1 Tuesday, 25 October 2022 2 (10.00 am) 3 MR BEER: Good morning, sir, can you see and hear me? 4 SIR WYN WILLIAMS: Yes, I can, thank you. 5 MR BEER: Can I call Keith Todd, please. 6 KEITH TODD (sworn) 7 Questioned by MR BEER 8 MR BEER: Mr Todd, can you give us your full name, please? 9 A. Thomas Keith Todd. 10 MR BEER: Now, sir, Mr Todd explained to me before he gave 11 evidence that he would like, with your permission, to 12 remove his jacket. Is that acceptable to you? 13 SIR WYN WILLIAMS: Of course it is. 14 MR BEER: Thank you very much, Mr Chairman. 15 Mr Todd, as you know, my name is Jason Beer and 16 I ask questions on behalf of the Inquiry. Thank you 17 very much for coming to give evidence today and thank 18 you for providing a witness statement to the Inquiry 19 previously. We're very grateful. 20 You should have in front of you a hard copy of that 21 witness statement in your name and dated 22 6 September 2022. If you turn to the last page of that 23 statement, which I think is page 60, can you see your 24 signature? 25 A. Not on the copy on my desk but -- 1 1 Q. Have a look at the copy behind you in volume 1 and turn 2 up tab A1 and go to page 60 in there. 3 A. Yes. 4 Q. That is your signature? 5 A. That is my signature. 6 Q. Are the contents of that statement true to the best of 7 your knowledge and belief? 8 A. Yes, they are. 9 Q. Thank you very much. Just for the purposes of the 10 transcript, no need to display now, the URN for the 11 witness statement is WITN03880100. 12 Can I start, please, Mr Todd, with your career 13 qualifications and experience. I think you were 14 formally chief executive officer, CEO, of International 15 Computers Limited, ICL? 16 A. Correct, yes. 17 Q. Relevantly for our purposes, you were also a director of 18 ICL Pathway Limited? 19 A. That's correct. 20 Q. By way of overview, I think you joined ICL in July 1987; 21 is that right? 22 A. That's correct. 23 Q. Initially as the finance director? 24 A. That's correct. 25 Q. You became the CEO of ICL in January 1996 -- 2 1 A. Correct. 2 Q. -- on 1 January 1996, I think? 3 A. Indeed. 4 Q. Now, you resigned from all positions in ICL and related 5 companies in July 2000; is that right? 6 A. That's correct. 7 Q. On 28 July 2000, I think. By way of background, I think 8 you began your working life in 1972 as an executive 9 officer in the Royal Ordnance factories; is that right? 10 A. That's correct. 11 Q. Thinking back, that was then a state-owned weapons 12 manufacturer; is that right? 13 A. That's correct, making Chieftain tanks, amongst other 14 things. 15 Q. Sorry, say again? 16 A. Amongst other things. 17 Q. Yes. You completed accountancy training whilst there, 18 I think -- 19 A. Correct. 20 Q. -- so as a civil servant and you qualified as a Fellow 21 of the Chartered Institute of Management Accountants? 22 A. Correct. 23 Q. You worked, between 1975 and 1987 for Marconi and 24 a subsidiary of it, here and in the United States. 25 A. That's correct, in the defence industry. 3 1 Q. Again, weapons manufacturing? 2 A. Yes. 3 Q. You took up, as we have said, your role as FD at ICL in 4 1987? 5 A. That's correct. 6 Q. I think in your time before taking up that position and, 7 indeed, before the events that we're going to speak 8 about today, you plainly had no hands-on experience with 9 post offices, other than perhaps going in and buying 10 a stamp. 11 A. Merely as a customer, as it is today. 12 Q. As our first ICL witness, I'm going to ask you a series 13 of relatively basic questions, if I may, about the 14 corporate structure of the relevant entities involved -- 15 A. Mm-hm. 16 Q. -- and their development across time. Do you 17 understand? 18 A. That's fine. 19 Q. ICL, is this right, was established in 1968 -- 20 A. That's correct. 21 Q. -- as, or supposedly as, the UK's answer to the US giant 22 IBM; is that right? 23 A. That's right. It was bringing together a number of the 24 UK's technology assets at that date. 25 Q. It was part of a push by Tony Benn, I think, under the 4 1 Wilson government, to create -- 2 A. That is correct. A technology competitor to the global 3 technology players. 4 Q. Thank you. In 1990, Fujitsu acquired 80 per cent of ICL 5 shares from its parent company, STC PLC? 6 A. Correct. 7 Q. STC, Standard Telephones and Cables? 8 A. And Cables. 9 Q. I think paid about US$ 1.29 billion, £740 million? 10 A. I recognise that more clearly, yes. 11 Q. In 1998, Fujitsu became ICL's sole shareholder; is that 12 right? 13 A. As best as I recall that was about the date. 14 Q. Then in 2002, the ICL brand was dropped by Fujitsu? 15 A. I couldn't particularly address that. I was aware when 16 I left that there was an appetite to create one Fujitsu, 17 so that date doesn't surprise me. 18 Q. Okay, thank you. ICL Pathway Limited, when was that 19 created and for what purpose; can you help us? 20 A. Yes, so the Pathway company was created when we were 21 looking at bidding for the project to build a new 22 infrastructure for the Post Office, which we're going to 23 be talking a lot about during the next few hours, and it 24 was our view that forming a dedicated company, sometimes 25 known as a special purpose vehicle, would be a benefit 5 1 to our proposition that we were going to put forward in 2 response to the request for proposals that were coming 3 out. 4 The idea behind it was -- and this may come up in 5 your subsequent questioning -- that Pathway, when it was 6 originally formed, had a number of shareholders. It 7 also had an independent chairperson, Sir Michael Butler, 8 an ex-prominent civil servant, and we felt that, by 9 having a special purpose vehicle that would be fully 10 supported by ICL and Fujitsu, that we would be able to 11 focus the energies and efforts not just on the project 12 but the subsequent success of that business. 13 Q. So it was a special purpose vehicle, a company 14 comprising other companies or contributions from other 15 companies. 16 A. Yes, and if I may just add one thing -- 17 Q. Yes. 18 A. -- because when people say "special purpose vehicles" 19 they may default and think Bahamas or -- this was a UK 20 company. 21 Q. Initially, at least, the main companies that it 22 comprised of were ICL, Girobank, An Post and De La Rue; 23 is that right? 24 A. That's correct. 25 Q. One of those companies, An Post, the Irish Post Office, 6 1 they, I think, were, you say in your statement, already 2 using software that you were to propose as part of the 3 project; is that right? 4 A. That's correct. 5 Q. Which software was that? 6 A. Software that came from a company called Escher. As 7 I recall, I think the product name may be Riposte, and 8 that we had, as I recall, heard about the software and 9 the success that had occurred with the Irish Post 10 Office, as a result of which we took on board 11 a relationship with Escher as an important subcontractor 12 on this project and An Post's experience at dealing with 13 the Post Office, we felt, would be very valuable to us 14 as we navigated the proposal stage but also, 15 potentially, subsequently, through the implementation 16 phase. 17 Q. So it was a part of the software that you were 18 subsequently to use as part of your proposition to the 19 Benefits Agency and Post Office Counters Limited -- 20 A. Yes, it was part of the -- a core part of the Post 21 Office element and the counterpart of that and it had 22 given us -- the fact that it had been deployed -- some 23 confidence in the technologies. 24 Q. What did you know about what other technology had been 25 deployed alongside it in the Republic of Ireland? 7 1 A. I don't recall any specific knowledge. 2 Q. So you didn't know the system of which it was a part, to 3 your recollection? 4 A. To my recollection, I didn't know the specific detail. 5 Q. Can I turn to your role in Pathway overall, please. In 6 your witness statement, that's -- I will ask for this to 7 be displayed on the screen -- that's WITN03380100. 8 No, that's not right. WITN03880100. Thank you and 9 page 5, please. 10 If we can highlight paragraph 20, please. You say: 11 "As part of this renewed focus on systems and 12 software, from early 1995 I oversaw ICL's bid for the 13 Benefits Agency/Post Office Counters Limited ... 14 contract to computerise the payments of benefits in the 15 UK. I undertook this role initially as [chief financial 16 officer] and then as [chief executive officer] from 17 January 1996." 18 A. Yes, that's correct. 19 Q. So what did overseeing mean in your role as chief 20 financial officer from early 1995 until January 1996? 21 A. The CEO I worked with until I became CEO was Sir Peter 22 Bonfield and I initially, as I think you may have 23 articulated, joined the company as CFO but took on 24 responsibility for business strategy as well, in 25 a number of years up until I became CEO. 8 1 During that period, we were involved as a founder 2 member of the Camelot consortium and I was a founder 3 director of Camelot that, as I'm sure people listening 4 to this will know, won the right to run the UK lottery 5 and, for a number of years, extremely successfully. So 6 I had experience from specifically prior to the bid for 7 the Post Office on overseeing major contracts. 8 And if I may just for a moment take a reference back 9 to my days in the defence industry, the defence industry 10 was and is involved in very significant technology 11 projects of all natures, from communications to weapons, 12 to satellites, so my experiences from those days had 13 been useful to ICL as the transition of the company from 14 a product company, which I drove more aggressively from 15 1996, was occurring. So my -- the oversight -- to go 16 back specifically to your question -- was that, as 17 I recall, Sir Peter Bonfield asked me to take oversight 18 on the strategy, the formation of the team, the 19 consortium, working with, at the time, Mr Bennett. 20 Q. What does "in practice oversight" mean at this stage? 21 So early 1995 until January 1996. 22 A. Aware of, get reports on the RF -- requests for proposal 23 status, discussions around potential makeup of the 24 participants of our bid, as well as review both as 25 oversight and as CFO of ICL of the financial proposals. 9 1 Q. Did "oversight" mean lead? 2 A. The central focal point in a large organisation -- ICL 3 was broadly a 3 billion sterling company. This project 4 was a very important project, no denying on that, 5 because it was very supportive of our new strategy, but 6 it was only one of a number of things which I was 7 involved in and had oversight on. 8 We had put in place, as I mentioned before, a team, 9 as I recall, with John Bennett certainly, and there were 10 reports that he provided monthly, I'm sure we will talk 11 about shortly. So a team to run the project day-to-day. 12 So I was not involved every day on the project but, 13 certainly, from an oversight point of view had 14 significant involvement. 15 Q. Thank you. We will come to the more particular 16 arrangements as to the structure of the team in 17 a moment. 18 Before we do that, can we establish the broad 19 chronology of events and can we use your helpful 20 document to do this. It's WITN03880101. Thank you. 21 Just to be clear, this is an exhibit to your witness 22 statement that you compiled yourself? 23 A. That's correct. 24 Q. You say at the top, under the rubric: 25 "I have exhibited below a timeline of key dates and 10 1 events that I refer to in this statement, taken from my 2 review of the materials provided to me by the Inquiry. 3 This covers the history of ICL and ICL's involvement in 4 the procurement process and subsequent contract with 5 POCL and the DSS." 6 A. That's correct and my post submission review, I noted 7 a couple of things which, with hindsight, I would have 8 added, which I'm sure will come up. Peter Copping's 9 time period of his review, Montague's involvement and 10 the Corbett -- 11 Q. The Corbett review too? 12 A. -- Corbett review, which, on reflection of the timeline, 13 maybe should have been included. 14 Q. Just picking this document up then to get a broad 15 overview to start with, in the fourth line, in May 1994 16 I think Peter Lilley was then the Secretary of State for 17 Social Security, yes? 18 A. Correct. 19 Q. He announced an intention to automate the benefits 20 payment system; is that right? 21 A. That's correct. 22 Q. Can you recall, was that an announcement about benefits 23 payment rather than automation of the Post Office? 24 A. I don't recall specifically but the focus of his 25 responsibilities was the DSS. 11 1 Q. Yes. In any event, in August 1994, next line, the DSS 2 published its invitation notice; is that right? 3 A. That's correct and you kindly said it before: we are 4 referring to events that happened up to 27 years ago. 5 Q. Yes. 6 A. So I hope everybody listening to this will understand 7 I do not have perfect recall of these dates. These were 8 dates facilitated by some documents that were shared. 9 Q. Thank you. If there are any particular points in your 10 evidence you wish to emphasise that point again, then 11 please do say so -- 12 A. Yes. 13 Q. -- that you are going from what you have read, not what 14 you remember. 15 A. Yes, yes. 16 Q. In any event, in August 1994, publication of 17 an invitation notice, so that's a notice to potential 18 bidders to ask them to express an interest in the 19 contract if they wish to do so. 20 A. That's correct. 21 Q. Yes? Again, I think, as the chronology shows, this was 22 a DSS lead: they were leading on this. 23 A. I don't specifically recall at what point it became the 24 joint lead, but yes. 25 Q. As you, I think, explain in your witness statement to 12 1 us, no need to turn it up, there were 92 expressions of 2 interest at this stage. 3 A. Yes, and again that's, you know, from research and 4 documents provided. I would have naturally recalled -- 5 it was very competitive. I would have naturally 6 recalled -- and you may be about to get to this -- that 7 the final shortlist was, you know, down to three, of 8 which, in my recollection, IBM was the number one 9 competitor. 10 Q. Before we get to that, there was a stopping off point in 11 December 1994, next line. That group of 92 had been 12 whittled down to a shortlist of five, one of which was 13 Pathway. 14 A. Correct. 15 Q. By the January, January 1995, as you have just told us, 16 ICL was formally incorporated; is that right? 17 A. ICL Pathway. 18 Q. Yes. 19 A. Yes. 20 Q. Then, as the chronology shows, if we skip on a line or 21 two, in April 1995 a statement of service requirements 22 was issued to shortlisted suppliers. By this time, had 23 the number of bidders been whittled down to five? 24 A. I don't recall the precise timing. 25 Q. Okay. What do you understand the purpose of a statement 13 1 of service requirements to be? 2 A. A statement from the customer of what the technology is 3 required to be able to deliver and it was a very broad 4 base, covering both the -- as I recall, the Post Office 5 infrastructure renewal, which we will expand on, I'm 6 sure, in a moment, and the transformation of the way 7 benefits would be paid to UK citizens. 8 Q. So would a short pithy description, would you agree with 9 this, of a statement of service requirements be: 10 a description of the functional requirements which the 11 sponsor or sponsors expected the project to deliver? 12 A. Yes, I think that's fair. 13 Q. By July 1995 had something called the evaluation board 14 narrowed down the bidders to three: ICL Pathway, IBM and 15 Cardlink? 16 A. Yes, I wouldn't have naturally remembered Cardlink but 17 when I saw it on the documentation it came back. 18 I certainly remember IBM as being our thinking. My 19 recollection -- I couldn't remember the name 20 "Cardlink" -- was that the other bidder was too 21 inexperienced in the complex world of delivering complex 22 technology projects. 23 Q. By February 1996, if we move on, is it right that 24 invitations to tender were issued to those three 25 remaining bidders? 14 1 A. Again, from the documentations, the date is -- I confirm 2 the date, but, yes, I would have recalled that we were 3 asked to respond with the three -- the other two. 4 Q. Then the next month those bids were received in 5 March 1996, but is it right that they all came in over 6 the level of price acceptable to the sponsors, so the 7 bidders were requested to retender? 8 A. So we were definitely requested to retender. I have to 9 repeat again that this is a long time ago. Precisely 10 the reasons for the retender -- it's not unusual for 11 that to occur, but I wouldn't have recalled from memory 12 that it was because they all exceeded "the price". We 13 may well come on to this later on, the evaluation and 14 why we won, but, yes, the word "price" is a specific 15 word -- another set of words that applies, you know, 16 value for money, and, as we will no doubt get to, risk 17 factor. 18 Q. In April of that year, on 22 April, your chronology 19 shows that ICL Pathway's revised bid was submitted and 20 on 15 May, is this right, Pathway -- ICL Pathway Limited 21 was awarded the contract? 22 A. Yes, that is correct, and there's a point that may or 23 may not come up with your questioning. There was 24 absolutely a surprise I think for all the bidders 25 through this process that when the first tender came 15 1 out, the extensiveness of it, the number in my mind is 2 2,000 pages. It was, you know, much more significant 3 than had originally been discussed when it eventually 4 arrived, so there was -- yes, it was a very significant 5 document that all the parties responded to. 6 Q. So a detailed invitation to tender? 7 A. It was much more detailed than had been indicated 8 previously. 9 Q. Did that cause a problem? 10 A. Time to evaluate all of the clauses and subclauses, so 11 yes, certainly it caused a significant amount of 12 additional work. 13 Q. Did it affect the quality of the bid that you put in, 14 was that the implication from saying that the ITT was -- 15 A. No, I wouldn't draw that conclusion. I'm just going to 16 summarise and say that there was a great deal more work 17 that the ICL Pathway team and its competitors and our 18 subcontractors had to do at the time to get on top of 19 it. 20 At the time we bid, we were comfortable with our bid 21 and that -- and our ability to deliver, albeit -- and 22 I'm sure we will get to this -- it was always a very 23 tight timescale. 24 Q. In terms of timescale, is it right that at this stage 25 your bid had two significant milestones in it and we get 16 1 this from paragraph 34 of your witness statement, no 2 need to turn it up, I will just summarise it: firstly, 3 the operational trial of Pathway would be completed by 4 June 1997 and then, secondly, a full rollout to all 5 19,000 post offices would be completed by end of 1999. 6 A. That sounds correct. 7 Q. Thank you. Now, you have mentioned today your previous 8 work history in the defence industry and how that 9 assisted you in this context, and you have told us about 10 how the Camelot lottery system was designed, 11 implemented, rolled out. It's right, isn't it, I think, 12 additionally to that chronology that at the same time 13 that ICL was bidding and tendering to the DSS and the 14 Post Office for what became the Horizon contract, it was 15 also in litigation with the DSS? Do you remember that? 16 A. I saw reference to that in the documents but would not 17 have recalled that. 18 Q. I wonder whether we could just look at the documents to 19 see whether that assists and indeed it is to do with the 20 system called "ASSIST" in capital letters. Do you 21 remember that system? 22 A. I remember the project named ASSIST, yes. 23 Q. That was, I think, a contract between ICL and the DSS, 24 yes? 25 A. Yes, I would probably recall that. I certainly recall 17 1 the project ASSIST. 2 Q. I think we can see from the documents it was for ICL to 3 build and then operate a statistical analysis system for 4 the DSS? 5 A. I wouldn't have recalled that. 6 Q. Okay. I wonder whether we can look please at 7 DWP00000375. Now, just to see what this is to start 8 with, you will see that it's a memo circulated within 9 the Benefits Agency and Post Office Counters Limited and 10 it is -- the subject of it is the visit of Mr Yakamoto 11 (sic), the chairman of Fujitsu, to the Secretary of 12 State. 13 A. Yes. There is actually a spelling there. It was 14 Yamamoto, but that's on the document as you read it. 15 Q. Yes. I think we know -- we will find in due course that 16 Mr Yamamoto visited the Secretary of State in 17 December 1996? 18 A. Correct. 19 Q. I think, as we will find out in due course, you were 20 present at that meeting between the Secretary of State 21 and the chairman of Fujitsu? 22 A. Correct. 23 Q. Now -- 24 A. Again, reminded from the document that I think I may 25 have only received -- 18 1 Q. Recently? 2 A. Very recently, yes. 3 Q. Can we look please at page 7 of this document please. 4 Now, this is part of a series -- this is not something 5 you would have seen at the time because this is 6 an internal communication within Benefits Agency and 7 Post Office Counters Limited, in preparation for 8 a Secretary of State meeting with the chairman of 9 Fujitsu and you will see that -- from the document as 10 a whole, that it raises a series of issues, the kind of 11 things that a Secretary of State might be asked about. 