13 the first time conducted model office and end-to-end 14 testing of all aspects of the technical solution, 15 including the interfaces with Post Office's backend 16 systems, the cross-reference there is FUJ00058445. 17 The concerns articulated by the Benefits Agency in 18 March and April 1999 appear to have centred upon four 19 key areas: (i) the number and severity of outstanding 20 faults identified in the system during software testing, 21 (ii) the risk that significant numbers of new critical 22 errors might emerge during the operational live trial of 23 the system; (iii) the ability of further software 24 testing to address ongoing concerns about systems 25 stability; and (iv) the risks that new software changes 129 1 introduced to the operational live trial might undermine 2 the integrity of the system. 3 The cross-references are POL00028407 and 4 POL00028406. As a result of those concerns, the 5 Benefits Agency refused in late April 1999 to grant 6 approval for entry into an operational live trial, 7 insisting instead that a further cycle of model office 8 and end-to-end testing be undertaken. That's 9 POL00043592 and POL00028405. 10 You'll be hearing from Andrew Simpkins, a management 11 consultant employed by Post Office Counters, to support 12 the management of software testing and release 13 authorisation. 14 He will state that Post Office Counters considered 15 that further cycle of model office and end-to-end 16 testing would be "of limited benefit when compared to 17 the value to be gained from monitoring and evaluating 18 the experience of actual users within a limited live 19 trial". That's WITN06090100, paragraph 12. 20 Sir, you may wish to consider in due course what 21 efforts were made by Post Office Counters to obtain 22 feedback from end users during the live trial and the 23 early rollout of the system and whether these were 24 adequate to identify and address the challenges that 25 such end users faced. 130 1 The cancellation of the benefit cards payments 2 ultimately was to resolve this impasse and enabled Post 3 Office Counters and ICL Pathway to enter an operational 4 live trial of the Horizon System in late May 1999. By 5 this stage, the scope of the services which ICL Pathway 6 was obliged to deliver comprised the Electronic Point of 7 Sale Service, the EPOSS, the Order Book Control Service, 8 the OBCS, and the Automated Payment Service, the APS, 9 together with the supporting infrastructure necessary to 10 deliver those services. 11 The provision of those services by ICL Pathway 12 became known as the Core Systems Release, FUJ00001524. 13 It was planned that additional functionality would be 14 included in a later software release, known as the Core 15 Systems Release Plus, FUJ00001525. 16 The new conditions for acceptance of the Core 17 Systems Release, CSR, were defined in schedule A11 of 18 the Codified Agreement concluded between Post Office 19 Counters and ICL Pathway on 28 July 1999. That's 20 POL00028208. In essence, this provided that Post Office 21 Counters would be legally obliged to accept the Horizon 22 System if, following completion of the operational live 23 trial, known as the core observation period by now, the 24 thresholds for acceptance of the system had been met and 25 a timetable had been agreed between the parties to 131 1 resolve any outstanding medium severity faults, known as 2 the category B faults. 3 The thresholds for acceptance of the CSR, the Core 4 Systems Release, were defined in schedule A11 at 5 paragraph 2.2 in the following terms: the thresholds 6 will not be met in respect of CSR acceptance if there 7 are "one or more high severity deficiencies" known as 8 category A faults, more than 20 medium severity 9 category B faults, more than 10 category B faults in 10 respect of any one CSR acceptance specification 11 expenses. 12 By permitting up to 20 outstanding faults of medium 13 severity, these new thresholds represented a relaxation 14 of the conditions for contractual acceptance, as 15 compared with that defined in the original authorities 16 agreement. However, this lowering of the threshold for 17 acceptance was somewhat mitigated by the requirement to 18 have in place an agreed timetable for resolution of all 19 such faults prior to acceptance of the Core Systems 20 Release. 21 The timetable for the acceptance of the Core Systems 22 Release was defined at schedule B09 of the Codified 23 Agreement. It made provision for an eight-week core 24 observation period to run between 31 May 1999 and the 25 26 July 1999, POL00028224. Upon conclusion of the core 132 1 observation period, the Codified Agreement provided for 2 a further three-week operational trial period, during 3 which the parties would seek to reach agreement on the 4 occurrence and severity of any faults or deficiencies 5 observed during the operational live trial of the 6 system: POL00028208. 7 The principal method by which Post Office Counters 8 exercised its right to inspect the performance of the 9 Horizon system during the core observation period was by 10 raising an "Acceptance Incident", also known as an AI. 11 This constituted the giving of formal notice to 12 ICL pathway of a fault or a deficiency observed by Post 13 Office Counters during the live trial of the system. 14 Under the terms of the Codified Agreement, ICL Pathway 15 was responsible for assessing the severity of each 16 acceptance incident raised by Post Office Counters, and 17 for assigning a category to it. 18 Schedule A11 of the Codified Agreement made 19 provision for resolving disputes relating to the 20 severity assigned by ICL Pathway to each acceptance 21 incident. 22 The occurrence and categorisation of acceptance 23 incidents would ultimately be determinative of whether 24 the threshold for acceptance of the CSR had been met. 25 Within Post Office Counters, responsibility for 133 1 managing the acceptance process rested with 2 an acceptance board whose core membership included John 3 Meagher, Horizon acceptance manager, David Smith, head 4 of automation transformation, and Bruce Mcniven, Horizon 5 Programme Director. 6 Terms of reference for the acceptance board were 7 prepared in which its duties were defined as follows: to 8 formally advise ICL Pathway of the acceptance outcome, 9 to submit appropriate acceptance recommendations to the 10 managing director of Post Office Counters, for 11 endorsement; to effect any decisions consequent on 12 acceptance recommendations as directed; to act as 13 an escalation platform for the resolution of disputes 14 over the severity assessment of individual acceptance 15 incidents; and to act as an escalation platform for 16 acceptance issues raised at the acceptance management 17 forum. 18 In order to assist the acceptance board to make 19 an appropriate acceptance recommendation, Post Office 20 Counters prepared a hot list, as it was called, of all 21 medium and high severity acceptance incidents observed 22 during the core observation period. 23 We can see from POL0028355 that as of 13 August 1999 24 the hot list comprised of three acceptance incidents 25 assessed by Post Office to be of high severity, one 134 1 acceptance incident assessed by Post Office Counters to 2 be of medium to high severity, and 11 acceptance 3 incidents assessed by Post Office Counters to be of 4 medium severity. 5 I shall now explain in further detail the nature of 6 the three acceptance incidents which were deemed by Post 7 Office Counters to be of high severity. 8 The first of these was AI (Acceptance Incident) 9 number 376. We can see that, no need to turn it up now, 10 at POL00030393. This related to the integrity of the 11 data which was fed from the EPOSS to the Transaction 12 Information Processing. You will remember that's 13 Post Office's own internal system for interfacing with 14 Horizon in order to extract data for accounting 15 purposes. 16 Post Office Counters' analysis of the data fed into 17 TIP revealed a discrepancy between the volume of 18 transactions recorded by EPOSS at the counter and the 19 branch's weekly cash account, ie the aggregate of the 20 weekly transactions produced by EPOSS. According to 21 Post Office Counters the existence of this discrepancy 22 had only come to light as a result of a temporary 23 function performed by TIP by which it derived a cash 24 account from the transaction data, which had extracted 25 from EPOSS, and compared this to the cash account which 135 1 had been produced by Horizon. 2 The Post Office assessed the business impact of this 3 deficiency to be severe. 4 The second of these was AI 218, and we can see that 5 at POL00028365. This AI related to the quality of the 6 training course provided by ICL Pathway to assist 7 subpostmasters in preparing their weekly cash account. 8 It was the perception of Post Office Counters that the 9 poor quality of ICL Pathway's training could adversely 10 affect the ability of end users to complete their daily 11 balancing and produce a cash account. The knock-on 12 effects of this deficiency, according to Post Office 13 Counters, were that an excessive amount of time was 14 being taken by end users, subpostmasters, to produce 15 their weekly cash account, the volume of calls being 16 made to Post Office Counters' support services relating 17 to cash account problems was unmanageable, and that 18 significant time and resource was spent by Horizon Field 19 Support Officers and Horizon Post Office Counters 20 backend services in remedying user errors. 