12 It briefs him on them and then sets out some lines to 13 take. Do you see that? 14 A. Yes. 15 Q. It is just the passage at the top of the page that I'm 16 interested in. So if we just read the first few bullet 17 points under the heading "ASSIST": 18 "DSS has an ongoing contractual disagreement with 19 ICL in relation to a contract awarded in January 1993 to 20 ICL to build and operate a statistical analysis system 21 [called] ASSIST. 22 "The contract for ASSIST (in consortium with 23 Hoskyns) was terminated on 19 October 1994 and DSS 24 issued a writ alleging misrepresentation and breach of 25 contract on 19 May 1995. ICL served its defence and 19 1 counterclaim in December 1995. 2 "Preliminary hearings have taken place in 3 High Court, mainly on procedural issues. Hearings on 4 the main issues are not scheduled to begin until 5 April 1998 and may run to the year 2000." 6 Can you recall this now, that the DSS had terminated 7 their contract with ICL and issued proceedings against 8 your company for misrepresentation and breach of 9 contract? 10 A. I -- up until seeing this document recently -- had no 11 recollection of that legal action. 12 Q. This document tells us that the contract was terminated 13 in October 1994. 14 A. Yes. 15 Q. So just orientating ourselves in our Pathway chronology, 16 that's at the time that ICL was bidding for the contract 17 with the DSS and with Post Office Counters Limited, 18 isn't it? 19 A. That's correct and just for the avoidance of doubt, I am 20 not saying I wouldn't have known about it, but I had -- 21 you know, I would not, had I not seen that document, had 22 any recollection of that specific contractual dispute. 23 Q. No. You would have known about it at the time -- 24 A. Yes. 25 Q. -- because a government suing a contractor -- 20 1 A. Yes. 2 Q. -- for -- and alleging misrepresentation -- 3 A. Yes and we may -- 4 Q. It's quite a big thing, isn't it? 5 A. Yes. We may get into this a little bit later on. It's 6 a -- for any party to sue it is -- you know, it should 7 not be taken lightly, but it is always the right of the 8 parties to do that if resolution of issues cannot be 9 achieved through discussion and cooperation. 10 Q. We will see the sinews that were stretched and strained 11 in the ICL Pathway contract not to go down the 12 litigation route in due course. 13 A. That is precisely why I'm mentioning that context and 14 again -- let me call this an opinion but one maybe many 15 will relate to -- there are different approaches in 16 different national jurisdictions. The US tends to be 17 more naturally litigatious, would be my opinion. Europe 18 is less so, but the accepted practice of appropriate law 19 is the right protection if parties can't agree. I -- 20 through -- my opinion would be that Japanese culture is 21 even less orientated to take legal action. 22 Q. So just in terms of -- 23 A. But that is an opinion. 24 Q. Okay. Just in terms of the chronology though, the 25 Government terminated its contract with ICL at precisely 21 1 the same time that ICL Pathway was bidding with the very 2 same contract -- supplier, DSS, and also the Post 3 Office? 4 A. ICL had a very substantial business, based on history on 5 its mainframe computing -- a word from the past -- but 6 mainframe computing, mid-range computing and PCs. 7 I don't recall the names of the various projects but 8 I think you would find that we had a whole range of 9 relationships and, again we may get to this, but these 10 were not -- these were factors which were known at the 11 time. 12 Q. What do you mean by that, "These were factors that were 13 known at the time"? 14 A. Well, as you have just pointed out to me, or the 15 document pointed out to me, these factors were known 16 when the evaluation of the proposal was undertaken. 17 Q. And just in terms of the chronology, the proceedings 18 were issued, according to this document, in May 1995, 19 and in terms of our Pathway chronology, that's a couple 20 of months before ICL became one of the three selected 21 bidders for the contract with the DSS and Post Office 22 Counters Limited. 23 A. That's correct. 24 Q. Can you recall was any of this seen as an impediment by 25 ICL to your bid, namely that you were in litigation over 22 1 a IT contract with the very government department that 2 you were seeking to negotiate another IT contract with? 3 A. I have no recollection of that being discussed. It may 4 well have been, but I would like to just also remind, 5 for context purposes, where we are in 1995. The 6 internet started actually many years earlier but the 7 emergence of the new world really was around this 8 period, and I will keep this succinct, but if you look 9 at some of the names that are households today, you 10 know, in 1994 I don't think they existed: Amazon, 11 Facebook and these places. 12 So we had a period through that that we're talking 13 about -- and this is relevant for a wider context to the 14 question -- where ICL was changing and working to adapt 15 to the new world of the consumer centric. We were 16 engaged with the Government across the board and it's 17 various documents that have been presented to me in the 18 last few days and months that reinforce this, so the ICL 19 relationship with UK government and many of the 20 departments was very broad, very constructive, very 21 engaged, trying to really help the UK governmental 22 public sector institutions move forward with what was 23 transformational technologies at the time. 24 Q. This ICL Pathway contract was later described as the 25 largest non-military IT contract in Europe; do you 23 1 remember that? 2 A. I remember it being the largest one we had won at the 3 time. 4 Q. To your knowledge, did the DSS and Post Office Counters 5 Limited bring into account, in evaluating your bid that 6 one of them, the DSS, had terminated a IT contract with 7 ICL and alleged misrepresentation against it? 8 A. I have no knowledge or recollection of that. 9 Q. You've got no recollection of any discussions about the 10 effect of an outstanding -- 11 A. No, no, my recollections are that we were very concerned 12 that IBM, a very credible competitor of scale in global 13 technology, might succeed in beating us in the 14 competition. 15 Q. You say in your witness statement -- we need not turn 16 them up now, but examples could be found at 17 paragraphs 17, 42, 50 and 175, that ICL had a proven 18 track record on delivering large national IT projects, 19 yes? 20 A. That's correct. 21 Q. Would it be fair to describe this issue, the ASSIST 22 contract, as a recent and relevant example where the DSS 23 had taken the opposite view, that your track record was 24 not a good one? 25 A. I think you would probably find there are very specific 24 1 disputed details about that specific contract, but I'm 2 afraid I can't help this Inquiry with any details of 3 exactly what that dispute was about. 4 Q. Could I turn to a separate issue then, please -- that 5 can be taken down, thank you -- in the chronology and 6 that's what ICL was saying at this stage about fraud 7 prevention and detection and I wonder whether we could 8 turn up please paragraph 25 of your witness statement. 9 That's WITN03880100, at page 7, please. 10 At the top of the page, you say: 11 "It was my understanding that the aims of the 12 Horizon project were as follows ..." 13 You set out three: 14 "... fraud prevention, Post Office modernisation and 15 infrastructure ..." 16 Sorry, if we can just go back to 24 at the top: 17 "... fraud prevention, Post Office modernisation and 18 infrastructure transformation." 19 Then you say: 20 "I will deal with each in turn ..." 21 Then in paragraph 25 you deal with the first of 22 those, fraud prevention, and in there, in paragraph 25, 23 is this right, you set out the aims of the government in 24 relation to fraud prevention and you describe how ICL 25 already had experience in this area, including with the 25 1 DSS but not with the Post Office? 2 A. Yes, correct. ICL had an extensive business in 3 retailing, point of sale, at the time, Marks & 4 Spencer's, Sainsbury's, as I recall, were customers, 5 Euromarché, Albertsons in the US, we had a number of 6 Post Office banking customers, so we were very familiar 7 with issues around fraud protection. 8 All of the fraud protection discussions that 9 I recall were focused on DSS. I do not recall any 10 related to the Post Office. 11 Q. We will have a look at that, at some documents in 12 a moment. 13 A. Yes. 14 Q. Can you remember now that the fraud prevention risk that 15 you describe in paragraph 25, under the joint contract 16 that was agreed with DSS and Post Office Counters 17 Limited, was transferred from the sponsors to ICL? 18 A. I don't recall the specific wording within the contract 19 on the transfer but, in essence, yes. Risk transfer did 20 take place between the customer parties and the company. 21 Q. Just for those that are not as familiar as we are with 22 what that means, in layman's terms, what does 23 transferring the risk from the clients to the suppliers 24 mean? 25 A. It's all in context -- again, I'm sure this will come 26 1 up -- this was, as I recall it, one of the relatively 2 early PFIs, private finance initiatives, where the 3 public sector were looking at enabling the supply side 4 to take accountability for the service delivery and 5 provide the capital to finance the project and, 6 therefore, take -- the risk transfer of the success of 7 the quantity of service delivery, or other aspects of 8 the project, would move from the customer to the 9 supplier. 10 Q. Can we look please at what ICL were saying at 11 a relatively early stage in relation to this. This is 12 ICL's statement of capability of 19 November 1994, so 13 this is part of the initial response to the invitation 14 for bids and it is FUJ00098230. 15 I think we saw from the bottom of the page the date, 16 19 November 1994, and so this is a part of the statement 17 of capability of that date, so it's part of ICL's 18 response to the initial invitation to bid. 19 A. Okay. 20 Q. Can we go to page 8 of this document, please. Can we go 21 to the paragraph second from the bottom. I should read 22 the paragraph above it for context. It says: 23 "ICL has widespread experience in the security 24 associated with payments systems in the retail sector, 25 both in the UK and abroad. ICL has also undertaken 27 1 systems and service developments in anti-fraud projects 2 within the UK [DSS] and within UK local government 3 authorities." 4 Then this: 5 "The current approach includes the introduction of 6 positive authentication, full reconciliation ..." 7 Then this: 8 "... and the provision of a full audit trail -- 9 including the ability to manage the 'statutory 10 declaration' documents." 11 The suggestion that the system includes the 12 provision of a full audit trail, what did you understand 13 that to mean or what would you understand that to mean? 14 A. Well, I don't recall seeing these words specifically, 15 previously. I do acknowledge they are in the document 16 which we fully submitted. I would read them to mean 17 what it says literally. 18 Q. What do you, as the CEO, read them literally to mean, 19 a full audit trail? 20 A. That there would a record of the transactions that had 21 been undertaken in the system. 22 Q. So a record of the transactions that had been undertaken 23 in the system, available to who? 24 A. To the parties that were using the system. 25 Q. Ie to, at this stage, DSS and Post Office Counters 28 1 Limited? 2 A. Yes. 3 Q. At this stage, there isn't any suggestion that there 4 would be a charge levied by ICL for the provision of 5 that audit trail? 6 A. I have no recollection of any conversations about such 7 matters. I don't recall any conversation specifically 8 about audit trails. 9 Q. To broaden it out, would this be right, you have no 10 memory of any discussion at any time that if the 11 customers -- at this time DSS and Post Office Counters 12 Limited -- wanted to see the full audit trail, they 13 would be charged for doing so, ie they would have to pay 14 a sum of money to do so? 15 A. I have no recollection of any conversation around that 16 question. 17 Q. Can we look forwards, please, to the agreement that was 18 subsequently signed because, of course, this is at 19 a time when there was a tripartite agreement between 20 you -- I call it "you", your company -- 21 A. Yes. 22 Q. -- and Post Office Counters and the DSS. Can we look 23 forward to the bilateral agreement that was subsequently 24 signed with just ICL and Post Office Counters Limited 25 and it is FUJ00000071. So you can see the 29 1 counterparties to that agreement, yes? 2 A. Yes, yes. 3 Q. Then I wonder whether we can look, please, at page 97 of 4 this document. That's it, thank you. I would like to 5 read under the cross heading "Prosecution support", "The 6 contractor" -- that's defined elsewhere to mean ICL 7 Pathway Limited -- so: 8 "[ICL Pathway] shall ensure that all relevant 9 information produced by [the Post Office Counters 10 Limited] service infrastructure at the request of [Post 11 Office Counters Limited] shall be evidentially 12 admissible and capable of certification in accordance 13 with the Police and Criminal Evidence Act (PACE) 1984, 14 the Police and Criminal Evidence (Northern Ireland) 15 Order 1989 and equivalent legislation covering 16 Scotland." 17 Then 4.1.9: 18 "At the direction of [Post Office Counters Limited] 19 audit trail and other information necessary to support 20 live investigations and prosecutions shall be retained 21 for the duration of the investigation and prosecution 22 irrespective of the normal retention period of that 23 information." 24 Just reading those words, ie the contractual 25 obligations placed on ICL there, would you agree that, 30 1 in order for Pathway to comply with these provisions, it 2 would be necessary for ICL Pathway to understand what 3 "the requirements of the law" in relation to criminal 4 proceedings are? 5 A. We would have had this contract reviewed not just by our 6 internal legal team but my recollection would be 7 probably by an external team. I would therefore think 8 it reasonable to assume that we had an understanding of 9 what that meant. 10 I have no specific recollection of that clause or 11 any discussion about that clause. 12 Q. Presumably you give that answer because only if it knew 13 what the requirements of the criminal law were could it 14 ensure -- ICL could ensure that data that was captured 15 was retained, that it enjoyed sufficient evidential 16 integrity and reliability and could be produced to 17 a court, so only if you knew what the requirements of 18 the law were could you do those four things: capture, 19 retention, ensure reliability and integrity? 20 A. That seems to me to be a reasonable conclusion, yes. 21 Q. To your own knowledge, did ICL Pathway seek any advice 22 on what the requirements of the criminal law were in 23 order to be able to achieve compliance with these 24 contractual -- 25 A. I don't recall any -- 31 1 Q. Hold on for a moment. 2 A. Apologies. 3 Q. So the question is: to your knowledge, did ICL Pathway 4 seek any advice on what the requirements of the criminal 5 law were in order to be able to achieve compliance with 6 these contractual obligations? 7 A. I have no recollection of any conversation about the 8 matter. 9 Q. To your knowledge, did ICL Pathway ever ask Post Office 10 Counters Limited what it understood the requirements of 11 the criminal law to be, to seek guidance from it as to 12 how these two contractual provisions were to be 13 fulfilled by ICL Pathway in practice? 14 A. I've got no recollection of any conversation with the 15 Post Office about this matter. 16 Q. Would you agree, standing back, that those are necessary 17 things to do: getting some advice on what the criminal 18 law requires and/or speaking to the customer as to its 19 understanding of what the criminal law requires in order 20 that these provisions could be complied with in 21 practice? 22 A. Yes. 23 Q. Thank you. Can I move on, please. 24 The award of the contract to ICL Pathway and the -- 25 what you have described as the unaligned objectives of 32 1 the Benefits Agency and Post Office Counters Limited. 2 Can we look please at paragraph 39 of your witness 3 statement, that's WITN03880100 at page 11. You tell us 4 in paragraph 39 that: 5 "An additional challenge in the procurement process 6 was the fact that we were tendering for a contract that 7 had two distinct clients." 8 Then: 9 "We had initially thought that the requirements of 10 POCL [Post Office Counters Limited] and DSS were 11 aligned. However, after the award of the contract, it 12 became clear that the two clients had separate and 13 distinct management ethos, business objectives and 14 priorities ..." 15 Yes? 16 A. Yes. 17 Q. At what stage, after the award of the contract, did it 18 become apparent that the clients had distinct management 19 ethoses, business objectives and priorities? 20 A. I don't recall a specific date but that what I was 21 referring to there was -- and from recollection, you 22 know, the challenges -- and these are multifaceted -- 23 first of all -- and I will come back directly to your 24 question -- about the fact that this was a PFI contract 25 not a design/build. The DSS culture, from my 33 1 recollection, was one of classic government Civil 2 Service procurement, structured precise, with limited to 3 no commercial flexibility, and the Post Office was 4 emerging with a vision of it becoming a self-sustained, 5 vibrant business. 6 What I recall and -- you know, unfortunately, 7 I can't pin it down to specific activities, but it did 8 become clear during that period that there had been 9 a long-term frustration from the DSS that it continued 10 to have to use the Post Office for the delivery of 11 benefits so what appeared to be in alignment on 12 a procurement, we experience dysfunctionality between 13 the two and, as I say in my statement, since that time 14 I have never signed a contract with two customers -- one 15 contract with two customers. 16 Q. Can I just ask you to focus on the words "We ... 17 initially thought that the requirements of [the pair of 18 them] were aligned. However after the award of the 19 contract, it became clear that", they weren't, yes? 20 A. Yes. 21 Q. Can you recall, was that the not clear to ICL before the 22 contract was awarded to ICL Pathway? 23 A. With the benefit of hindsight, it should have been, but 24 it was -- I don't recall it ever being a material 25 factor, and my recollection may be poor, but I do not 34 1 recall it being a material factor. When one stops and 2 thinks back to what happened and, even at the time when 3 we got through, at that stage, the challenging period, 4 with hindsight at that time it seemed how come we didn't 5 anticipate that problem, continuing to be completely 6 factual and honest, as I will be throughout this. 7 Q. Can we look at the couple of documents then. To start 8 with, some board minutes from ICL Pathway, Fujitsu, 9 FUJ00077832. We see the subject here is "Pathway Group 10 board meeting" and they are the minutes for 11 3 October 1995, and we can see that you are in the 12 distribution list -- 13 A. Yes. 14 Q. -- five or six down at the top, yes? 15 A. Correct. 16 Q. Can we turn forward to page 8 of the document, please, 17 and look at paragraph 2 and just scroll down, please, 18 under the heading "Timescales", and then it is about 19 five lines from the bottom of paragraph 2 beginning with 20 the sentence "Also": 21 "Also the 'memorandum of understanding' between BA 22 [Benefits Agency] and POCL [Post Office Counters 23 Limited] is causing trouble in taking forward. In 24 short, something has to give. Either a new faster 25 procurement with a tighter focus on [private finance 35 1 initiatives], or a cleaner separation between what BA 2 and POCL want." 3 A. Can you remind me of the date of this meeting, sorry? 4 I know you -- 5 Q. October 1995, so this is six months before the award of 6 the contract. 7 A. Yes. 8 Q. I think you have anticipated my question. Does this not 9 suggest that it was obvious, before the award of the 10 contract, that the two clients maybe had different 11 objectives and priorities? 12 A. They were clearly having difficulty getting their 13 memorandum. As I recall, I think they did -- I think 14 they did sign -- 15 Q. They did. 16 A. They did sign a memorandum of agreement, so, at the time 17 we bid, we would have believed they were aligned. As 18 I have said earlier, you know, with hindsight perhaps 19 we -- well, we probably did misjudge that a document 20 bringing people together would actually change -- and 21 I hesitate to say these words -- sort of embedded 22 cultural factors or long-standing challenges. 23 Q. Can we turn forwards in the same document, please, to 24 page 10. We can see that this is a memo from Tony 25 Oppenheim to the Pathway board and so this is a memo 36 1 submitted to the board in advance of the 3 October 2 meeting, yes? 3 A. Mm-hm. 4 Q. Just to help you, the way these papers are collected are 5 that there's the covering memo that we saw, then there 6 are the minutes and then there are, essentially, the 7 backing papers that appear to have been submitted to the 8 meeting and tabled, essentially, at the meeting. 9 A. Yes, and the evidence that you have shared with me 10 demonstrates the extensiveness of the documentation that 11 was provided at the time. 12 Q. To the board? 13 A. (The witness nodded) 14 Q. So this is Mr Oppenheim's, essentially, report to this 15 board meeting. Just tell us -- we're going to hear from 16 him tomorrow -- who Mr Oppenheim was? 17 A. He was the commercial finance individual on the Pathway 18 team. 19 Q. So a director of ICL Pathway? 20 A. I believe so. 21 Q. He sets out his report with the good and the not so 22 good, and can I just look at the not so good at the foot 23 of the page, and can you see the second and third 24 asterisk points: 25 "Serious timescale slippage pending -- not yet 37 1 declared." 2 I will come back to that in a moment, and then: 3 "Signs of dissent between [Post Office Counters 4 Limited] and [Benefits Agency] -- will the joint 5 procurement survive?" 6 Just a series of questions from this. Again, 7 looking at what we saw on page 8 and now on page 10, was 8 it not clear to ICL Pathway, months before the contract 9 was awarded -- this is six months before the contract 10 was awarded -- that the two clients had different 11 objectives and priorities, rather than something that 12 only emerged after the contract was awarded? 13 A. Well, as I have said, with hindsight, our judgement 14 could have been different but, at the time when we took 15 the contract, we believed that the parties were aligned, 16 that they had -- and I forget the precise name of it -- 17 a memorandum of understanding, that the contract was 18 clear that it was a PFI and that there were a series of 19 service deliveries. 20 What we then did not expect was that the parties 21 would not, in our opinion, operate it as a PFI. They 22 wanted to be involved in nearly every decision and we 23 also experience delays in getting agreements where 24 agreements would be preferable to us proceeding 25 unilaterally. 38 1 Q. You will see that Mr Oppenheim, after the question "Will 2 the joint procurement survive?" has written "Risk or 3 opportunity?" 4 I can understand, I think, that the joint 5 procurement failing would amount to a risk to ICL 6 Pathway, it would lose potentially millions of pounds, 7 either in costs already incurred or loss of 8 profitability in the future. 9 A. We had committed to this proposal with a total 10 commitment. The timescales we touched briefly on and 11 I'm sure will come up again were always tight. We 12 couldn't wait for this delayed procurement to occur. We 13 had to start to bring some of our team together and, to 14 your question, yes, we were incurring significant costs 15 because we believed that we had the most compelling bid 16 to win the project and wanted to be able to get -- to 17 use the phrase -- get off the ground quickly once we had 18 won the business. So, yes, there was risk. 19 If the procurement never happened, we would have had 20 significant cost. 21 Q. Sunk cost? 22 A. Sunk cost, thank you. Yes. 23 Q. What I can't see at the moment is why the procurement 24 failing would be an opportunity for ICL Pathway. Can 25 you assist on that? 39 1 A. I would be speculating. I don't have any recollection 2 and, as you said and as I understand it, you are 3 speaking to Tony tomorrow. He might have 4 a recollection. By the way, I have not spoken to Tony 5 since I left ICL, not because we weren't on good terms 6 but, in appropriate consistency with the requirements of 7 this Inquiry, I have not spoken to anybody about this 8 project. 9 Q. Can I get your understanding of what the opportunity 10 might be to ICL if the procurement failed? 11 A. Well, of course, I'm attempting to answer your question, 12 but I just want to make the point that we made very 13 clearly in our position paper, which I'm sure we will 14 talk about in a moment, and the outcome, the final 15 outcome that, actually, if there is only one customer, 16 the Post Office, it would be a lot cleaner and simpler 17 and, at the time when -- and I'm probably out of 18 sequence with where your questioning is at the moment. 19 At the time when that occurred, that DSS withdrew 20 and it became only the Post Office, in my view, that was 21 a lot simpler and, therefore, the opportunity to work 22 effectively with the Post Office would be a lot simpler. 23 That's the only thing -- going back to your question, 24 what does it mean, that it maybe relates to that, that 25 one customer would be easier to work with. 40 1 Q. I understand. Can we turn up please WITN03880100. 2 That's the witness statement again, please, at 3 page 25 -- 25, please. 4 Can we just look at paragraph 72 at the top, please. 5 You say: 6 "I acknowledge that Pathway must take responsibility 7 for entering into a contract with two distinct 8 customers. With the benefit of hindsight, we should not 9 have done this. We did not fully anticipate the 10 diverging priorities of what we thought were two aligned 11 government entities. Although we entered into the 12 contract in good faith, it created complexities that we 13 did not expect, albeit perhaps we could have had greater 14 foresight as to the potential issues that could arise." 15 You, in this paragraph, are making some partial 16 admissions or partial concessions there but making them 17 conditional on the application of hindsight, right? 18 A. Yes, and to the points you have raised up earlier, that 19 it was my recollection, at the time when we submitted 20 the bid and at the time we signed the contract, we felt 21 there was sufficient alignment. What this is saying and 22 what I referred to earlier that, with the benefit of 23 hindsight, it was clear that we had made a mistake. 24 Q. You say that you could have had greater foresight as to 25 the potential issues that could arise. We have looked 41 1 at a series of entries in the board minutes and 2 a submission to the board six months before where the 3 divergence between the customers' objectives is made 4 relatively clear, isn't it? We just looked at the board 5 minutes from October 1995? 6 A. But I think we also acknowledged that there was 7 subsequently an agreement between the parties, DSS and 8 Post Office, which would have addressed those concerns 9 at the time we bid. 10 Q. So are you saying that the memorandum of understanding 11 between the two gave you comfort? 12 A. I don't recall specifically ever seeing the memorandum 13 of understanding. What I'm putting to you is that, in 14 the context of the conversations that would have been 15 had around the board at the time we submitted the final 16 bid, we would have been concluding that we had 17 understood the requirements, we understood our solution 18 and we understood how we were going to deliver it. 19 Q. What impact did the -- speaking in very general terms to 20 start with -- did the agreement between two entities, 21 Post Office and the Benefits Agency, in a tripartite 22 agreement, and then the withdrawal of one of those 23 entities, Benefits Agency, from it have on the delivery 24 of the contract that was agreed between ICL and Post 25 Office Counters Limited, ie the fact that this started 42 1 as a three-way agreement and you were readying 2 yourselves for that, and it turned into a two-way 3 agreement with a different objective? 4 A. Well, in the period up to the withdrawal of the DSS, 5 there was, from my recollection, a -- and you are 6 speaking to John Bennett, I believe, and you're speaking 7 to Tony Oppenheim and you're speaking to others from the 8 group. There was a huge amount of time, distracting 9 time, dealing with some of the aspects of the Department 10 of Social Security. Again this may come up later in 11 your questioning, but the CAPS project and the delay, in 12 our opinion on that, we were expecting a single 13 interface from CAPS and, in the end, before they 14 withdrew, there was to be a series of releases of CAPS. 15 Now, I will go back to -- I will go back to your 16 question in a moment, but I wanted to provide this piece 17 of context and, again, you may pick this up later on. 18 There are two consequences of the CAPS delays -- three 19 actually. One, just the time in the discussion 20 distracted from the programme. Two, the additional cost 21 incurred -- if you had one release of an API, a feed, 22 you have one set of integration and testing to do. If 23 you have multiple releases you have to keep repeating 24 that all the time so it's much more costly to get it in 25 multiple stages. 43 1 The third is, remember, this was a PFI contract, so 2 the delay in having benefits coming out -- pinch 3 benefits, one comes to mind -- by, I think, over a year, 4 but the actual dates are in my materials so they can be 5 seen, results in lower income under a PFI. 6 Q. Because just to make it clear for anyone that's 7 listening, under that arrangement -- we will come to 8 look at the arrangement subsequently with Post Office 9 Counters Limited -- speaking in broad terms, ICL Pathway 10 was paid in pence per transaction and the tap wouldn't 11 be turned on until the transactions started? 12 A. The transactions started flowing. So as the 13 transactions were delayed further, the ability to -- we 14 were frustrated from our ability to be able to earn 15 income. But if I then go back to what I recall your 16 question was, at the point of withdrawal, it did not 17 have a fundamental change to the core system, which was 18 being deployed in the Post Office for infrastructure. 19 It was going to be a different way of handling the 20 payments to beneficiaries, and so it didn't have 21 a fundamental impact at that particular point. 22 Q. Any other effects on having negotiated and started to 23 work towards the delivery of a system with two customers 24 with different or unaligned objectives and then changing 25 to just having POCL as the contracting partner? You 44 1 said that it didn't have any fundamental effect on the 2 technology; any other effects? 3 A. Well, it simplified the management processes. 4 Q. So it was a positive effect? 5 A. At the separation it was a positive effect and that, in 6 the end, at that particular point, was a factor that 7 I do recall as the reason why ICL Pathway, ICL Fujitsu 8 took the loss as part of the settlement agreement. 9 Q. So at the moment, only positive effects from the change 10 in contractual position and change in the nature of the 11 service that was being offered by ICL? 12 A. Yes. 13 Q. So, essentially, what we're talking about now is simply 14 interesting background, is that right, to the contract 15 that was eventually agreed, a more straightforward 16 design and build contract? 17 A. Yes, the -- again, maybe you're going to bring further 18 factors out in this conversation, but at the point at 19 which that took place, which was I recall in 1999 -- 20 Q. Yes; May 1999? 21 A. May 1999, I think a short period of agreement at that 22 point it moved from PFI to a more standard design, build 23 and operate contract. 24 Q. Had the fact that there had been five years essentially, 25 between August 1994, the Secretary of State's 45 1 announcement, and reaching that point, agreeing in 2 May 1999 the more straightforward design and build 3 contract between POCL and ICL, did that have any impact, 4 ie there had been a five-year delay, on the timescales 5 that were then agreed to by ICL for the delivery under 6 the design and build contract? 7 A. I don't recall any. 8 Q. In terms of timelines for delivery of the agreement 9 under the tripartite agreement, can we just go back to 10 the passage from your witness statement we were looking 11 at in paragraph 39. This is page 11 of the document 12 we've got on the screen. Thank you. It is five lines 13 from the bottom -- six lines from the bottom: 14 "By the time the bid was submitted ..." 15 We're talking about, here, the original bid: 16 "... we felt we had a sufficiently clear 17 understanding of the requirements as defined at that 18 time. It was a complicated process with a variety of 19 players, but we felt that Pathway could deliver the 20 project successfully ..." 21 Then this: 22 "... albeit on an extended timeline to that which 23 was proposed by POCL and DSS. This was [over the page] 24 reinforced by virtue of the fact that when Pathway was 25 awarded the contract based on its re-tender document 46 1 in April 1996, the new [invitation to tender] had 2 adopted the Pathway timetable for the project." 3 So it's right, isn't it, that at this time there 4 wasn't any question of Pathway being forced, at the 5 outset of the contract, to deliver to an unrealistic 6 timetable set by the sponsors, it was Pathway's 7 timetable that had been adopted? 8 A. Yes. As I said earlier on, I would have had no specific 9 recall of this. The documentation that I reviewed drew 10 these dates and factors together, but certainly that is 11 what the documentation would suggest and that's why 12 I put it forward in my statement. 13 Q. So it was Pathway's own timetable that led the way? 14 A. That is what my statement says. It was, at the end of 15 the day, the timetable that we had responded to. As 16 I said in my statement, that there was some concern 17 about not complying with the required timescale because 18 if other parties had done at an attractive price, we may 19 have lost, but the documentation that exists -- that is 20 better recall -- frankly, a lot better than my memory -- 21 would suggest that actually the timetable that we bid 22 and was accepted, was initiated by us. 23 MR BEER: Thank you. Sir, might that be an appropriate 24 moment for the morning break? 25 SIR WYN WILLIAMS: Certainly. How long do you suggest, 47 1 Mr Beer? 2 MR BEER: 15 minutes from now, sir? 3 SIR WYN WILLIAMS: What's the time now by you, so that 4 I can -- 5 MR BEER: I have two different times. I have either 11.25 6 or -- 7 SIR WYN WILLIAMS: All right, 11.40. 8 Mr Todd, I know you're alive to this point but 9 there's likely to be a number of breaks in your 10 evidence, so talk about anything except your evidence, 11 all right? 12 A. Yes, no I understand that fully. Thank you, sir. 13 MR BEER: Thank you, sir. 14 (11.22 am) 15 (A short break) 16 (11.38 am) 17 MR BEER: Sir, are you able to see and hear me now? 18 SIR WYN WILLIAMS: I can, yes. 19 MR BEER: We're just waiting for Mr Todd to be brought back 20 into the Inquiry room. 21 SIR WYN WILLIAMS: That's fine. 22 (Pause) 23 MR BEER: Mr Todd, moving the chronology on a little bit, in 24 November 1997, the DSS and Post Office Counters Limited 25 served on ICL Pathway a formal notice of breach of 48 1 contract, that's right? 2 A. Correct. 3 Q. Cutting through it, your company denied such a breach 4 and, indeed, served a reply that said, far from it being 5 in breach of contract, the programme was now no longer 6 commercially viable for you and that to compensate 7 ICL Pathway it required a 30 per cent price increase, or 8 a 5 per cent price increase and a five-year extension on 9 the contract term; do you remember? 10 A. I'm reminded by -- so I remember the principle, yes, but 11 the detail from the documents provided, and I think it's 12 even clear from documents that have been shared that the 13 DSS did that to "protect their position". 14 Q. What do you mean they did it to "protect their 15 position"? 16 A. Serve notice of breach of contract. 17 Q. What do you mean they did it to "protect their position" 18 though, rather than believing that you were in material 19 breach of contract? 20 A. Well -- so I'm not a lawyer but I have been around 21 contracts for a long time. It is legitimate practice 22 and we, ICL Pathway, could have filed an earlier breach 23 of contract because -- and through this period of the 24 challenges we faced, we were continually challenged with 25 when do we call time on what was a very difficult period 49 1 of time. 2 We chose not to file for breach at that time and did 3 subsequently submit our position paper to make clear to 4 all parties, so there was no ambiguity of what our view 5 was, but we were diligently trying to work forward on 6 the project to transform the Post Office infrastructure 7 and move the project forward. 8 It was DSS's right to, at any time, file -- submit 9 the breach of contract, as it would have been for us. 10 Q. In general terms, can you assist the Chairman as to how 11 it had come to this, that in May 1996 Pathway had been 12 awarded the contract and in November 1997 both sides 13 were alleging material breaches against the other? 14 A. As a result of a number of things which we have touched 15 on already, the difficulty in implementing the contract 16 we signed, which was under a PFI, what in our opinion 17 was delay in decision-making around some aspects where 18 we were trying to be cooperative with the parties and, 19 as mentioned before, the delay, in the DSS case, of the 20 CAPS programme. 21 In relation to the Post Office, as made clear in my 22 position paper, and I believe I referred to it in my 23 statement, it became clear through the early phase of 24 the initial pilot, the initial Go Live in the Post 25 Office and the subsequent work, that there was 50 1 a unreasonably significant number of the post offices 2 which were not fit for purpose for deploying modern 3 technology. 4 Q. You mean physically? 5 A. Physically, physically, which had not been clear 6 earlier. So, to the Chair, there were a number of 7 issues which I would have expected that we would have 8 been able to resolve without it ever getting to the 9 point of dispute and breach but we were not. 10 And my next point is clearly opinion. I think what 11 we found we were caught in -- "caught in", my words -- 12 was a dilemma where the Post Office was not excessively 13 funded and its ability to take an appropriate, in my 14 opinion, pragmatic, commercial decision on adjustments 15 to the contract was challenged because of the ability to 16 pay. I think we were also -- and, again, I accept this 17 is opinion -- challenged by the executive branch of 18 government not being prepared to, in our opinion, 19 acknowledge their responsibilities. 20 And, again, you may wish to take this on later on, 21 one of the reasons why -- and it will be clear to all -- 22 we felt, in the end, we had to escalate it further to 23 include political involvement is in order to get, in our 24 opinion, a fair and reasonable judgement on defining 25 a way forward. So there were a lot of, you know, 51 1 factors that were frustrating the project that resulted 2 in those delays, Chair. 3 Q. In the answers that you have just given, in your witness 4 statement and in your position paper, you blame the 5 Benefits Agency and Post Office Counters Limited and do 6 not accept any responsibility by ICL for reaching this 7 position; is that right? 8 A. No, I don't think that is fair. We were rightly 9 pointing out where we think that they, the customers, 10 had frustrated this contract. As I have acknowledged 11 earlier on, we certainly did some things wrong and, as 12 well reported in -- I think in some of the documentation 13 that John Bennett acknowledged that there are certainly 14 some things that the company did wrong. 15 Q. The thing that you have so far referred to as the 16 company doing wrong is not realising sufficiently in 17 advance how unaligned the objectives of Post Office and 18 the Benefits Agency were. Is there anything more than 19 that, in not realising how the customers' objectives 20 differed, that you, on behalf of ICL, looking back -- 21 A. Well, it's very difficult and I am genuinely not trying 22 to be evasive on this but I don't recall specifics, but, 23 you know, it would be inappropriate for me to sit here 24 and say that there were no aspects of the project that 25 we couldn't have done better. 52 1 I do refer to resources. I believe that the 2 resources were being made available. The involvement 3 not just of the Pathway team but the access to other 4 resources in ICL was -- you know, was there, did take 5 some delay, sometimes, to get resources up to speed. So 6 that might be an example of where, you know -- had we 7 resourced more heavily earlier, in anticipation of 8 problems, some of the challenges of the projects may 9 have been better addressed. 10 Q. Can we turn up, please, a document that you have 11 referred to: your position paper. 12 A. Yes. 13 Q. It is POL00031117. Thank you. I just want to see what 14 we've got here first in this little clip surrounding the 15 position paper. 16 The first page of this PDF is a copy of a letter 17 sent from you to Stuart Sweetman, who was by then the MD 18 of Post Office Counters Limited, and you say: 19 "Following John Bennett's conversation with Paul 20 Rich, I am enclosing a courtesy copy of the letter and 21 position paper that I have sent to Peter Mathison", who 22 was the chief executive of the Benefits Agency, yes? 23 A. Yes. 24 Q. That's dated 10 March. 