21 The third these incident was AI 298 which can be 22 seen at POL00030393 and this AI related to the overall 23 stability of the system and concerned the occurrence of 24 lock-ups, as they were called, or system freezes, as 25 they were called, which had been observed to occur 136 1 partway through the processing of a transaction on 2 Horizon, the only remedial action open to the end user 3 was to reboot the system. 4 The deficiency was assessed by Post Office Counters 5 as being liable to cause a substantial loss of time and 6 business, a loss of confidence in the system on the part 7 of subpostmasters and customers, a risk of accounting 8 errors and a severe disruption to Post Office Counters' 9 operating processes. 10 Although ICL Pathway proposed a series of remedial 11 measures to justify the downgrading or closure of each 12 of these high severity AIs, the parties ultimately 13 agreed that acceptance of the Core Systems Release had 14 not been achieved at the conclusion of the operational 15 trial review period. In an amendment to the Codified 16 Agreement dated 20 August 1999, which came to be known 17 as the First Supplemental Agreement, the parties agreed 18 to undertake a programme of joint workshops for the 19 purpose of agreeing resolution plans for all outstanding 20 high and medium severity faults in the system. 21 Peter Copping, director of PA Consulting Group, was 22 appointed as an expert to facilitate the effective 23 solution of the outstanding faults and where necessary 24 to adjudicate on any unresolved disputes between the 25 parties. 137 1 In a timetable appended to that First Supplemental 2 Agreement, it was planned that acceptance of the core 3 systems requirements would be achieved by 4 24 September 1999. 5 That's FUJ00000485. 6 The joint workshops which ran between 20 August and 7 17 September 1999 were chaired by the late Keith Baines, 8 Head of Horizon Commercial, and Tony Oppenheim, Finance 9 and Commercial Director of ICL Pathway. 10 You will be hearing from a number of witnesses who 11 participated in these joint workshops, including John 12 Meagher, Horizon Acceptance Manager. Mr Meagher, who 13 was responsible for managing the joint workshops on 14 behalf of Post Office Counters, will say: 15 "Pathway would invite Post Office to accept that 16 elements of an acceptance specification had been passed 17 or had exclusions", ie issues that were understood and 18 did not present a significant business impact, and 19 therefore could be parked for later attention. 20 There was always disagreement on this impact 21 assessment because Post Office always had correctly 22 reviewed the business and operational impact, whereas 23 Pathway, given that acceptance, was dependent on there 24 being fewer AIs than an agreed number, tended towards 25 lower classifications. These workshops were effective 138 1 in giving Post Office leverage to force Pathway to agree 2 to make corrections, but by 24 September 1999, not all 3 of the outstanding high and medium severity AIs had been 4 resolved to the satisfaction of Post Office Counters. 5 The most serious of these concerned the data 6 integrity issues associated with AI 376. Pathway's 7 proposed remedial plan for this AI involved the 8 development of a new piece of software known as "The 9 Accounting Integrity Control Release". You'll be 10 hearing evidence from Tony Oppenheim, Finance and 11 Commercial Director of ICL Pathway, who will describe 12 the release in the following terms -- this is 13 WITN03770100: 14 "The agreed solution [that's the agreed solution to 15 AI376] was a three-way reconciliation mechanism, 16 otherwise referred to as an integrity check, that would 17 validate that (i) the branch counters, (ii) TMS [that's 18 Pathway Central System] and TIP [that's Post Office 19 Counters Central System] were all balanced and in sync." 20 Where they were not found to be in sync, the 21 reconciliation would enable corrections to be made by 22 either Pathway or Post Office Counters in their 23 respective TMS or TIP systems or to bring TIP or TMS 24 into line with the transactions logged at the counter 25 and the cash account committed by the postmaster. Where 139 1 they were found not to balance, or a difference was 2 identified between the transactions recorded in the 3 branch and the cash account committed by the postmaster, 4 the intention was that the reconciliation would identify 5 the reason and enable it to be corrected. 6 Given that the accounting integrity control release 7 had not been developed and its efficacy was not yet 8 proven, Post Office Counters agreed to accept the 9 Horizon System in late September 1999 on the condition 10 that additional criteria aimed at demonstrating the 11 efficacy of ICL Pathway's rectification plans were met. 12 These criteria were contained in a further amendment to 13 the Codified Agreement, which was signed on 14 24 September 1999, and which became known as the Second 15 Supplemental Agreement. That's found at FUJ00079316. 16 In essence, this agreement permitted Post Office 17 Counters to suspend the rollout of the Horizon IT system 18 in the event that ICL Pathway failed to demonstrate the 19 effectiveness of the remedial measures, which it had 20 agreed to adopt, in order to address Post Office 21 Counters' concerns. 22 It would appear that this decision of Post Office 23 Counters to grant conditional acceptance of the system 24 was not one which all of the senior managers involved in 25 the Horizon programme shall be able to endorse. 140 1 You may wish to examine, in due course, in further 2 detail how that decision was reached, and why it was 3 that some senior managers believe that the effectiveness 4 of ICL Pathway's remedial measures ought to be proven 5 before acceptance of the system rather than after it. 6 Whilst the terms of the Second Supplemental 7 Agreement all were negotiated in late September 1989, 8 further concerns were being voiced internally within 9 ICL Pathway about the stability of the EPOSS 10 application. It would appear that a report on EPOSS was 11 produced on 21 September 1999 in which a series of 12 recommendations were made to consider redesigning or 13 rewriting EPOSS in order to address its "known 14 shortcomings". 15 Regrettably, Fujitsu has been unable to locate 16 a copy of this important document. However, as a result 17 of an internal development audit of the Core Systems 18 Release Plus, which was conducted by ICL Pathway between 19 8 September and 7 October 1999, a further recommendation 20 was made to the directors of ICL Pathway on or about 21 22 November 1999 to reconsider the earlier 22 recommendations that EPOSS be redesigned or rewritten, 23 either in whole or in part. That's Fujitsu 00079783. 24 This further recommendation was made "in the light 25 of the continued evidence of poor product quality" which 141 1 had emerged from the internal audit. 2 The individual who assigned ownership of this 3 recommendation was Terry Austin, ICL Pathway's Systems 4 Director. In his evidence to the Inquiry, Mr Austin has 5 stated that: 6 "This option was debated at length by a senior 7 manager to the ICL Pathway management and technical 8 teams, and the outcome was that we should embark on 9 a major exercise to target the specific areas known to 10 be the source of most (around 80%) of the issues 11 identified, which were error handling and printing. If 12 this approach were unsuccessful, then a rewrite would be 13 the only option available. However, the product did 14 become stable and the number of outstanding defects did 15 fall within the levels defined in the acceptance 16 criteria." 17 This explanation given by Mr Austin does not, 18 however, appear to match the justification given at the 19 time by Mike Coombs, programme director, who on 10 May 20 granted authorisation to close the recommendation 21 arising from the internal audit in the following terms: 22 "As discussed, this should be closed. Effectively, 23 as a management team, we've accepted the ongoing cost of 24 maintenance rather than the cost of a rewrite. Rewrites 25 of the product will only be considered if we need to 142 1 reopen the code to introduce significant changes in 2 functionality. We will continue to monitor the code 3 quality based on product defects as we progress through 4 the final phases of testing and the introduction of the 5 modified code set into live usage in the network." 6 Given how important the robustness of EPOSS was to 7 the ability of subpostmasters to account for the 8 transactions performed over the branch counter, you, 9 sir, will no doubt wish to scrutinise very carefully how 10 this decision was reached by the directors of 11 ICL Pathway, and whether or not Post Office Counters was 12 consulted about this decision, which in principle, at 13 least, had far reaching implications for its business. 14 As a result of concerns about the adverse impact 15 that rollout of the Horizon infrastructure was likely to 16 have upon Post Office branches over the busy Christmas 17 period, and in the light of ongoing concerns about the 18 integrity of the data which was being fed into by EPOSS 19 into TIP, Post Office Counters decided to suspend the 20 rollout of Horizon in late November 1999. This decision 21 coincided with a growing dispute between ICL Pathway and 22 Post Office Counters concerning the root causes of the 23 continued cash account imbalances, which were being 24 observed during the ongoing monitoring of ICL Pathway's 25 compliance with the conditions imposed on acceptance. 