25 A. Yes. 53 1 Q. Then if we go over the page, please, we can see a copy 2 of that letter. 3 A. Yes. 4 Q. You say to Mr Mathison: 5 "Dear Peter 6 "I ... now enclose on a without prejudice basis 7 a position paper which sets out ICL's views in relation 8 to the Pathway Project. 9 "May I suggest that we arrange a further without 10 prejudice meeting after you have considered the enclosed 11 document so that we may continue to seek a way forward 12 in this matter." 13 We can see the letter at the top was itself headed 14 "Without Prejudice", if we just scroll up. 15 A. Yes. 16 Q. What was this sent without prejudice to: without 17 prejudice to what? 18 A. To our legal contractual rights. As I said earlier on, 19 a few minutes ago, the approach that I was taking, 20 ICL Pathway was taking, ICL and Fujitsu were taking, was 21 to find a constructive way forward to make this project 22 successful, despite the challenges we felt we were 23 facing that we discussed earlier on. 24 In the event we were unable to find a way forward in 25 the form of a compromise, which did subsequently happen, 54 1 as you pointed out in May 1999, confirmed in, I think, 2 July 1999, you know, we may have been forced to take 3 legal action. It would have been very much the last 4 resort. 5 Q. So it was without prejudice because the position paper 6 sought to find a constructive way forwards, rather than 7 relying on strict legal entitlement; is that right? 8 A. But it was also attempting to do -- so, yes to your 9 question, but the important point about the paper, which 10 I think I do refer to in my statement -- the number of 11 stakeholders in this conversation was significant, not 12 just, you know, in terms of the Post Office and the DSS, 13 but, you know, the wider government organisation. And 14 I do recall a time, discussing with my colleagues, that 15 I was concerned that Chinese whispers may be occurring, 16 that briefings were getting miscommunicated and that the 17 antidote to that was to try and write, what I believe 18 still is, a clear paper outlining the position that we 19 saw through the eyes of ICL Pathway and ICL. 20 Q. Can we go over the page please to the position paper. 21 And did you write this? 22 A. I was participant to writing it. At the time a number 23 of individuals were involved, working obviously with the 24 Pathway team, John Bennett, almost certainly Tony 25 Oppenheim, but Richard Christou, who was, at the time, 55 1 commercial and legal head and was my, sort of, 2 right-hand on commercial and legal matters, as well as 3 reviewing it with Fujitsu. So there were a number of 4 people that were parties to the preparation of this 5 paper. 6 Q. You introduce it by saying: 7 "The purpose of this summary is to inform [the 8 Benefits Agency and Post Office Counters Limited] ... of 9 Pathway's position in relation to the Pathway 10 Project ... in order to facilitate proper commercial 11 discussions to resolve the present problems and 12 differences facing the parties on the Project. The key 13 issues have been summarised under headings ..." 14 I think we see eight of those in due course: 15 "... with the aim of provision an overview of the 16 problems which Pathway has experienced in performing the 17 Project in the context of a PFI contract." 18 I just want to look at some of the headings. 19 Overall -- you have obviously looked at this more 20 recently. Do you actually, in the paper, suggest any 21 constructive way forwards or do you just set out the 22 problems? 23 A. We set out the problems. You had mentioned previously, 24 I think, prior to this paper we had made a commercial 25 proposal. I believe it was -- from recollection, it was 56 1 before, but I can't guarantee that, and it was clear -- 2 if I go back to what I referred to a few moments ago -- 3 that it was, almost structurally, verging on impossible 4 for the Post Office and the DSS executives to agree to 5 a commercial solution. 6 It was my recollection of our view at the time that 7 we needed to escalate it -- as I said a moment ago -- to 8 have, in my opinion, transparency on what the underlying 9 issues were as we saw them. 10 At the end of the day, where the other parties -- 11 and they probably didn't agree with our view of it -- 12 without going through the court process, a conclusion of 13 these difficulties was arrived at, as we have said, in 14 the May 1999 time to July 1999 timeframe, both 15 commercially and from a project point of view. 16 Q. Can we look at the first heading, "PFI principles" 17 further down the page please. In this and the next 18 paragraph you set out essentially, is this right, the 19 theory of a PFI contract in advance of the remainder of 20 your points which explain why these principles were, in 21 your view, undermined by the conduct, actions, omissions 22 and decision-making of the DSS and POCL; is that right? 23 This is a statement -- 24 A. Yes. 25 Q. -- of the theory of a PFI contract. 57 1 A. Yes, yes, where substantial control to deliver the 2 services is handed over to the supply side and control 3 of the design and implementation is not with the 4 customer. 5 Q. So you say, in the third line: 6 "The Supplier [that's ICL] takes the entire risk of 7 providing a solution to meet the business requirements 8 of the Sponsor, but, in turn, the Supplier is given the 9 overall freedom to determine the solution to be 10 provided. It is therefore fundamental that, having 11 transferred the initial risk associated with the 12 implementation phase of a project, the Supplier should 13 not be hindered during this phase by the Sponsor. It is 14 for the Supplier to manage the technical aspects of the 15 project in an expeditious time frame so that the 16 Supplier is capable of earning revenue which is 17 commensurate with the risks of the project." 18 Then over the page, please, second paragraph: 19 "It follows from this overriding principle that the 20 Sponsor has the right to monitor the ... work and the 21 right to reject the IT solution following acceptance 22 testing if the solution is unable to meet the acceptance 23 criteria. However, the acceptance criteria can only be 24 based on the Sponsor's business requirements. In other 25 words, having defined the requirements to be met by the 58 1 system, it is not then for the Sponsor to dictate the 2 solution, which must remain the exclusive responsibility 3 of the Supplier." 4 So what you were saying here was that the solution 5 to the requirements that the customer had set out were 6 the exclusive preserve of you, ICL. You've got to be 7 trusted, you took the risk on of delivering those and it 8 wasn't for the Benefits Agency or POCL to interfere? 9 A. Not wishing to be pedantic, but ICL Pathway but -- which 10 was a wholly owned subsidiary at this time of ICL -- but 11 yes, that is correct and what we had seen through the 12 period of this, from the early days, was a desire from 13 the customers -- my recollection says specifically the 14 DSS, but I would not exclude the Post Office -- to be 15 involved in every decision which was challenging. 16 Q. You say in the next paragraph: 17 "The problems which Pathway has faced and continues 18 to face on the Project arise from the fact that ... the 19 Authorities [that's both BA and POCL] have breached 20 these basic PFI principles. Moreover, [the Benefits 21 Agency] has compounded the situation by separately 22 misrepresentation the true position ..." 23 So that they were making false statements, is that 24 right, the Benefits Agency? 25 A. Certainly, from my recollection of what was going on at 59 1 the time, it felt that there was a greater knowledge 2 that the camps' programme timescales, that I referred to 3 earlier, were changing. We never got to the bottom of 4 any conclusion, or any insights to be able to prove that 5 one way or another, other than what is attached to this 6 document, which is the schedule of the timeframe for the 7 roll-out of the benefits, how it changed from when the 8 RFQ came out to the, sort of, final position before DSS 9 withdrew. 10 Q. You said that you never got to the bottom of it. You 11 were certainly, by this stage, sufficiently sure of 12 yourselves to allege against the government department 13 misrepresentation? 14 A. I would -- I'm not a lawyer. That was our opinion at 15 the time. That document was not a formal breach 16 document. It was our view about the position being 17 misrepresented. 18 Q. You don't throw allegations like that around just 19 because they are written under cover of a without 20 prejudice letter, do you? You must have some evidence 21 to back them up? 22 A. Well, the schedule at the back. 23 Q. So it's true then that you did have evidence of 24 misrepresentation by the Benefits Agency on the progress 25 and timelines of the CAPS delivery programme? 60 1 A. The fact we have attached to this document a schedule of 2 when the delivery existed, or was going to be compared 3 to the RFP, is evidence that the timescales slipped. 4 Q. That's not evidence of misrepresentation, is it? 5 A. That's true. 6 Q. So why was the allegation of misrepresentation made? 7 A. I don't recall. 8 Q. If we just scroll through the document to look at the 9 headings. The next is "Design Interference/Enhanced 10 Requirements" and then, over the page, to "The 11 Authorities and the Programme Delivery Authority", yes? 12 A. Yes. 13 Q. Then over the page, please -- sorry, back a page, 14 please. Just under that, just picking up some points, 15 at the foot of the page there, you say: 16 "The contractual programme was based upon 17 an aggressive implementation timetable ..." 18 Just stopping there, that's the timetable that 19 Pathway had proposed, yes? 20 A. It had proposed it in response to our understanding of 21 the times that the customers would want for the rollout 22 of the infrastructure. 23 Q. What does "aggressive" mean in this context? 24 A. I don't recall. 25 Q. So I think we had established earlier that ICL was the 61 1 author of the aggressive timetable; is that right? 2 A. The timetable which ICL Pathway put into the proposal 3 was in response to the RFQ, which was later than -- as 4 I understand it from the documentation -- the RFQ, 5 request for proposal, had asked for and so, therefore, 6 yes, it was our proposed timetable. 7 Q. In this sentence, you say that this was done partly to 8 achieve fast business returns for the parties. Does 9 that mean, in part, so that ICL can start to earn money 10 by reference to the volume of transactions undertaken 11 using the system? 12 A. Well, again, I just need to -- you know, this is 13 a complicated topic because there's a lot of things 14 going on at this time. Again, from my recollection of 15 the situation, there was a lot of challenges in the Post 16 Office, the need for modernisation of the infrastructure 17 and the original timeframe in the RFP had been 18 aggressive because the Post Office wanted to roll out 19 new technologies quickly, so we were conscious that the 20 Post Office wanted to be able to get the benefits of 21 a new infrastructure that was going to be the basis on 22 which new services could be provided for their business. 23 It was also important, as I recall understanding, 24 the DSS wanted to, you know, address the fraud 25 challenges, so -- 62 1 Q. And there was a saving to be made there? 2 A. Yes, and so, therefore, my answer to your question is; 3 it was in the interests of all three parties to have as 4 short a timetable as possible. The benefits for all 5 parties were important and, therefore, a short 6 timeframe. It was also, to link back to something 7 I touched on earlier, you know, we had the opportunity, 8 going back well before the date of this position paper, 9 to stop work and I do recall some conversation about 10 that, you know, "Do we just stop and reset?" 11 The view we took was what I believed to be the right 12 one, which was a constructive one, which was to focus on 13 the project, get the initial Go Live working and that 14 did occur, as I recall, as required, and although albeit 15 being limited, was "successful". 16 Q. Successful in what sense? 17 A. Well, as I'm re-reading the reports, that it had met the 18 requirements for -- at that time, I think it was Child 19 Benefit, one benefit and a limited set of post offices 20 to be rolled out. 21 So going back to your question on the timeframe, it 22 was in all parties' interests to get this infrastructure 23 in as soon as possible. 24 Q. And, from ICL's perspective, which is the question 25 I asked, in order that it could start earning revenue? 63 1 A. Including that. 2 Q. There's a reference here that the programme was based on 3 an aggressive timetable partly for political reasons. 4 What were the political reasons that there was 5 an aggressive timetable? 6 A. I don't specifically recall. I believe it was related 7 to what I touched on a moment ago about the importance 8 of improving the Post Office footprint and reducing the 9 number of closures of post offices, but I'm afraid 10 I can't recall specifically. 11 Q. Was that a political reason, as you saw it? 12 A. I'm just suggesting it was, it was a political pressure, 13 and, certainly, as I think about it here, yes, I mean 14 it's -- it has -- being most of my life lived in 15 the UK -- not all my life -- but, yes, it's been 16 a pressure that I would have understood to be there, to 17 have a vibrant Post Office. Without being off at 18 a tangent, you know, I use it regularly and it's a great 19 service in the community. 20 Q. Can we go forward to page 11 please, which is under the 21 heading "CAPS", and can we look at the bottom paragraph 22 on the page, please. You say: 23 "CAPS is so fundamental to the viability of the 24 project programme that had Pathway known the true 25 position it is doubtful whether Pathway would have 64 1 entered into the contract. At the very least Pathway 2 would have priced the services to reflect the deferred 3 CAPS programme and revenue loss. Following award of the 4 contract, if Pathway had been told of the delay to the 5 CAPS programme, Pathway would have had the opportunity 6 and time to mitigate the impact of such delay and 7 respond commercially to the changing circumstances of 8 the project. Pathway would have been relieved of the 9 coercive effect of the aggressive timetable, which drove 10 Pathway to minimise delay and absorb additional cost 11 without proper recourse to the procedures laid down in 12 the contract." 13 What was the amount of losses or absorbed losses 14 that you're referring to there? 15 A. I don't recall the specific number. 16 Q. You can't remember now how much money Pathway lost as 17 a result of the delay that you attribute to CAPS? 18 A. Specifically related to CAPS, no, I don't recall. 19 Q. You say in the second line from the bottom: 20 "Pathway would have been relieved of the coercive 21 effect of the aggressive timetable ..." 22 What was the coercive effect that you refer to 23 there? 24 A. It must be referring to the timetable that we 25 anticipated receiving -- you know, that we anticipated 65 1 we needed to deliver to, to meet the requirements for 2 the Department of Social Security's part of the 3 contract. 4 Q. In your statement -- no need to turn it up -- at 5 paragraph 83, which is page 29 of your statement, you 6 refer to ICL Pathway facing "revenue losses and 7 increased costs", which run into hundreds of millions of 8 pounds. 9 A. Yes. 10 Q. Can you recall how many hundreds of millions of pounds 11 you were there referring to? 12 A. Well, there were various calculations done, as I have 13 been reminded by looking at documents. The Corbett 14 analysis at one point, as I recall, had two numbers, 15 a net present value number, which was 200 to 16 300 million, and the gross value of that, as I recall 17 from seeing recent documents, was put to my colleagues 18 as 500 million. 19 Q. Your colleagues within ICL? 20 A. Fujitsu/ICL, I seem to recall from reviewing the 21 documents recently. If I had not seen any of these 22 documents I would have been saying this was a very -- it 23 was a very substantial -- a few hundred million. 24 Q. Was the response to that, within ICL, itself to tighten 25 its belt to try and reduce the spend on this contract, 66 1 reduce staffing? 2 A. The only area where documents have reminded me that we 3 did was in relation to, I think, the rollout plan 4 because, if there is not going to be a rollout plan to 5 the same timeframe, we need less people around the 6 country to implement, so it would have been redundant 7 cost on the implementation teams. I don't recall at 8 all, ever any reductions in the core team that were 9 responsible for delivering the service. 10 As I have referred to previously, my recollection is 11 that we had taken a line consistent with my and 12 Fujitsu's philosophy that we wanted to succeed on this 13 project and that we had invested significant sums of 14 money and we wanted this to be a national success for 15 the customers and ourselves, so, you know, we were fully 16 vested and fully committed and, you know, the support, 17 as the documentation shows, from Fujitsu through -- and 18 ICL and, frankly, the team, you know, the team in 19 Pathway that were dealing with these additional matters 20 and just delivering the project, having to cope with the 21 commercial discussions, the decisions on the project, 22 you know, the team in Pathway I think should -- I think 23 I made a statement in my statement that they take great 24 credit for how they continued to work under challenging 25 conditions. 67 1 But to go back to your question, there was no 2 recollection of mine that says there was any wholesale 3 cutting back of costs. It was only where the costs 4 would have been redundant. 5 Q. Does that represent your view overall that for ICL and 6 for ICL Pathway Limited, it should take great credit for 7 the delivery of Horizon? 8 A. No. I didn't say that. 9 Q. No. Why is that not your view, that it should take 10 great credit for the delivery of Horizon? 11 A. We were delivering a project which we knew internally as 12 Pathway, which was the technology infrastructure. As we 13 have discussed today, there were some great challenges 14 through the early stages of this project, the initial Go 15 Live substantially happened, as I recall, on time. 16 Subsequent challenges put delays into the project. 17 There is no doubt with what happened and the events 18 that led in subsequent years it is -- in a sense, 19 there's no way that any party can feel comfortable at 20 being involved in any element of this project. 21 Q. Can we turn back to the position paper, insofar as it 22 deals with Post Office Counters Limited, and that's in 23 a section on page 10 of this document. As you rightly 24 said in answers a moment ago, it was to do with the 25 premises infrastructure that you made allegations 68 1 against Post Office. 2 A. Yes. 3 Q. It is at the foot of the page, please, under the heading 4 "POCL", and it is just in this paragraph, it's one 5 paragraph that relates to the Post Office. If we can 6 just read this first: 7 "It became apparent during installation work for the 8 first 200 Post Offices ..." 9 Just stopping there, that's part of the initial Go 10 Live, it was one, then ten in Stroud and then rolled out 11 to, I think, 201 or 202? 12 A. Yes, the initial Go Live was I think -- yes, the initial 13 ten, and the subsequent phases were those up to 200, 14 yes. 15 Q. "... the first 200 Post Offices that many post offices 16 are not fit for the purpose of installing automation 17 equipment. [Post Office Counters Limited] could not 18 reasonably have believed that the Post Office premises 19 were fit for automation and did not give Pathway 20 a proper opportunity to investigate the physical 21 condition of the [Post Office Counters Limited] premises 22 for itself before entering into the contract. If the 23 extent of the work required to render [Post Office 24 Counters Limited] premises fit for installation of 25 automation equipment had been made known at the 69 1 pre-contract stage Pathway would have adjusted its bid 2 price accordingly and allowed more time for this work in 3 planning. Indeed, the full impact of this problem is 4 still being assessed. Of greatest concern are the 5 substantial additional costs and the possibility that 6 the problem is so severe that it will not be possible to 7 maintain the required 'beat rate' during national roll 8 out. Indeed, it would appear to be impossible to 9 automate all post offices in their current role." 10 Just picking up on a phrase there, "Beat rate during 11 national roll out", that was a number of post offices 12 automated live per week? 13 A. Yes, yes, and as I recall, reminded by the documents, 14 that I think when I left it was getting up to 300, so 15 there was a -- yes, a roll-out plan that increased the 16 number of post offices that would be upgraded. The 17 exact phasing of that I don't recall. 18 Q. At this stage we're still dealing with a PFI contract, 19 yes? 20 A. We are. 21 Q. Yes. 22 A. Thank you. 23 Q. You say that: 24 "It became apparent during installation work for the 25 first 200 ... that many post offices are not fit for the 70 1 purpose ..." 