143 1 ICL Pathway contended that one of the dominant 2 causes of these imbalances was inaccurate or defective 3 reference data being supplied by Post Office Counters. 4 We can see an example of that at POL00028561. 5 It's currently unclear whether and to what extent 6 Post Office Counters accepted that the cash account 7 imbalances being observed between October and 8 November 1999 were attributable to its own reference 9 data. 10 In December 1999 Post Office Counters commenced 11 negotiations with Pathway over the terms of a further 12 amendment to the Codified Agreement, which became known 13 as the Third Supplemental Agreement. At a joint meeting 14 between ICL Pathway and Post Office Counters on 15 14 January 2000, it was noted that a decision to 16 recommence the rollout of Horizon would not be made 17 until further checks had been carried out by TIP to 18 verify the efficacy of the Accounting Integrity Control 19 Release and the terms of the Third Supplemental 20 Agreement had been agreed. 21 That's POL00028509. 22 The Third Supplemental Agreement was signed by both 23 parties on 19 January 2000. That's FUJ00118186. 24 According to Tony Oppenheim, the Finance and 25 Commercial Director of ICL Pathway, this agreement 144 1 tacitly acknowledged that the accounting integrity 2 control did not provide a complete solution to the data 3 integrity issues which had first been identified as part 4 of AI 376. 5 In his evidence to the Inquiry, he will state -- 6 this is WITN03770100 -- the Third Supplemental Agreement 7 recognised that in some circumstances it would not be 8 possible to identify what had gone wrong, and therefore 9 what correction should be made. Such instances were to 10 be expressly disclosed by Pathway to Post Office 11 Counters. Although not expressly stated, the logic was 12 that it would fall to Post Office Counters as ultimate 13 owner of the service and of the relationship with its 14 clients and subpostmasters, to exercise a judgment in 15 such cases. 16 Sir, you will undoubtedly wish to explore whether or 17 not Post Office Counters shared that understanding of 18 the terms of the Third Supplemental Agreement, and if 19 so, why it was that Post Office Counters frequently 20 exercised its judgment in a manner which was so 21 detrimental to the interests of its subpostmasters. 22 So that comes to the end of the opening on Phase 2. 23 Can I turn to Phase 3, please. 24 SIR WYN WILLIAMS: Yes. And to save you undue stress and 25 your voice undue stress, once we get to about 4.10 or 145 1 4.15, you choose your moment; all right? 2 MR BEER: Very kind, sir. 3 Phase 3. Introduction. I will now turn to the 4 issues which you will be asked to consider as part of 5 Phase 3 of the Inquiry. They relate to the operation of 6 the Horizon System. 7 And when I say "operation of the Horizon System", 8 that is taken to include the training, advice, and 9 assistance provided in respect of it. It will also 10 touch upon the awareness of bugs and errors, and the 11 issue of how disputes about discrepancies were treated. 12 However, the history of these issues will also be 13 covered in Phases 4, 5 and 6, and moreover, Phase 7 will 14 examine the current state of the provision of training, 15 the available advice and assistance, and the dispute 16 resolution mechanisms that are presently in place. 17 This phase is divided into the following themes or 18 issues: first, the quality of training that was provided 19 to subpostmasters and others working with Horizon. 20 Secondly, the advice and assistance that was made 21 available to them, and its adequacy. Thirdly, the 22 modifications made over the lifetime of Horizon, the 23 reasons for those modifications, and the ways in which 24 their success was reviewed. Fourth, the knowledge and 25 rectification of bugs, errors and defects in the system. 146 1 And fifth, the approach taken by Post Office to the 2 resolution of disputes where discrepancies or alleged 3 shortfalls appeared. 4 So addressing each of those five themes in turn. 5 Training. 6 By way of introduction, the starting point to this 7 issued should of course be our list of issues, and the 8 relevant section is found under the Horizon IT System 9 subheading (d), and you are asked to investigate and 10 make findings on the following issues: what training was 11 provided to subpostmasters, managers and assistants on 12 the use of Horizon? Who delivered that training? Did 13 they have adequate experience and qualifications to do 14 so? Was the training provided to subpostmasters, 15 managers and assistants adequate? And were there any 16 changes or improvements to training over the years, and 17 if so, what were they? 18 It is hard to overstate the importance of the issue 19 of training to this Inquiry. Put another way, a fighter 20 jet might be a pinnacle feat of engineering, but it is 21 absolutely useless in the hands of someone without 22 training, and indeed likely to be dangerous to someone 23 who is inadequately trained. 24 In a similar way, if one assumed that Horizon had 25 been rolled out in a near perfect state -- and that's an 147 1 assumption -- from a computing perspective, 2 subpostmasters would still have required to be carefully 3 trained to make the project a success. 4 A common theme that runs through the Horizon story 5 is the raising of user error, ie error by the 6 subpostmasters, as an explanation for apparent 7 discrepancies. 8 Even if it was assumed that there was no fault in 9 the design of the Horizon IT System, it would still be 10 important to examine the cause of user error. In 11 particular, whether the training was sufficient to 12 minimise such errors. 13 A good example of this is a PEAK, which we'll come 14 to later, called PCO129767, to be found at POL00001264. 15 That PEAK shows that a subpostmaster had sold some 16 currency but had incorrectly entered into Horizon that 17 this had been settled in cash rather than by a debit 18 card. He sought to reverse this, but did so 19 incorrectly, raising a discrepancy. I'm not going to 20 delve into the issue now, but when we examine the PEAK 21 in due course, we'll see that it says: 22 "As explained, the root cause is a user error, 23 although it is also clear that the user documentation, 24 which is Post Office Limited's responsibility, could be 25 clearer." 148 1 Here, the fact that something can be described as 2 "user error" does not determine who is ultimately at 3 fault for this discrepancy. You will read in the 4 evidence numerous occasions when discrepancies were 5 attributed to user error. Indeed, you've already heard 6 a great deal of evidence on this issue as part of the 7 human impact hearings. You'll recall Mr Palmer, Kevin 8 Palmer, gave evidence back on 23 February 2022. He had 9 a career in investment banking before coming to take 10 over his mother's, Suzanne Palmer's, Post Office branch 11 after she had been suspended for alleged shortfalls. 12 You may recall Mr Palmer's evidence that he did not 13 receive training on how to balance accounts. He gave 14 evidence on how he was often faced with discrepancies 15 which he would spend time checking against these 16 records. He explained that at one stage, he faced a 17 discrepancy for over £60,000, and you may recall his 18 evidence that he rang the helpdesk operator who said, 19 "It was not possible for this to be as a result of 20 system error, and simply advised me to check my figures 21 again." 22 You will wish to examine and make findings on the 23 adequacy of the advice and assistance given, to which 24 I will consider shortly. However, I raise this point 25 now to highlight the adequacy of training provided to 149 1 subpostmasters would be a significant and important 2 issue, even if one assumed that the Horizon System was 3 robust. It's undoubtedly all the more important when 4 the computer system is not itself is not robust. 5 I've set out the issues that the Inquiry is asked to 6 consider in respect of training, and why they are 7 important. 8 Can I now deal with the following issues. Firstly, 9 briefly cover the scale of the training project that was 10 to be undertaken on rollout. Secondly, introducing the 11 training programme that was designed to be delivered 12 across the Post Office Network during the national 13 rollout, which training was provided by ICL Pathway. At 14 this time, I'll introduce some of the themes and 15 particular issues that you may wish to consider in 16 respect of training generally. Then thirdly, I'll 17 summarise briefly the timeline of the training after 18 rollout which was provided by Post Office, not 19 ICL Pathway. 20 So the scale of the training project. 21 The rollout of Horizon brought with it the 22 formidable task of training the entire Post Office 23 Network to use the system. Two points merit specific 24 mention at this stage. The first is the nature of the 25 system that trainees were being asked to use. The task 150 1 must be viewed in context, and we must cast our minds 2 back to how subpostmasters operated in the late 1990s. 3 You will hear helpful evidence from the Inquiry's 4 expert, Charles Cipione, on this issue. He will paint 5 a picture of the state of technology generally at this 6 time. 7 He notes that in 1998 it was estimated that only 8 31-33 per cent of UK adults had a personal computer at 9 home. Indeed, the Post Office itself carry out a survey 10 of 100 subpostmasters, counter-clerks and assistants in 11 1999, which showed that 65 per cent of them had used 12 a computer before, and 83 per cent of them were 13 "familiar with a keyboard". 