2 Isn't that the risk that the supplier takes on, 3 rather than for the client under a PFI deal at the time 4 that you were then operating? The client doesn't have 5 the responsibility of assessing their own premises' 6 readiness and fitness and suitability for automation, 7 they simply make a requirement, how post offices need to 8 be automated and then, as you say, it's up to you, as 9 the supplier, to ensure that that happens. 10 A. That would be, in our view, unreasonable and no, I would 11 disagree with you. 12 Q. Why? 13 A. Because we would have been given some indication -- 14 I say "we". I was not directly involved, just to, 15 you know, remind you. This was a very important 16 contract in the whole of ICL so the team would have had 17 some exposure to what a post office looked like and 18 based on the sample of what we would have seen, a view 19 would have been taken on the roll-out. 20 What we're saying here was, it subsequently turned 21 out that whatever we saw during the bidding phase, or 22 the early phase, the actual quality of the estate was 23 significantly worse than expected. 24 Q. But I'm drawing you back to what you said at the outset 25 of this position paper, which said that it's not for the 71 1 client to make arrangements for or to specify -- 2 A. Well, there would always -- 3 Q. -- hold on, let me finish the question -- 4 A. Sorry. 5 Q. -- how the premises are to be automated. They settle 6 a requirement that they are to be automated and then 7 it's down to you, the supplier, to make sufficient 8 investigations to work out how that is to be done and 9 how much it's going to cost, no? 10 A. I would disagree that there would be an assumption of 11 a basic adequacy based on what had been represented at 12 the time, but, you know, I had no participation in the 13 direct conversations that made those assessments. 14 Q. Before this contract with the Post Office, ICL had no 15 experience with working with the Post Office whatsoever, 16 had it? 17 A. That's my recollection. 18 Q. I think you confirmed that in paragraph 25 of your 19 witness statement. 20 A. Yes, that was my recollection. 21 Q. Did they keep you locked out of post offices? Did they 22 prevent you from going in -- or the company from going 23 into post offices to assess their fitness, physically, 24 for automation? 25 A. No, that would not be the case. 72 1 Q. Did ICL ask for access to post offices? 2 A. I have no specific recollection. I believe that there 3 had been an assessment of the post offices which we had 4 had access to, which was the basis on which we had made 5 an assumption, but you may get more clarity when my 6 colleagues who were dealing with this day by day appear 7 before this Inquiry. 8 Q. Before the contract, can you help us with what ICL 9 Pathway did itself to find out what the state and 10 standards were like within post office branches? 11 A. I'm afraid at this time I -- you know, I can't recall. 12 This is now 27 years ago. 13 Q. Yes. Can you therefore not recall what opportunity 14 there had been for ICL to investigate the physical 15 condition of post office premises? 16 A. I can't recall anything specific. My judgement is that 17 we would have had some access. For example, the 18 initial ten, we must have known where they were because 19 of the very early delivery date for the Go Live of those 20 initial ten. 21 Q. But that's post-contract -- 22 A. Yes, yes, that's true. 23 Q. -- the Go Live. We're talking -- the criticism here is 24 that you wouldn't have signed up to the contract if you 25 had known the state of the branches, so it's no good 73 1 pointing to the Go Live phase and saying "Well, we might 2 have -- we discovered things then." What you're saying 3 here is that you didn't know the physical condition of 4 the Post Office estate before entering into the 5 contract, aren't you? 6 A. I'm saying -- this document is saying, our position was 7 that we had a different understanding of the state of 8 the Post Office estate. I'm afraid I can't help you 9 with specifics on what that was based on: 1, because it 10 was 27 years ago; and 2, I didn't personally inspect the 11 post offices. 12 Q. Of course and I'm not suggesting that you did. Would 13 you accept that Pathway had been contracted to build 14 an end to end, automated and operational accounting 15 system for the Post Office network and that it was down 16 to Pathway to check that the Post Office branches could 17 support such a system before it contracted? 18 A. The answer to the question you're posing has a big 19 dependency and that is that we would have had to make an 20 assessment not by pre-bid -- to your own point, pre-bid 21 go and visit 20,000 post offices to inspect their 22 estate. I think that would have been unreasonable for 23 any bidder for any contract to do. 24 What is likely to have been done -- now, I cannot 25 attest to whether it was represented by the Post Office 74 1 or it was our assessment of the ones we saw -- there 2 would have been a view taken about the suitability of 3 the post offices for the deployment of this technology. 4 Quite clearly the team that were working every 5 day -- and I believe some of the documents that were put 6 in front of me more recently -- acknowledge the 7 challenges that my team found in looking at some of the 8 Post Office estate. I don't believe the lack of fitness 9 for deployment of technology was challenged by the Post 10 Office but maybe my recollection is incorrect. 11 Q. Given that this was the late 1990s, what did ICL Pathway 12 expect of branch post offices, some of them likely to 13 have been in operation for 100 years or more, using 14 paper based systems? 15 A. I've never thought about the question as you posed. 16 Q. Well, you say in this document that the Post Office did 17 not give Pathway a proper opportunity. Was that proper 18 opportunity asked for and denied to Pathway? 19 A. I don't recall specifically the answer to that. 20 I repeat what I said earlier on, that I had a full-time 21 team, some of whom you're going to be interviewing, that 22 were focused on this on a day-to-day basis. 23 Q. Would you accept that with an estate of say 20,000 24 post offices, the reasonable thing to do would be to 25 inspect a sample of them and then draft a minimum 75 1 condition guarantee? 2 A. As you say, that is rational and reasonable. 3 Q. Was that done? 4 A. I don't recall. 5 Q. What was the minimum standard of condition that Pathway 6 expected? 7 A. Again, my detailed knowledge/recollection of 27 years 8 ago would not be able to give you a sufficiently -- 9 a sufficient answer. 10 Q. Maybe if I can jog your memory, would it be that, in 11 order to support the hardware to be installed within the 12 premises, at least there was -- 13 A. It would need counter space and power, yes, this is -- 14 Q. Well, hold on -- a telephone line that was connected to 15 the BT service? 16 A. Okay, I would not have recalled that. 17 Q. Can you recall whether there was an understanding that 18 the telephone line connection from post office branches 19 would be a copper line, ie an ordinary telephone line, 20 connecting into the BT network? 21 A. I don't recall that. 22 Q. Can you remember now discussion over whether such copper 23 telephone lines were subject to interference from other 24 devices, or inclement weather, or degradation over time, 25 and that could affect the quality of the signal being 76 1 transmitted across the system? 2 A. I have no recollection of any conversation at the time 3 about the quality of the copper lines into post offices. 4 Q. If we just look at paragraph 74 of your witness 5 statement, please, which is WITN03380100, at page 25. 6 Page 25, thank you, under the heading "Post Office 7 infrastructure", you say at 73: 8 "There were significant issues with the Post 9 Office's own infrastructure. During installation work, 10 it became clear that many post office premises were not 11 fit for hardware installation and DSS/POCL did not 12 factor this into the timeframe for completion of the 13 contract." 14 I will just ask again: wasn't it your responsibility 15 to establish whether the premises were fit for hardware 16 installation as part of your due diligence, if you like, 17 before entering into the contract? 18 A. I would say, clearly, based on what we wrote at the time 19 in this position paper, and we would have had access to 20 other documentation and current knowledge, we did not 21 believe that was the case. 22 Q. In paragraph 75, if we just scroll down, you set out the 23 position, as you say clearly, in the position paper that 24 we have read, and then just go back up to 74, please. 25 You say: 77 1 "In the December 1997 monthly report, these issues 2 were highlighted as 'critical' to resolve. The report 3 again noted the 'difficulties within the Post Office 4 estate' regarding 'the poor physical condition of the 5 vast majority of the post offices' and that 'the 6 appetite to confront this head on within POCL has yet to 7 be seen'." 8 Then: 9 "By March 1998, the monthly report stated that these 10 issues had escalated into a 'major dispute', 'the total 11 cost for putting their estate into a fit purpose for 12 automation is on the wrong side of £40 million'." 13 Now, we know that national rollout began at least by 14 the start of the year 2000, yes? 15 A. Mm-hm, yes. 16 Q. How were the issues that were so critical being referred 17 to here -- "putting the estate into a state that was fit 18 for purpose for automation" -- resolved by the 19 year 2000? 20 A. When the contract would have been rebaselined, which was 21 between May and July 1999, that matter must have been 22 taken account of. I have no specific recollection of 23 how it was taken account of but, to state the obvious, 24 you know, it was a known issue, it was in our position 25 paper, a view would have had to have been taken at that 78 1 time. 2 Q. So breaking it down, was any work, to your knowledge, 3 done by ICL between the position paper that we have been 4 speaking about, which raised this issue as to the 5 fitness of the estate and the commencement of the 6 contract in May 1999 to put the estate into a state fit 7 for automation? 8 A. Well, there was no work done by ICL Pathway to make the 9 estate fit. I have no recollection of what further 10 research was made. My recollection is that the Post 11 Office team did not dispute that it needed to be 12 upgraded. The issue was a commercial one as to -- 13 Q. Who was going to pay for it? 14 A. Yes. 15 Q. Can you recall who was going to pay for it and who was 16 going to do the work? 17 A. It was our view, as put in the position paper before the 18 revised contract, that it should be the Post Office. At 19 the time the contract was reset in -- I repeat these two 20 dates, between May and July -- I think it was signed in 21 July -- July 1999, that matter must have been taken 22 account of but I cannot sit here and recall a decision. 23 At the time that the Treasury sponsored -- 24 an individual, I think it was Steve Robson in the 25 Treasury -- sponsored a short period for the two 79 1 parties, Post Office and ICL Pathway, to agree a new 2 contract, which Christou and Tony Oppenheim, as 3 I recall, and John Bennett, were the primary parties 4 discussing and negotiating it, and the fitness of the 5 Post Office estate was known about, so my assumption is 6 that we took full account of that in signing up to the 7 new contract. 8 Q. What would you say to the suggestion that, come the new 9 contract in July 1999, this issue was overlooked and 10 that national rollout commenced in the year 2000 with 11 the cracks having been papered over? 12 A. Surprise. 13 Q. Looking at the position paper as a whole, taking a step 14 back, would this be right, that the entirety of the 15 fault in ICL Pathway's mind was that of the Benefits 16 Agency and, to a lesser extent, the Post Office and that 17 ICL Pathway was entirely blameless? 18 A. I mentioned and said earlier, I think it would be 19 inappropriate for us to say that we had no faults. Our 20 position paper was a position paper to point out the 21 things which we felt that the other stakeholders had not 22 appropriately handled and that had affected our ability 23 to deliver the contract. 24 Q. Were there any admissions in this without prejudice 25 letter of anything that ICL had done wrong or 80 1 incorrectly? 2 A. I read it several times recently and I don't recall it 3 and I -- 4 Q. I don't think there are, are there? 5 A. No, no. 6 Q. You suggested earlier that this position paper was 7 supposed to be a constructive way forward. Why were the 8 errors and omissions and faults of ICL Pathway not also 9 identified in this without prejudice letter? 10 A. I can only provide you with my view at this stage, as 11 opposed to necessarily at the time, but, you know, we 12 were dealing with an intense situation where it -- from 13 recollection, it felt that we were struggling to get -- 14 and this is well reported in some of the documents that 15 have been shared from the government's side -- that 16 I was getting frustrated by the intransigence, the 17 inability to move anybody forward, whilst we continued 18 to spend a lot of money in delivering this project and, 19 therefore, a robust position was taken in our 20 conversations and this position paper set out not our 21 faults, but the faults of the other stakeholders. 22 Q. That was the constructive way forward, was it? 23 A. Well, what papers like this fail to take account of is 24 any of the other conversations that were going on but it 25 was a statement of our concerns as to what had gone 81 1 wrong from the other stakeholders. 2 Q. Can we look at this from a different perspective, 3 please, and -- 4 SIR WYN WILLIAMS: Before you do that, Mr Beer, could 5 someone take the witness statement down from my screen, 6 please. 7 MR BEER: I'm so sorry, sir, that should have been my 8 request. 9 SIR WYN WILLIAMS: Fine, thanks. Thank you. 10 MR BEER: Can we look at this from a different perspective 11 and have on the screen FUJ00077834, please. This is 12 a report entitled "Chief executive's report [of] 13 May 1997". It is dated 7 May 1997 and if we just skip 14 forwards to page 5, please, and go to the foot of the 15 page, we can see that it is authored by you. 16 A. Yes. 17 Q. Just go back to page 1, please, so that you can 18 orientate yourself in the nature of this document. 19 There's an overview at the beginning and then you set 20 out, in a number of headings, the position in relation 21 to issues such as politics, the market, competitors, the 22 financial performance of ICL Pathway and then some 23 specific issues. 24 A. Of ICL, yes. 25 Q. Sorry, of ICL. 82 1 A. Yes. 2 Q. Can we look at Pathway specifically, which is on page 5, 3 and this is the part of your report -- and this goes to 4 the board presumably, the ICL main board. 5 A. Correct. 6 Q. At paragraph 7.5 you say -- so this is May 1997: 7 "The latest release of the Pathway software has gone 8 live (release 1b) last Friday. On schedule, however 9 a significant amount of time was required to eliminate 10 'software bugs', which meant that resource that was 11 working on release 1c and 1d due in July had to be 12 diverted to resolving the software issues. This 13 additional work has an adverse impact on the development 14 costs. 15 "We have advised the customer that there could be 16 a six week delay in the next release. The customer is 17 appreciative of the open approach. Actions are in place 18 to mitigate the consequence of delay ie national roll 19 out starting in January 1998, rather than November 1997. 20 "Although this delay is disappointing we do not see 21 any issues ahead of us that cannot be resolved. The 22 relationship with the customer, DSS and Post Office, is 23 good, but they are concerned about the potential delay." 24 So this is May 1997 and, summarising this, what 25 you're saying here is that there's been an initial live 83 1 release, that that has led to the identification of some 2 software bugs, that has diverted resources and that you 3 have, therefore, had to tell the customers that there's 4 going to be a delay of six weeks. That was all down to 5 ICL Pathway, wasn't it, all of those things that we 6 mentioned? 7 A. Those words imply that. 8 Q. Well, "We have advised the customer", this is you 9 telling the customer -- or the company telling the 10 customers -- as to what has happened internally within 11 ICL Pathway and the consequences on delivery of the 12 project. So it's not something that they have done, 13 you're not saying to the customers -- 14 A. No. 15 Q. -- "You have done something wrong, this is -- it's your 16 fault, you have had an impact on the delivery 17 timetable"? 18 A. Yes. 19 Q. It's identification of issues that are the 20 responsibility of ICL Pathway, isn't it? 21 A. It's a statement of fact that there's going to be 22 a delay. It's reporting -- it's not necessarily 23 covering all of the things that were going on at that 24 time. 25 Q. Well, is there anything mentioned here that is anything 84 1 to do other than with software bugs that are the 2 responsibility of -- 3 A. No, there's no mention of anything else. 4 Q. -- ICL Pathway? 5 A. No, and that is my monthly report, as we have talked 6 about before. There were monthly reports which you have 7 had extensive access to, which is good, going back 8 through Pathway and also ICL board reports that, as 9 I recall, happened on a monthly basis and I would 10 provide a synopsis of the main factors during that -- as 11 part of that report. 12 Q. And at this time, in the May 1997 CEO report, you were 13 saying that relations between ICL Pathway and the 14 customers were good and so you were saying that they, 15 the customers, were concerned about the potential delay 16 caused by ICL problems at this point. 17 A. That's an interpretation of that. 18 Q. Just read the three paragraphs again to yourself. 19 A. Yes, no -- 20 Q. And -- 21 A. I'm not -- 22 Q. "That is an interpretation of it" suggests, Mr Todd, 23 that it is an unfair interpretation of it. 24 A. No. 25 Q. Is it the correct interpretation of it, please? 85 1 A. So not from recollection, from looking at this document, 2 it is a fair representation of it. 3 Q. "We ICL Pathway have made some errors, we're still in 4 good relations with our two customers, despite the 5 delay, about which they are concerned"; fair summary? 6 A. Yes, I ... I stand by what is written in that document 7 because it would have been what we felt at that time. 8 There may be other factors, but yes. Yes. 9 Q. Would you have kept factors back from the board? 10 A. No, no. 11 Q. Right. Can we go to the July 1997 -- 12 A. No material factors. Small factors, yes. 13 Q. Can we go to the July 1997 report, please, which is 14 FUJ00077835. So you can see again, this is your report 15 for July 1997 and if we just go to the last page, which 16 is page 7, at the foot of the page, we can see your name 17 against it. 18 A. Yes. 19 Q. There's a similar format of an overview at the 20 beginning, an outline of the political situation, the 21 market, competitors, other suppliers to you, the order 22 book and then individual projects and we find the 23 section concerning Pathway at page 6 please, and if we 24 can just read that -- that's the entirety of it there. 25 You say: 86 1 "Following the completion of the internal audit and 2 the results of the early Release 1C tests we have 3 declared an eight week slip. This in effect means that 4 the 1C deliverable would be 15 weeks later than 5 expected. 6 "The project issues are being addressed with 7 strengthening of the programme management ..." 8 Just stopping there, that means within ICL Pathway? 9 A. Yes. 10 Q. "... technical support ..." 11 That means within ICL Pathway, yes? Yes? 12 A. Yes. 13 Q. "... and increase in project resource to address the 14 volume of test issues." 15 That means, again, within ICL Pathway? 16 A. Yes. 17 Q. "The reasons for the delay are rooted in the long delay 18 in agreeing the delivery spec, specifically the security 19 environment was not agreed until the end of April and 20 the multiple additional interfaces into the customer's 21 systems. 22 "There are clearly lessons to be learned from this 23 project for future PFI projects and these will be shared 24 with the customer. The priority is to ensure the 25 project implementation goes in effectively and the 87 1 customer confidence is restored. 2 "I have briefed the head of DSS, Benefits Agency and 3 Post Office Counters personally with the project team, 4 in parallel with the project activity to deliver 1c in 5 October and Release 2 in March. We are assessing the 6 implications on the overall programme with the 7 customer." 8 So here you were suggesting that there were lessons 9 to be learned for ICL; is that right? 10 A. Certainly for ICL but I would have thought for -- I was 11 implying on all parties dealing with PFIs. 12 Q. Were you suggesting that customer confidence needed to 13 be restored? End of the fourth paragraph. 14 A. Yes, I'm just looking. It says that. 15 Q. So was the customer, ie Benefits Agency and POCL, were 16 they suffering from a drop-in confidence in ICL Pathway 17 at this point? 18 A. That's the implication of the statement. 19 Q. The delays here were again, at least in significant 20 part, due to ICL Pathway, ie the eight-week slip 21 referred to in the first paragraph; is that right? 22 A. We don't get into the underlying causes of the slip. 23 What I believe it is doing is declaring that it had 24 occurred and reading it in isolation, it does suggest 25 what you said. 88 1 Q. Yes. I mean we heard evidence from Mr Copping, last 2 week, from PA consulting who said that the problems with 3 release 1 were significant and were a product of ICL's 4 serious misjudgments. 5 In neither of these reports, the May or the 6 July 1997 report, were you saying that the company 7 needed to take a stand against the DSS or Post Office 8 Counters Limited, ie pointing out any of the things 9 that, a little while later, you were to observe in the 10 position paper; is that right? 11 A. As I have said on a couple of occasions, I think today, 12 we were trying to focus on getting the project delivered 13 and, in parallel, have discussions to resolve issues on 14 the project, but also any of the commercial issues. 15 As you referred to earlier, the situation was 16 brought to a head by the submission of a breach letter 17 to the company which required us to produce or 18 clarify -- produce the position paper which we discussed 19 a few minutes ago. 20 Q. Can I understand that answer, that you went on the 21 robust offensive by the position paper in 1998 because 22 of and as a result of a breach notice served on you; is 23 that right? 24 A. Well, I'm not familiar with these types of proceedings 25 and at the risk of you putting words in my mouth -- 89 1 Q. I'm trying to understand your answer. 2 A. No, I accept that. I'm just trying to avoid adopting 3 your words. 4 Q. You explain it to me then. I'm looking at the moment at 5 some internal reporting by you, up to your board, that 6 doesn't identify any problems with the customers, it 7 only identifies, in the first document, a problem with 8 ICL Pathway's own performance. Then, not long later, we 9 have your position paper which points the finger in 10 eight respects at your customers and, essentially, I'm 11 asking: how did that come about? 12 A. Well, depends which part of what came about. The 13 involvement of Fujitsu, ICL Pathway, you know, there was 14 great transparency right the way through the company at 15 that time. Some of those issues that resulted in the 16 position paper were definitely appearing -- they have 17 not been reflected in these reports that you are 18 referring to. 19 Q. Why was that? Why were they not being reported back to 20 the ICL main board? 21 A. I don't specifically recall that. I do recall that all 22 matters, including Fujitsu, were aware of the underlying 23 issues and, you know, you may get to it eventually, 24 I think everybody from Fujitsu, ICL board down, the 25 independent advisors, believed that we had dealt with 90 1 a very difficult situation, dealing with two elements of 2 government, very professionally and very well through 3 a very difficult time. That's -- and I provided some of 4 that evidence in -- attached to my statement. 5 Q. Can we, just before the break, turn to one last piece of 6 evidence on this issue and look up POL00043645. 7 Moving forwards to September 1997 this is a record 8 of the Counter Automation Steering Group of that date 9 and we can see who is present: from the Post Office, 10 Mr Roberts, Mr Cope, Mr Close, Mr Sweetman and Mr Rich; 11 and from ICL you, Mr Bennett and Mr Coombs? 12 A. Yes. 13 Q. It records the action in terms of who spoke. Can we 14 just look at what Mr Roberts said the purpose, ie of the 15 meeting, I think. He needed: 16 "a clear picture from ICL on how they think the 17 programme is going and their confidence in solving 18 issues around delay; and 19 "assurance about the programme for the [Post Office] 20 board." 21 Then you are reported to have given your overview 22 and can we just read through what you are recorded as 23 saying: 24 "Horizon is critically important to ICL and Fujitsu, 25 and to Post Office, and (hoped) it is for DSS; 91 1 "his belief that the programme is doable, and that 2 ICL will commit all necessary funds to deliver its part. 3 "his view that his own macro objectives in setting 4 out on the programming had not changed, ie 5 "to put in a UK national infrastructure via 6 post offices that could be developed long-term for 7 society as part of a 'national information flow'; 8 "[and secondly] to take the first serious steps, 9 through using cards for DSS fraud control, to take the 10 'information society' to technology-resistant 'mass 11 market' in the country and then build on that (eg via 12 smartcards); 13 "he [that's you] has taken a calculated gamble that 14 delivering Pathway's programme will enable ICL to become 15 the [Post Office's] main technology partner; 16 "that Horizon remains the best practicable option 17 for DSS; 18 "that Horizon is a world-class system (evidence of 19 many postal administrations wanting it)." 20 Can I pick up a couple of points that you are 21 referred to as raising there or reported to have raised. 22 What was the nature of the calculated gamble that 23 you had undertaken? Who or what were you gambling with? 24 A. I don't recall those words at all. 25 Q. Thinking back, can you remember what you might have been 92 1 gambling with? 2 A. I wouldn't have been gambling with anything, I would be 3 taking a view about a long-term relationship with the 4 Post Office. The Post Office with a modern 5 infrastructure in the information society, as it was 6 known in those days, would have provided an opportunity 7 for increased revenue for the Post Office, as well as 8 a subsequent -- ICL Pathway. 9 Q. You expressed the view that Horizon was a world-class 10 system and that many postal administrations around the 11 world wanted it, yes? 12 A. Yes, I did -- actually, I don't recall -- to be 13 accurate, I don't recall, and I had read this in this 14 document the night before, but I certainly do recall 15 that, apart from what we have already referred to, that 16 the Irish Post Office had adopted the system, we had 17 seen an opportunity for many post offices around the 18 world -- I don't recall all their locations -- that we 19 were seeing as a future business opportunity. So 20 success on this project would have been very beneficial 21 to other opportunities in the post office marketplace. 22 Q. Then just lastly, over the page, please, at paragraph 5, 23 Mr Roberts summarised as follows, first: 24 "The Post Office was very disappointed at the 25 current situation; 93 1 "The Post Office, and POCL, is still keen to do this 2 project and make it work; 3 "ICL's credibility is at stake and confidence in 4 Pathway within the Post Office is still uncertain ..." 5 Then, over the page to paragraph 6, you are recorded 6 as replying by saying you: 7 "... appreciated the spirit in which the meeting had 8 been conducted, and reaffirmed ICL's commitment to make 9 it work." 10 And "The meeting ended". 11 Would you agree that a fair reading of these minutes 12 is that these are the Post Office saying that they are 13 disappointed in ICL's performance, that your credibility 14 was at stake, rather than the other way round: you 15 suggesting that it was fault within the Post Office that 16 had led to the existing delays? 17 A. As we discussed earlier, and my recollection is, the 18 significant challenge that we had related to the Post 19 Office was the estate. The related item was the 20 decision-making which they were part but much more 21 significantly related to DSS than the Post Office as 22 I recall it. 23 MR BEER: Mr Todd, thank you very much. 24 That's an appropriate moment for a break for lunch, 25 sir, if it suits you. 94 1 SIR WYN WILLIAMS: Yes, of course. 2 MR BEER: Thank you very much. Can we say 2.00 then, 3 please? 4 SIR WYN WILLIAMS: Yes, of course. 2.00 everybody. 5 MR BEER: Thank you. 6 (1.00 pm) 7 (The luncheon adjournment) 8 (2.00 pm) 9 MR BEER: Good afternoon, sir, can you see and hear me? 10 SIR WYN WILLIAMS: Yes, I can. 11 MR BEER: Good, and we can see and hear you. 12 Hello, Mr Todd. Can we turn to the issue of bugs, 13 errors and defects. You address this important issue in 14 paragraph 77 to 79 of your witness statement, which is 15 WITN03880100 at page 26. Thank you, page 26 and 27. 16 Thank you. We see the cross heading "Bugs, defects and 17 other issues"? 18 A. Yes. 19 Q. If we just look at 78, please, you say: 20 "During the monthly board meetings we would have 21 reviewed the total outstanding number of bugs, their 22 priority and also a general description of what they 23 were. We were assured through our governance and 24 oversight processes that the fixes for these were being 25 handled appropriately. The technical team was 95 1 experienced in both diagnostics and resolving these 2 issues." 3 What was your governance and oversight process or 4 what were your governance and oversight processes, as 5 far as they related to fixes? 6 A. So there was a team within ICL Pathway, focused on the 7 management under John Bennett. It had a full management 8 team, including a technical director, a project manager, 9 operations director, quality assurance manager and the 10 processes would operate within ICL Pathway and matters 11 as shown in the board report were escalated to the board 12 or the board was briefed on the progress of clearing the 13 significant software issues. 14 Q. How were any resolutions monitored and reported to you? 15 A. Just through the board, from my recollection. 16 Q. I'm sorry? 17 A. Just through the board -- the board meetings, through my 18 recollection. 19 Q. So was there a tracking system operated by the board 20 itself to see what had happened to past resolutions or 21 fixes of bugs, errors or defects? 22 A. There was a process, as I recall, within ICL Pathway 23 that kept track of all bugs and issues raised. 24 Q. I'm thinking more at board level, at the board meeting 25 of ICL Pathway? 96 1 A. I don't -- other than as presented through the board 2 reports, I don't recall any other process, other than as 3 reported by the executive team of ICL Pathway. 4 Q. Who on the board, if anyone, had technical knowledge in 5 terms of the issue of bugs, errors and defects? 6 A. I am, at the moment, trying to recall who the other 7 players were on the board. 8 Q. Mr Bennett as the managing director? 9 A. Well, his background was in sales and marketing, rather 10 than technology. 11 Q. Mr Christou, legal and commercial? 12 A. Correct. You do remind me one minor -- well, one 13 correction to what I recall writing, which was there was 14 no Fujitsu director -- from reviewing a document over 15 the weekend that I was given last Thursday, it reminded 16 me that Kura Kawasan(?) of Fujitsu, a board member with 17 technical knowledge, was appointed at that time but that 18 was after the renegotiation with the Post Office. 19 Q. So can you recall at these board meetings anyone with 20 technical expertise being brought into the meeting to 21 explain to you the process of clearing bugs, errors and 22 defects or what was the cause of the bugs, errors and 23 defects? 24 A. So, firstly, I don't recall any specific situation, but 25 there would have highly likely been representation from 97 1 the Pathway team. Now, separate from the Pathway team, 2 ICL's structure also did have a CTO, Andrew Boswell, 3 I don't recall, it's a long -- 4 Q. CTO meaning? 5 A. Chief technology officer. I don't recall any specific 6 involvement but, you know, Pathway was not a walled 7 garden. There would have been almost certainly 8 conversations going on about the technical aspects and 9 I am sure, when you talk to John Bennett, he will be 10 able to provide additional information about access to 11 other technical expertise outside of the team within 12 Pathway. 13 Q. In paragraph 79, you continue: 14 "The progress of these fixes was well documented in 15 the monthly report. By way of example, the 16 December 1997 monthly report set out the following 17 issues: 'live experience over the last few weeks of 18 release 1c has as expected thrown up a list of 19 operational, procedural and minor software errors which 20 require careful attention. The total list is higher 21 than expected and the pressure now falls on customer 22 service to manage the operational introduction of the 23 various fixes'. The January 1998 monthly report 24 provided an update on these issues: 'substantial 25 progress has been made with release 1c over the last 98 1 four weeks with a large number of major operational 2 issues successfully fixed. This system is now much more 3 operationally easy to use by the counter staff and this 4 should help considerably ...'." 5 Was anything done to consider why there were 6 a higher than expected number of bugs, errors and 7 defects -- 8 A. I don't recall. 9 Q. -- ie a moment of self reflection: "Why is this number 10 higher than we expected?" 11 A. I would be making a conjecture comment now, as opposed 12 to recalling specifically something which I'm afraid was 13 25 years ago. 14 Q. I understand. 15 A. Yes, and, you know, to make part of the public record, 16 there was, at the time, good conversations. These were 17 not five-minute board meetings. 18 Q. Can you recall now who provided the training to the 19 individuals who provided customer service? 20 A. No, I'm afraid I can't. 21 Q. Can you recall whether there was any work done at this 22 time -- and I'm talking about 1997/1998 -- to consider, 23 from a postmaster's perspective, the operating 24 experience of the system? 25 A. Well, as a result of reading 4,000 pages of documents in 99 1 the last few weeks, I do recall in that review that 2 there had been engagement with the subpostmasters in 3 getting feedback. I cannot give you very precise 4 definition of exactly all -- the process that went 5 through and the exact timing, but there was dialogue. 6 You know, we had a very professional solid team engaged 7 full-time on this project and including, as I have been 8 reminded through review of these documents, feedback 9 from subpostmasters. 10 The board would only get a high level commentary. 11 Q. Do you understand what I mean when I refer to the 12 concept of reference data? 13 A. In broad terms, yes. 14 Q. I'm using it in this sense: data that's used to classify 15 or categorise other data across a system. Typically 16 they are static data or -- 17 A. Yes. 18 Q. -- slowly changing over time, like units of measurement, 19 fixed conversion rates -- 20 A. Yes, I understand what you're talking about. 21 Q. -- calendar structures, that kind of thing. 22 A. Yes. 23 Q. We have heard in the Inquiry some expert evidence as to 24 the importance of reference data and, in particular, if 25 reference data are used in a data driven logic system, 100 1 such as this, and such reference data are not timely or 2 accurate and/or if they're complex, the system that they 3 support will not operate as intended, understand? 4 A. Yes. 5 Q. So that's the context of these questions. 6 Can we look please at FUJ00058166, please. This is 7 one of the monthly progress reports. 8 A. Yes. 9 Q. Just to be clear, were these given to the board for its 10 monthly board meetings, or are these a separate species 11 of document? 12 A. As I recall, they were provided to the board. 13 Q. You will see this is for December 1997. Can we turn to 14 page 15 of the document, please. Just go back a page so 15 you can see the context, please, and look at the whole 16 page on the previous page. 17 So under "Current critical problem" and then under 4 18 is "Issues" and we're looking at one of the issues. Go 19 back to page 15, please, and it is the second bullet 20 point from the bottom -- that's it: 21 "Reference data ..." 22 This is two bullet points up: 23 "Reference data is poorly defined in the contractual 24 requirements but is crucial for the proper control of 25 changes to outlet/product data. POCL are only now 101 1 realising its significance and we must be vigilant if we 2 are to avoid requirements creep." 3 Do you see that? 4 A. Yes. 5 Q. Given that ICL Pathway was brought in to provide the 6 expertise to build and thereafter to operate the system, 7 can you assist us as to why ICL Pathway had seemingly 8 not anticipated the need carefully to describe and 9 define the reference data and their importance in the 10 contractual requirements? 11 A. I'm afraid I cannot recall specific discussions around 12 this topic. I would say that, almost certainly -- and 13 I would have expected ICL Pathway to have anticipated 14 reference data. As I recall -- again, reminded by these 15 document reviews, that there was a dispute or 16 disagreement about who was responsible for reference 17 data. What I understand from the review of the 18 documents, our view was -- which seems reasonable -- 19 that the Post Office was to provide that reference data 20 of the instruments and de facto standard -- yes, the 21 word is reference data -- the reference point for 22 transactions going through the system. 23 It's not uncommon in my today's world of trading 24 software, because I'm still working full-time, of having 25 contracts that are traded having a standard definition. 102 1 So reference data is a common feature, as you are 2 saying, for any major system. 3 Q. Given that this bullet point records that reference data 4 is crucial for the proper control of changes to outlet 5 and product data, it would be important for it to be 6 clearly defined in the initial contractual requirements? 7 A. The requirement for reference data, without doubt. The 8 precise definition of the format, probably. 9 Q. Can we look a little further on into the piece, please, 10 to March 1998 in relation to this issue. This is 11 FUJ00058170. This is the monthly report for March 1998 12 and can we look at page 5 of the PDF, please, and the 13 third bullet point on the page. So it's March 1998, 14 third bullet point: 15 "The last month has not been an easy one for the 16 work on new release 2 planning and progress. Severe 17 problems with EPOSS testing within Pathway and linking 18 through to reference data within POCL have caused 19 a delay of between three and five weeks to the schedule. 20 A mitigation plan has been drawn up although this has 21 high risk and low confidence and discussions are now in 22 hand with the sponsors to open up the debate on a better 23 plan to get to live trial in January 1999. This area 24 will remain extremely difficult for some time." 25 So it appears that EPOSS and linking through to the 103 1 reference data, as it is described there, was still in 2 March 1998 a live issue. 3 A. It does and your earlier point is totally valid, 4 reference data is fundamental to the operation of this 5 type of system. 6 Q. Can we look please at FUJ00058187, please, the monthly 7 progress report for October 1999, and can we look at 8 page 5 in the PDF, please, and can we look at the second 9 half of the page, three bullet points from the bottom. 10 So this is October 1999: 11 "Too many reference data errors are being 12 distributed to the live estate, which has been causing 13 major problems with reconciliation and cash [flow] 14 production. We are pressing for a full end-to-end 15 review across Horizon as well as Pathway such that 16 solutions can be found and implemented prior to 17 a roll-out restart in January 2000." 18 So it seems that in October 1999, a mere 19 three months or so before the planned rollout, reference 20 data were still an issue? 21 A. That's what it is saying. 22 Q. Can you now recall, to your knowledge, why was the issue 23 with reference data still a problem at this time? 24 A. I'm afraid I have no recollection to be able to answer 25 that question. 104 1 Q. Do you, even now, remember that it was a problem up 2 until -- 3 A. I do -- 4 Q. -- very shortly before the contract rollout? 5 A. I do recall that reference data was a problem. I have 6 to say that, in my today life, reference data whilst 7 working for core systems, is often a problem even after 8 Go Live because reference data changes and if processes 9 to manage those change are not -- don't happen in 10 a timely way, then problems can occur within the 11 system -- any system, to be able to function properly. 12 What I don't know, in terms of the timing of this, is 13 whether we're talking about changes to reference data, 14 new sources of reference data, or anything more 15 fundamental and -- 16 Q. We will be picking those issues up with later witnesses. 17 A. Yes, I'm -- yes. 18 Q. Just rolling back a little bit and looking at a separate 19 issue, I think you believed -- is this right -- that if 20 the DSS withdrew from the contract, the tripartite 21 contract that had been signed, there was a real and 22 immediate risk to ICL's planned floatation? 