14 These are numbers that would be unheard of today, 15 and so it's not uncontroversial to say that the Horizon 16 System was revolutionary for the time, and all the more 17 so for the work of the subpostmasters. 18 The second issue to consider is the widespread 19 changes that were being made to the day-to-day processes 20 of branches up and down the country by the mere 21 introduction of an automated system. 22 Horizon introduced a mandatory centralised system of 23 work that subpostmasters would have to follow precisely 24 in order to operate their branches. Once rolled out, 25 each subpostmaster would have to use the same systems 151 1 and processes to sell a stamp or to settle a cash 2 account. 3 You will hear evidence on how much a shift this was 4 for subpostmasters. In particular, you'll read about 5 a perceived lack of "conformance culture" across the 6 Post Office Network prior to the rollout of Horizon. 7 I would suggest that these changes in business 8 practice merit careful consideration by the Inquiry, 9 along with the more obvious changes bought about by the 10 introduction of the computers themselves. Therefore, in 11 order to investigate the adequacy of the training 12 provided to subpostmasters, it will be necessary to 13 consider how the parties assess the baseline competences 14 and training needs of the Post Office Network. It will 15 be necessary to ask whether the training programme 16 implemented was sufficient to meet those needs. 17 In terms of training on rollout and contractual 18 responsibilities, the Post Office contracted the 19 responsibility to train the Network to use Horizon to 20 ICL Pathway. It will be necessary to consider the 21 effect that this had on the adequacy of the training 22 programme delivered. One can see that ICL Pathway would 23 likely have had a better working knowledge of the 24 Horizon System in order to design the training 25 programme. It will be necessary, however, to 152 1 investigate the extent to which the training took 2 account of Post Office's businesses, the experiences of 3 its network, and its day-to-day operations, particularly 4 in respect of the alleged lack of conformance culture. 5 It's helpful at this stage to note that ICL Pathway 6 subcontracted aspects of its training responsibilities 7 to a related company called Peritas Limited, Peritas 8 changed its name during the period, so you may also see 9 it referred to in the documents as "ICL Training 10 Services Ltd" or "Knowledge Pool Ltd". 11 Can I turn, then, to examine some of the contractual 12 responsibilities for training on rollout, and can we 13 please bring up POL00028212 and can we turn, please, to 14 page 24. Perfect. 15 This, just to explain, is part of Schedule A15. You 16 can see it at the top of the codified agreement between 17 ICL Pathway and Post Office, and this part of the 18 schedule sets out Post Office's requirements in respect 19 of the delivery of Horizon. 20 If we look at Requirement 531 at paragraph 1.65.1, 21 ICL Pathway agreed to deliver a training programme that 22 would "enable Post Office's target audience to achieve 23 the acceptable standards in key competences as defined 24 by Post Office Counters Limited", with competence to be 25 "measured by a method agreed between Post Office and 153 1 ICL Pathway on a date consistent with the project plan". 2 Then over the page, please. Can we look at 3 Requirement 534, thank you, at paragraph 1.68.1. 4 This requirement, Requirement 554, provided that 5 ICL Pathway was to agree the training requirements for 6 different groups such as counter managers within the 7 Post Office. 8 It may be that the terms "acceptable standards" 9 within this clause and "competence" leave much remaining 10 open in respect of what level of training was actually 11 required. But you will hear evidence in due course on 12 how those concepts of what are acceptable standards and 13 what competence meant were fleshed out, and how that 14 impacted the training to be delivered. 15 The agreement, this agreement, went on to give 16 further detail on ICL Pathway's obligations in 17 Requirement 915, but I'm going to turn to that provision 18 in more detail later. 19 The training provided on rollout. We can take that 20 document down. I've spoken so far about the scale of 21 the training project and the division of labour as 22 between ICL Pathway and Post Office. You will hear 23 evidence in due course on what training was actually 24 provided to subpostmasters. Can we turn, please, to 25 FUJ00001357. Page 9, please. 