23 A. If we had ended in a legal dispute with the DSS, that 24 would have had an impact on our credibility and 25 floatation, so in one sense that is the case. 105 1 In terms of the Pathway business, in the context of 2 the whole of ICL -- as I mentioned before, a £3 billion 3 revenue -- you know, it -- the float wasn't solely 4 dependent on Pathway, anything but that. 5 What I would add-on the related topic is that 6 Pathway taking a substantial provision loss -- 7 180 million as well reported -- did at least draw a line 8 under the difficulties of the past at that time and at 9 the time we signed the new agreement which was, as we 10 were saying earlier, July 1999, the potential of the ICL 11 float still existed. 12 Q. The suggestion I was making to you was that you believed 13 that if the DSS withdrew from the contract, never mind 14 litigation, there was a risk to -- a real and immediate 15 risk in your mind to ICL's planned floatation; isn't 16 that right? 17 A. The way they withdrew the settlement agreement, it was 18 not, was my answer. They do not have, just as I believe 19 I put in my statement -- it wasn't viable for ICL or ICL 20 Pathway to withdraw unilaterally. Parties can't 21 unilaterally withdraw from contracts, so it would have 22 almost certainly have led to some form of litigation, 23 which would have damaged floatation. 24 I repeat what I have been saying several times 25 today, that our focal point, encouraged by our 106 1 colleagues in Fujitsu, fully supported by me, was to 2 focus on trying to make this project a success, to 3 deliver the programme and the potential for the Post 4 Office as well as the DSS. 5 Q. Presumably there would be a risk to floatation because 6 of potentially the loss of hundreds of millions of 7 pounds of future revenue for ICL from the benefits 8 payment card side of the agreement? 9 A. The -- the settlement that occurred cleared that issue 10 up, in that the future potential of this contract for 11 ICL Pathway and therefore ICL was understood after 12 renewal was not dependent on PFI. So it was dealt with 13 as part of the settlement agreement and, as I said 14 a moment ago, as of 1999 the potential of the ICL float 15 still continued. 16 Q. Can we look at some documents in relation to this issue 17 please and start with DWP00000174. This is a letter -- 18 if we just look at the next page, please -- from you. 19 A. Yes. 20 Q. Your signature has been redacted though. In fact, it 21 was PPed, so somebody else's signature has been 22 redacted? 23 A. That's fine. 24 Q. Then go back to the first page please and see that it is 25 a letter dated 27 July to -- 107 1 A. 1998. 2 Q. Yes, 1998, to Frank Field MP, who was a minister of 3 state in DSS at the time? 4 A. Yes. 5 Q. If we just read through, you say: 6 "I am glad that you have had an opportunity to see 7 the ICL Pathway system and that we have been able to 8 discuss the importance I place personally on delivering 9 this system on behalf of the Benefits Agency and POCL." 10 Were you there, in that sentence or part of the 11 paragraph, emphasising how this project was tied to you 12 as an individual rather than you writing simply as the 13 figurehead of the company? 14 A. I have no idea where the word "I" was used. 15 Q. Well "I personally"? 16 A. "I personally", yes. 17 Q. What were you trying to convey? 18 A. I don't recall. Maybe, yes, my commitment to the 19 project, that was it. I was clearly writing on behalf 20 of the company, it was on company letterhead. 21 Q. Yes, plainly you were writing on behalf of the company, 22 but it seemed to suggest perhaps something more than 23 that, that you were tying yourself personally -- 24 A. Well -- 25 Q. -- putting your personal position at stake? 108 1 A. Reputation. Well, as I have said in my statement -- and 2 maybe this is where you're going -- I at no time felt 3 I was at personal risk on this project. We had full 4 transparency throughout the group with what was going 5 on. Apart from the board meetings, regular other 6 conversations of which, you know, there obviously are no 7 minutes and the strategy and the approach to the 8 project, the resolution of the problem, the robust 9 position I took were not my, "I", strategy, it was our 10 strategy. 11 Q. You carry on: 12 "As you have seen for yourself, the system is 13 already eliminating encashment fraud in the 204 post 14 offices in which it is operating and, is capable of 15 being rolled out now to many others." 16 Is that right, by -- in the light of the documents 17 we have just been be looking at, in the monthly 18 reports -- that as of 27 July it was now capable of 19 being rolled out to many other post offices? 20 A. We were working through the issues that had arisen and 21 in conjunction with the parties would, you know, 22 continue to roll out to other post offices. 23 Q. Skipping over a paragraph, you say: 24 "The system is technically sound. The entire 25 project is deliverable within a relatively short 109 1 timescale (ie within the lifetime of this 2 Parliament) ..." 3 A. Certainly my understanding as reflected in that letter 4 at that time was that the issues that existed, that do 5 exist in complex projects, could be addressed, resolved 6 and therefore the programme could be delivered. It was 7 not trying to say there were no issues at this 8 particular time. 9 Q. You have seen -- we looked a moment ago at the monthly 10 reports before this time, saying that there were still 11 problems with reference data, still problems with the 12 EPOS system. Were you being open here, in saying that 13 the system is technically sound, it could be rolled out 14 to many others and the entire project is deliverable 15 within a relatively short timescale? 16 A. It was my understanding at the time and my recollection 17 of the situation that all the problems that had been 18 identified were resolvable problems. 19 In any complex system -- and I suggest anywhere and 20 we all see this every day, I think even today on -- 21 excuse me -- on WhatsApp, WhatsApp was down for 22 a while -- issues occur, they get resolved and we move 23 forward. So I was making a statement, in the context of 24 the architecture and the approach to the overall 25 programme, as opposed to that particular moment on the 110 1 programme. 2 I have clearly been around technology for my entire 3 career. I am not a deep technologist but I understand 4 a lot about technologies and managing projects and the 5 team that we had around this I felt, and frankly still 6 feel, were more than competent to be able to give me the 7 relevant advice, both within the Pathway team, as well 8 as the ICL team, not to mention the broader Fujitsu team 9 that, at times, were brought in to provide assistance. 10 Q. You continued: 11 "The best way forward is to roll out the 12 infrastructure as quickly as possible and to issue the 13 payment card to all legitimate claimants. Failure to do 14 so will significantly damage ICL and its floatation, and 15 the project's sponsors -- the only ones to benefit will 16 be the fraudsters." 17 So here you were tying the need to roll out the 18 project quickly with, otherwise, the significant damage 19 to ICL's floatation, weren't you? 20 A. I think you're -- you're taking the words in a specific 21 context. I don't recall writing those words, or -- 22 I did sign the letter, I'm certainly not suggesting 23 I didn't sign the letter, I don't recall those 24 particular words, how that phraseology. I think the big 25 point was -- we talked about earlier on -- that if we 111 1 did not move forward constructively together with DSS 2 and Post Office, and find a solution to the way forward, 3 then that would impact ICL's floatation. 4 It was, at no time -- the float was, at no time, 5 an impact in terms of the resource allocation we made to 6 this project and our extreme lengths we went to to try 7 and bring -- what our opinion was -- sanity to this 8 project from a -- an environment, government 9 environment, which was very challenging to corral and 10 get decisions in. And so -- to go back to your 11 question: at no time did floatation have any direct 12 impact on this project. 13 Q. Can we look please at BEIS0000278, thank you. This is 14 quite hard to read. You have been referred -- 15 A. Oh, yes, yes. 16 Q. -- by the Inquiry, a couple of months ago, to this 17 record of a telephone conversation made -- 18 A. To David Wright, the ambassador. 19 Q. Yes, the British ambassador to Japan and this is, 20 I think, either an email or a cable from the British 21 Embassy dated 26 January 1999. We can see that at the 22 top. 23 A. Yes. 24 Q. If we just read it through together we can see the 25 subject "Project Horizon: ICL/Fujitsu views", and then 112 1 the summary: 2 "ICL chief executive calls [that's you] after 3 discussions with Fujitsu. Describes latter's [that's 4 Fujitsu's] dismay, risk to ICL's floatation and of 5 Fujitsu's disengagement from ICL if project Horizon 6 fails. I believe the last risk is real." 7 Then if we move on, please, to paragraph 2 under 8 "Detail": 9 "At his request, Keith Todd, chief executive of ICL, 10 called on me on Saturday 23 January ... after talks with 11 the Fujitsu President. He expressed Fujitsu's quote 12 complete disbelief and lack of understanding at [her 13 Majesty's Government's] decision-making process unquote. 14 Fujitsu could not comprehend how [her Majesty's 15 Government] could contemplate quote destroying ICL 16 unquote. If the project failed, the floatation of ICL 17 would be undermined and Fujitsu would reconsider all its 18 options on ICL. This might, according to Todd, include 19 sale. 20 "Todd [that's you] pointed out that the ICL purchase 21 and the injections of capital into it by Fujitsu had 22 very much been the baby of Yamamoto (the previous 23 Fujitsu chairman) and Naruto (presently vice chairman 24 and chairman of ICL). The new Fujitsu president, 25 Akikusa, and chairman Sekizawa, were adopted parents and 113 1 their commitment to the continuation of ICL could not be 2 taken for granted." 3 The comment by the ambassador: 4 "My own knowledge and experience of Sekizawa confirm 5 this. 6 "Todd also thought that, at a time of general 7 Japanese corporate financial weakness (including 8 Fujitsu), ICL had to make itself independently wealthy. 9 The recent results had been good and the future was 10 promising. But the danger to ICL's future in remaining 11 a subsidiary of Fujitsu was that they might be broken up 12 or sold. He repeated that a failure of project Horizon 13 would undermine floatation and would result in 700-900 14 job losses." 15 He, that's the ambassador, undertook to pass your 16 message on to those concerned in London. The message 17 that you were conveying there was that, unless the 18 project proceeded, there was a real risk to ICL's 19 floatation. 20 A. As I said a moment ago, that if the project did not 21 proceed and we had ended up in litigation, then our 22 floatation would have been severely affected. 23 The other thing that I have said so far and, as you 24 take the elements of your questioning and put them 25 together, I had had to take, and did take, with full 114 1 knowledge of my colleagues, a robust position to try and 2 cause something to happen. With hindsight I was 3 probably too patient, too long, in my opinion, in 4 relation to this particular topic, but hindsight is 5 wonderful. 6 What we had to do was to ensure that there was no 7 ambiguity, that the consequences -- and I think this was 8 even indicated by one of the Fujitsu representatives, if 9 I recall documents I have seen recently again, that if 10 we could not find an agreed way forward between the 11 parties, there would be a significant impact. 12 Floatation, quite frankly, was a byproduct, would have 13 been a byproduct. 14 Q. The floatation is the point that you consistently 15 emphasise to external parties, isn't it, to Frank Field 16 and to the British ambassador? 17 A. I would maintain that I recall emphasising all aspects 18 of it. I go back again to what I said earlier on. The 19 work that ICL was doing in relation to the new 20 information society, its impact on a whole raft of 21 things, was extremely positive to -- yes, to this 22 country and a number of things going on. It was 23 important that we got clarity. 24 If we could not have got the attention of the key 25 principals in this then this project would have stopped 115 1 and litigation would have occurred and, as I said 2 a moment ago, in that context, floatation would have 3 been put off. 4 Floatation in the end was not stopped because of 5 this project. It was stopped, as has been stated 6 publicly, by the fact of the market conditions at the 7 time. It was just before the market crash, I think, in 8 2001, but also the view of the Fujitsu team was the ICL 9 performance -- and I would agree with this -- was not 10 sufficient for the float to happen at that time. 11 Q. That was the point at which you resigned; is that right? 12 A. I did and I put in my statement one other thing which, 13 in a sense is -- well, not in a sense, is absolutely my 14 opinion, but was not previously stated. As happened -- 15 and you referred to it earlier -- a couple of years 16 later, all of the Fujitsu Group became Fujitsu and not 17 separate businesses, so it was clear to me in July 2000 18 that an independent float of ICL was not going to happen 19 and it seemed appropriate for me to resign. 20 Q. Was that resignation therefore connected to the failed 21 desire to float ICL on the stock market, which was 22 itself caused by the loss of hundreds of millions of 23 pounds of revenue from the loss of the benefits card -- 24 A. No. 25 Q. -- element of Pathway? 116 1 A. No. 2 Q. Was it because of your oversight of the Pathway Project 3 that Fujitsu held you accountable as the CEO? 4 A. No. No. 5 Q. I think at the point at which you departed, there was no 6 replacement for you, was there? 7 A. No. Richard Christou acted -- 8 Q. On a temporary basis? 9 A. -- on a temporary basis and then, I believe, 10 subsequently took over. 11 Q. Moving the chronology on, I think you were one of the 12 people that attended a meeting with the then Prime 13 Minister, Tony Blair, on 12 April 1999. Can we look at 14 a record of what happened at that meeting, CBO00000059. 15 A. Mr Beer, can I make one additional point, just in 16 relation to your last question? 17 Q. Yes. 18 A. Is that okay? I don't know what exhibit number it is 19 but, going on the point of Mr Sekizawa's note to me 20 after the settlement, I just want to put on record here 21 that questioning -- at the time when we settled the 22 dispute, Sekizawa San sent a personal note, which I got 23 approval from Fujitsu to release, you may have been able 24 to insist upon it, because it set out his view very, 25 very clearly as to my involvement in this project, his 117 1 view about the government situation, and so anything 2 I can say that people in this room or listening outside 3 of this room can say, you could just sit back and say 4 "Oh, well he would say that, wouldn't he". But, 5 you know, I put that forward to you as the chairman of 6 Fujitsu's view to me, thanking me for my efforts to 7 bring this to a conclusion and accepting the fact that 8 Fujitsu wanted to take the position they did, which was 9 to resolve the matter so we could all move forward. 10 Q. As you have raised that and I think, in fairness to you, 11 we should look at it. It is WITN03380121. 12 WITN0330121. I will try it again, I think it is my 13 error: WITN03880121. 14 Thank you. Is this the document you were referring 15 to? 16 A. Yes, it is. 17 Q. It has disappeared. 18 A. It was. 19 Q. Thank you. You can see that it is dated 1 June 1999, 20 addressed to you "For your eyes only": 21 "Thank you for your mail dated 28 May 1999. I would 22 also like to take this opportunity to express my sincere 23 appreciation to you personally for finalising the new 24 agreement with the Post Office." 25 So just to orientate ourselves, this is after the 118 1 Benefits Agency had pulled out, the DSS has pulled out 2 and an agreement has been reached with the Post Office 3 for a design and build contract, essentially: 4 "I am in line with you that I too am fiercely 5 enraged with the UK Government that you had to spend so 6 much of your time, effort and costs in vain, all because 7 of the irresponsibility of their departments, blaming it 8 on each other. Although ICL is not much to blame 9 regarding the failures of the project in the past, the 10 fact is the actual impact on our performance is 11 significant." 12 What did you understand that to mean: "the actual 13 impact on our performance is significant"? 14 A. We took a provision for £180 million as a result of this 15 project. 16 Q. The "£180 million hit", I think you describe it as? 17 A. Yes, hit, yes. 18 Q. "I am thankful to you for understanding and respecting 19 Fujitsu's decision. Instead of arguing with the 20 government now, and risking additional time, effort and 21 costs, it will be more beneficial for the Fujitsu Group 22 to tolerantly negotiate with the government, and keep 23 our chance to try [and] recover the past debt with our 24 own efforts." 25 On that, did you understand "keep our chance to try 119 1 to recover the past with our own efforts" to be under 2 the context that you did agree with Post Office Counters 3 Limited? 4 A. Post Office and the wider ICL: let us use our energy on 5 constructive things rather than fighting old battles. 6 Q. Well, the reason I ask that is in the next paragraph he 7 says: 8 "This new agreement will give us this chance." 9 Ie he is linking with -- 10 A. Yes. 11 Q. -- the chance to recover the £180 million with the 12 signing of the new agreement. He continues: 13 "However, we still have as much tasks as we did in 14 order to achieve our project goal. We must learn from 15 our experiences and thus gather all of the strengths 16 within the Fujitsu Group to overwhelm our challenges, 17 and achieve profit for ICL in the total project. 18 "As a result, this should be an outstanding 19 infrastructure for the UK Government and the Post 20 Office. I look forward to your further success. 21 "Best regards ... Sekizawa"? 22 A. Thank you, and just for completeness and you don't need 23 to show them unless you want to, but the other two 24 letters from Sir Michael Butler, the chairman of Pathway 25 are part of my evidence, as is Sir David Hancock, who 120 1 was an advisor, expressing similar views. 2 Sorry, I took you off your questions. 3 Q. Yes, CBO00000059 we were on. Can we go forwards to 4 page 5 of this clip, please. This should be a letter 5 dated 12 April 1999 from the late Jeremy Heywood, then 6 the Prime Minister's -- the then Prime Minister's then 7 principal private secretary and it is addressed to "Dear 8 Ros", she was a senior civil servant in Her Majesty's 9 Treasury: 10 "The Prime Minister was grateful for the Chief 11 Secretary's useful minute ... the Prime Minister duly 12 met [some people including you] ... the Prime Minister 13 opened by thanking [Mr] Naruto for the sensitive way in 14 which Fujitsu had handled the closure of their 15 semi-conductor plant in his constituency." 16 It is right, isn't it, that Fujitsu had a large 17 footprint -- 18 A. Yes. 19 Q. -- in the Prime Minister's very own constituency? 20 A. Newton Aycliffe? 21 Q. "Naruto in turn thanked the Prime Minister for the help 22 that Fujitsu had been given by local agencies in the 23 North East -- 479 out of 550 employees had now found new 24 jobs." 25 Then this: 121 1 "Turning to the Horizon project, Naruto a said that 2 he was very grateful for the work Steve Robson had done 3 in recent weeks. He understood that ICL were now close 4 to agreement with the DSS and [post Office Counters 5 Limited] on a new way forward. ICL were fully committed 6 to supporting the UK Government. He wanted to ask the 7 Prime Minister to give Steve Robson complete authority 8 to bring the current discussions to a successful 9 resolution. On 23 April the Fujitsu Board would meet to 10 decide whether to support the new project. He 11 personally looked forward to securing a positive 12 outcome. But he sincerely wished to get a legally 13 binding agreement before the 23 April meeting. Fujitsu 14 was spending £5 to £10 million a month on the existing 15 project. Nearly £300 million had been invested so far. 16 Sums of this magnitude could not simply be ignored." 17 Then your contribution is noted. You added: 18 "... that more progress had been made in the last 19 6 weeks than in the previous 9-12 months." 20 Was that true, that the parties had made more 21 progress in a six week period than they had in a year? 22 A. My comment was in relation to coming together with 23 a project and commercial agreement that was acceptable. 24 Some of the preliminary work that had happened with 25 I think his name was Adrian Montague, obviously the 122 1 Corbett piece of work which didn't get to a conclusion, 2 but Steve Robson, I do recall as being pragmatic -- 3 I think I referred to that word -- and enabled -- as 4 I recall, it was in the Treasury, was able to facilitate 5 the agreement which ended up getting signed. 6 Q. So the "more progress in six weeks than in the previous 7 9-12 months" is a reference to -- to what specifically? 