154 1 That might actually be page 10. Page 10 of the pdf, 2 page 9 of the document. Thank you. 3 This document, as a whole, is the 11th version of 4 the Training and User Awareness Baseline document. This 5 is a contract controlled document setting out 6 ICL Pathway's response to meeting Post Office's training 7 needs. If you can scroll down to the diagram, this sets 8 out the structure of the training programme. You can 9 see that times in days or hours are allocated to parts 10 of the training programme that were to be delivered as 11 part of the national rollout. 12 And down the right-hand side, a timescale by 13 reference to Day Zero, which is at the bottom, ie the 14 date by which they must be provided. So subpostmasters 15 would be invited to training events as part of the 16 rollout of Horizon at their branch. These training 17 events would sit alongside the branch preparations to 18 the conversion to Horizon itself. 19 If we take that off the screen, the first formal 20 training event was a non-mandatory user awareness 21 training event. That was described as a two-and-a-half 22 hour lecture style event that would provide an overview 23 of the function of Horizon itself and the training 24 programme. The second formal training event was 25 described as "user training", and that training had to 155 1 take place within five days of Horizon going live at 2 that person's branch. That was subsequently elongated 3 to up to ten days before. 4 Either way, the core training for the subpostmaster 5 took place, you'll note, within a relatively short 6 period of time before Horizon going live at their 7 branch. That user training is described as 8 "a classroom-based event" where users would be 9 instructed on how to use Horizon. 10 You'll hear evidence that subpostmasters were 11 offered the course for managers, which included training 12 on the accounting elements for Horizon, such as 13 balancing, and that that training lasted for 14 one and a half days. 15 The counter assistants were offered a day-long 16 course which did not cover balancing in detail. I'm not 17 going to go into the detail of the content of the 18 training programmes at this stage for two reasons: 19 firstly, it's clear that the training changed over the 20 course of time, and it wouldn't be a helpful use of time 21 to chart the changes in the course of this opening. 22 They will be matters for you to consider in the Phase 3 23 hearings. And secondly, there will, I anticipate, be 24 disagreement between witnesses over the facts during 25 this period of rollout and indeed thereafter, and it 156 1 will be important to read and hear those witnesses in 2 full. 3 Instead, in opening, can I just briefly identify the 4 number of themes and issues which you may wish to 5 grapple with when investigating training as part of 6 Phase 3. 7 Firstly, the assessment of baseline competences and 8 the analysis of training needs. Secondly, the adequacy 9 of time made available for training and its content. 10 Thirdly, collection and use of feedback. And fourth, 11 the assessment of competence. 12 Sir, I notice the time. Having teased you with 13 those four topics, including the assessment of baseline 14 competences -- 15 SIR WYN WILLIAMS: I think that's to think about tonight, 16 Mr Beer. 17 MR BEER: I'm afraid we'll have to come back to it tomorrow. 18 SIR WYN WILLIAMS: Fine. What time are we starting 19 tomorrow? 20 MR BEER: Can we start at 10.00 am, please, sir? 21 SIR WYN WILLIAMS: Certainly. As far as the future 22 programme is concerned, in inverted commas, we had 23 a diversion of about an hour and a half this morning, 24 but that won't affect or shouldn't affect the progress 25 of opening this week? 157 1 MR BEER: We always had a half day spare at the end on 2 Friday afternoon, and so we should complete all openings 3 by the end of Friday. 4 SIR WYN WILLIAMS: Excellent. I think everybody now knows 5 that for personal reasons I can't be present in the 6 Inquiry room every day, but of course I'll be remote 7 when I'm not in the Inquiry room. But just in case 8 there are people who will suddenly see a blank space and 9 wonder what's happened, I'm still with you in spirit, if 10 not in body. 11 MR BEER: Thank you, sir. 12 (4.13 pm) 13 (The hearing adjourned until 10.00 am the following day) 14 15 16 17 18 19 20 21 22 23 24 25 158 I N D E X Housekeeping ..................................1 Submission by MR STEIN .......................11 Submission by MR MOLONEY .....................19 Submission by MR HENRY .......................23 Submission by MS GALLAFENT ...................26 Reply by MR BEER .............................36 RULING ......................................39 Opening statement by MR BEER .................44 159