8 A. The contract and commercial agreement on a project and 9 a commercial way forward. 10 Q. Okay, not the project generally? 11 A. No. 12 Q. "The project now in prospect was fully deliverable." 13 This, of course, was before the Benefits Agency had 14 pulled out? 15 A. It was just before, yes. 16 Q. Yes, we're here at April 1999. 17 A. Yes. 18 Q. It wasn't until May 1999 that they pulled out. Was that 19 right, that the project was fully deliverable in 20 April 1999? 21 A. I made that statement so yes, it must have been -- the 22 answer is yes. The challenges were better understood, 23 in that we had had several weeks and months of being 24 able to brief relevant parties and as we know, the 25 following month, I think it was in May, the proposal 123 1 came forth on a restructure of the project. 2 Q. Can you now recall that you -- that the basis on which 3 you came to the assessment that you were confident that 4 the project -- despite all the difficulties that had 5 occurred -- was fully deliverable? What material were 6 you using to reach that view expressed to the Prime 7 Minister? 8 A. I would have had the information at that time from 9 the -- you know, from the project team. What we needed 10 to do was to resolve the commercial issues around the 11 project and we at no time expected what happened in May, 12 which was the Benefits Agency to be withdrawn. That was 13 a surprise to us. We were not also expecting that the 14 contract would change from PFI. 15 Q. Can we look please at BEIS0000275. This is, again, 16 slightly difficult to read. It is an internal email 17 from a Katherine Hathaway to six or so recipients at the 18 top. Katherine Hathaway, a civil servant in the 19 Department of Trade and Industry to a series of other 20 civil servants, dated 11 May 1999 and we will see in due 21 course that it refers to a meeting that she had the 22 previous day, so 10 May 1999. If we scroll down please, 23 it says: 24 "I met with George Hall yesterday ..." 25 A. George Hall was the Government affairs advisor to me and 124 1 the company. He worked full-time for us. 2 Q. Was he an ICL director? 3 A. Not a director, no. 4 Q. But he was an ICL employee? 5 A. Employee, yes, yes. 6 Q. "I met with George Hall yesterday to discuss a number of 7 things including our forthcoming awayday, the 8 Information Age Partnership meeting and a more general 9 update on all things ICL. 10 "Horizon. 11 "We spent the first 30 minutes discussing Horizon 12 during which George confirmed that he knew that 13 Ministers were split between cancelling the project and 14 option B1 (version 2) -- he also knew exactly where that 15 split lay, ie [her Majesty's Treasury/DSS] on the one 16 hand versus the others. When asked how the deadline of 17 23 April had been extended he admitted it was only 18 because ICL were fudging their financial reporting with 19 potentially disastrous results as far as the directors 20 were concerned. 21 "He confirmed that Keith Todd will lose his job 22 should Horizon go down and that Fujitsu will divest 23 themselves of ICL which will be broken up and the 24 Services side will probably go to Siemens along with 25 some other Fujitsu interests on the hardware side. 125 1 Siemens are known to be interested in acquiring 2 a services business and are already in discussion with 3 Fujitsu." 4 Presumably Mr Hall would be authorised by you to 5 have meetings like this to try and influence and 6 persuade the Government? 7 A. I would -- he was a senior representative that I relied 8 on a lot, until I saw this document and was horrified by 9 the language which he -- was used. I had not seen that. 10 He was not authorised to say we were fudging the 11 accounts because we never have, never will, never would. 12 As I said in my statement, the only thing I think he 13 could have been misinterpreting is some reference to the 14 discussion about changing the accounting date, but 15 that's not fudging the accounts. There was never 16 a question of fudging the accounts. I take exception to 17 that, so I do not -- obviously this is a minute that she 18 has written. I have not been allowed to speak to George 19 about it and haven't spoken to him, appropriately, but 20 I find it ridiculous, the statement. And bold language 21 "Keith is going to lose his job", well, you saw a note 22 back from Sekizawa. At no time did I have any concerns 23 about my role, my job, but we have discussed that 24 earlier. 25 Q. So assuming Ms Hathaway, the civil servant, is able to 126 1 take an accurate note of what happened, you wouldn't 2 know -- 3 A. I'm not -- 4 Q. -- why Mr Hall was saying to government -- 5 A. No. 6 Q. -- that there had been any fudging of ICL's financial 7 reporting? 8 A. No, and I'm -- I have no idea whether this -- did it say 9 whether it was a phone call or a casual conversation. 10 Q. No met, "I met with George Hall yesterday". 11 A. Yes, so I -- 12 Q. And he spent the first 30 minutes discussing Horizon. 13 A. He certainly had no authority to use language he used as 14 minuted here because it's inaccurate, in my opinion. 15 Q. If you can help us, "ICL were fudging their financial 16 reporting with potentially disastrous results, as far as 17 the directors were concerned", that sentence. If ICL 18 were fudging their accounts, and I know you said they 19 weren't -- 20 A. Categorically not. 21 Q. -- what would the disastrous results for the directors 22 be? 23 A. Well, it just wouldn't happen. 24 Q. But the sentence here what would be the link? 25 A. With respect, you need to ask Mr Hall what he was 127 1 talking about. I do not know. I have not been allowed 2 to speak to him to say "What were you talking about?" 3 It's -- 4 Q. He is reported to have said -- 5 A. My apologies, it's just -- yes. 6 Q. -- you would lose your job if Horizon went down and 7 Fujitsu would divest itself of ICL. Now, the latter 8 part of that, looking at the documents we have seen 9 already, is an accurate statement, there was a risk of 10 that happening? 11 A. Well, it had to be acknowledged as a risk. I remind you 12 in the context of all these individual elements of it, 13 that we were taking on a number of significant 14 institutions in this country to try and get some 15 considered, rational mediation to an answer and we had 16 had several months to years of little progress, so we 17 were taking a robust position, as I have mentioned 18 several times today and, undoubtedly, Mr Hall would have 19 been taking a similar briefing but, at no time -- and 20 there was no substance to those statements that are 21 written down here. 22 Q. You have said, Mr Todd, a number of times that "we took 23 a robust position" and Mr Hall may have received such 24 a briefing. Is that code for saying "the position may 25 have been overstated as part of the negotiating 128 1 process", ie the consequences to Fujitsu and for you may 2 have been overstated or overdramatised in order to make 3 a point? 4 A. I think all aspects needed to be laid out in terms of 5 the potential consequence. It was part of 6 a transparent, measured communication to all the parties 7 and, whilst the outcome resulted in a multi-million loss 8 for ICL on my watch, under my stewardship, settling the 9 matter to be able to move on was the right decision and 10 I have no disagreement with the action we took with my 11 colleagues in ICL and Fujitsu to settle and move on. 12 Q. You have mentioned approaching this in a measured and 13 balanced way. Can we look at HMT00000013, please. This 14 is a minute dated 13 May 1999, again circulating within 15 government, so this is not something that you would have 16 seen at the time. So just putting it in context, 17 Mr Hall met, two days before this, with Katherine 18 Hathaway on 10 May. Her minute was dated 11 May and 19 we're now on to 13 May, and this is: 20 "A brief record of our three meetings with ICL in 21 the last 24 hours -- yesterday morning and evening, and 22 this evening. ICL were represented by Keith Todd, 23 Richard Christou and (for the first meeting) George 24 Hall." 25 Then just scroll down, please. It is recorded: 129 1 "2. By the time of the second meeting, ICL (Todd in 2 particular) were clearly quite worked up. We therefore 3 allowed them to do most of the talking. 4 "3. The key points to record are as follows: 5 "The President and Deputy Chairman of Fujitsu are 6 coming to London tomorrow to discuss the project with 7 ICL. The provision they will need to make for the sunk 8 costs of the [Benefit Payment Card] will shift Fujitsu 9 into the red for 1998; 10 "ICL's view is that Fujitsu would not respond to 11 this provision in a rational way. The response is 12 likely to be cut their losses and sue, rather than 13 pursue what has the potential for being an attractive 14 deal under [that's option B3]." 15 Then over the page please: 16 "Fujitsu have asked to see the [Prime Minister] 17 tomorrow whatever the situation -- whether we are close 18 to a deal or not; 19 "Todd and Christou said that the only way to avoid 20 the provision in the accounts would be for the 21 Government to sign a legally binding agreement ..." 22 Then moving on to the next bullet point: 23 "a clear condition from ICL is that the public 24 sector pick up the full sunk costs incurred by ICL -- 25 ie as if we were terminating for convenience." 130 1 So you delivered the message in that paragraph 3, 2 I think; is that right? 3 A. Sorry, which paragraph? 4 Q. Just go back, so "The key points to record are as 5 follows", that's what you were saying? 6 A. Sorry, that suite of things. 7 Q. Yes, the suite of things under the sub-bullet points. 8 You say that -- or you said that provision will need to 9 be made for the sunk costs of the benefit payment card 10 and that will shift Fujitsu into the red for 1998. Is 11 that right: it would move Fujitsu itself into the red? 12 A. Yes, I wouldn't have recalled that without seeing the 13 document but I assume that is correct. 14 Q. So serious not just for ICL Pathway but for Fujitsu 15 itself? 16 A. No, there were other challenges in the world and the 17 technology world at the time. Fujitsu historically had 18 made several billion dollars a year, so, you know, it 19 would have just been for that particular year. 20 Q. Over the page, please, the passage under the second 21 bullet point, which says: 22 "Todd and Christou said that the only way to avoid 23 the provision in the accounts would be for the 24 Government to sign a legally binding agreement ..." 25 Do you think that's the reference back to what 131 1 Mr Hall may have been referring to about fudging the 2 accounts, ie provision had yet been made in the accounts 3 for the loss? 4 A. No, no, and I don't -- I'm not going to -- assume the 5 minutes are accurate, I have to assume the minutes are 6 accurate because I do not recall that particular 7 request. But seeing it in the document the other day, 8 it seems completely unreasonable to have something 9 signed -- I mean, it wasn't ever going to happen so 10 I don't quite understand how it was that way. There was 11 one other document that I saw that didn't -- well, 12 anyway, let me not open that up. 13 Q. Can we turn to BEIS0000317, please. This is part of 14 a briefing note to the Secretary of State. It is dated 15 3 June 1999 and it is in readiness for a meeting with 16 the President of Fujitsu and the vice chairman of 17 Fujitsu and chairman of ICL that was going to take place 18 on 13 June 1999. Can we look at the second page, 19 please. Paragraph 1 records the meeting that we have 20 just looked at: 21 "At that meeting, Mr Sekizawa stressed that unless 22 an unconditional agreement could be signed by 17 May, 23 Fujitsu would have to accept a £306 million provision in 24 their consolidated group accounts." 25 Then reading on three sentences, or three lines from 132 1 the end of paragraph 2: 2 "The damage to ICL and the prospects of its 3 floatation next year would be substantial. You [that's 4 the Secretary of State] undertook that the Government 5 would convey its decision to Fujitsu within that 6 timescale." 7 Then paragraph 4: 8 "In the tense negotiations over the following days 9 we know that it was your letter to Keith Todd of 10 21 May ..." 11 That's the Secretary of State's letter to you: 12 "... confirming the Government's wish to proceed 13 with the project, and later the personal appeal to 14 Mr Naruto by the Deputy Ambassador on your behalf that 15 persuaded Fujitsu not to abandon the negotiations." 16 Again, we see the link between the damage to ICL by 17 the loss of the project, and damage to its floatation 18 made in that second paragraph -- is that right -- as 19 a point being made to government? 20 A. That is what it said. 21 Q. We have seen a number of times now a link drawn here 22 between the successful progression of the deal and the 23 floatation of the company, you agree? 24 A. There have been several references to it and several 25 other aspects, but there have been several references to 133 1 the float, I agree. 2 Q. In your witness statement, if we turn that up, please, 3 at page 52, so that's WITN03880100, page 52, and 4 paragraph 154, you say, six or seven lines from the 5 bottom: 6 "Although I noted in my call to the UK Ambassador to 7 Japan that the failure of Horizon may 'undermine' the 8 floatation of ICL, ICL had many successful projects 9 already and the status of the Pathway project was not 10 a deciding factor in whether or not to float the 11 company." 12 Is that correct? 13 A. In my view, that is correct. We have not mentioned in 14 this conversation today we had struck, during this 15 period we are talking about a strategic deal with 16 Microsoft that was expanding this business. We had made 17 a number of investments into the new emerging internet 18 world that were proving to be very positive and 19 successful. The world was transforming from the old 20 technology world to the new. I had taken ICL to become 21 a services company, now Fujitsu Services, all of which 22 were, you know, significant attributes of a business 23 with recurring revenue that would be capable of being 24 floated. 25 Clearly, if we had had a legal dispute, as I said 134 1 earlier, with the government on a major project, that 2 would have very directly impacted the float and could 3 potentially have killed it, but the fact that we 4 resolved the problem in the May-July 1999 period meant 5 that, as we went into 2000, subject to the earlier point 6 of market conditions and our other performance, the 7 float was still on and you will find that in other 8 documents, in terms of public discussions and even 9 internal discussions, so -- 10 Q. If it's right that ICL had many other successful 11 projects and the status of the project, Pathway, was not 12 a critical factor in deciding whether or not to float 13 the company, why do we see it mentioned five times in 14 all of the documents that I have mentioned, seemingly as 15 a lever to persuade government to take some action? 16 A. I think the central levers were the importance of 17 getting the Post Office infrastructure modernised before 18 the Benefits Agency withdrew the works to improve fraud 19 prevention in DSS. Float was one factor. You have 20 drawn significant attention to it. In my opinion, it 21 was -- it was a factor in our life and there are always 22 two variables: 1, when; and the other one is if the 23 float would take place. 24 It was my opinion that, once we had settled, in 25 July 1999, that we, with strong performance through 2020 135 1 (sic) -- float was still achievable at a significant 2 valuation above that which Fujitsu had invested. 3 Q. Turning to the relationship between ICL and Post Office 4 after July 1999, you rely in your statement very 5 significantly on the nature of the PFI contract that was 6 initially struck to explain the difficulties between 7 POCL and BA, on the one hand, and ICL, on the other, and 8 the impact that those relationships had on the 9 successful delivery of the project before July 1999. 10 After the Benefits Agency withdrew, this contract 11 was a more familiar contract for build and the provision 12 of services; is that right? 13 A. That's correct. 14 Q. With the purchase of services by POCL from ICL as the 15 contractor for the payment of money? 16 A. That's correct. And -- yes, that's correct. 17 Q. There was no PFI arrangement after May 1999 and so the 18 PFI arrangement that previously existed, would you 19 agree, could provide no rational for -- or explanation 20 for anything which arose in either the direct 21 contractual relationship between ICL and POCL, or what 22 happened thereafter? 23 A. There was a period of decommissioning with the DSS that 24 I recall happening, but no major impact. 25 Q. Can I turn to the importance and significance of 136 1 Acceptance. It is fair to say, in summary, that in your 2 statement you place a lot of stall by Acceptance, with 3 a capital A, correct? 4 A. Yes, there was a clear Acceptance procedure that had 5 been agreed between the parties. 6 Q. In summary, you say that because POCL must have been 7 satisfied with the functionality -- or POCL must have 8 been satisfied with the functionality and reliability of 9 Horizon because there were detailed provisions agreed 10 between the parties as to what constituted Acceptance 11 and what did not, and POCL decided to proceed with the 12 rollout of the contract? 13 A. That's correct, there was a period of delay for 14 reviewing the documents between, I think, August and 15 September 19 -- yes, 1999, in which a number of issues 16 were being addressed, but the point -- I think I make it 17 in my statement -- is the final decision to roll out 18 rested with POCL. 19 Q. So, essentially, you're saying we've got the detailed 20 provisions as to Acceptance by the customer, they did 21 decide to roll out. In the light of the detailed 22 provisions as to Acceptance and the decision to roll 23 out, a decision that rested with them, they must have 24 been satisfied with the functionality and reliability of 25 the system? 137 1 A. They accepted the system with the view to national 2 rollout. 3 Q. Under the post PFI arrangement, payments received by ICL 4 were contingent upon Acceptance, weren't they? 5 A. There was one payment that was tied to Acceptance, as 6 I recall. 7 Q. £68 million? 8 A. Yes. 9 Q. So there was a financial incentive on ICL to ensure that 10 the client accepted, through the Acceptance process, the 11 rollout of Horizon? 12 A. There was a payment due that was not in our control that 13 was dependent on POCL, Post Office Counters Limited, 14 accepting the project, but they had the sole right, as 15 I recall, to decide. It's not uncommon to have, if 16 there's long delay, a de facto Acceptance but I don't 17 recall that being in this case. 18 Q. Can we look, please, at POL00039912. You will see that 19 these are notes, draft notes "From a meeting to discuss 20 Acceptance" in December 1998 and those present from ICL 21 are Mr Coombs and Mr Dicks, names that you will be 22 familiar with? 23 A. Yes. 24 Q. In paragraph 1, it is recorded under the heading 25 "Acceptance Procedures" that: 138 1 "Mr Coombs confirmed that ICL were asking for 2 Acceptance (in terms of both cessation of termination 3 rights related to Acceptance and start of income 4 guarantees) after the final runs of end-to-end and model 5 office and before live trial of NR2 child benefit." 6 Can you see that? 7 A. Yes, I can, but this -- can we just go back to the date. 8 Q. Yes, 1999 -- December 1998, rather? 9 A. 1998, so this is before the resale of the contract? 10 Q. Yes. 11 A. So we're all -- 12 Q. Yes, we understand where we are. 13 A. Yes. 14 Q. Would you agree that what is being recorded there, at 15 this time, is a request by ICL to accept the system 16 without any live trials? 17 A. I don't recall that. I have seen references to that 18 but, as I recall it, Acceptance principles for national 19 rollout were reset as part of the contract reset in 20 July 1999. 21 Q. Sorry, can you say that again, please. 22 A. So I'm saying that the Acceptance criteria that were in 23 existence when national rollout was decided, I believe 24 were set in the July 1999 contract reset. 25 Q. Yes. 139 1 A. Not in 1998. 2 Q. You're correct. In terms of the Acceptance process, can 3 you recall discussions in the board about decisions to 4 lower the bar on what constituted Acceptance in a second 5 and then third supplemental agreement? 6 A. I have no recollection of those discussions at the time. 7 The project team, supported by Mr Christou, as I recall 8 it, did the -- and I think Mr Oppenheim was also key to 9 the reset of the contract, day-to-day. I'm not 10 distancing myself from that, I'm just saying that in 11 terms of -- my detailed knowledge of every conversation 12 is limited because I was only involved in a few of those 13 conversations and obviously involved with the final sign 14 off of that. So your question was, "was I aware of 15 any" -- 16 Q. "Lowering of the bar", as I put it. 17 A. I don't recall any conversations about that. 18 Q. If you don't I won't ask you detailed questions then 19 about the second and third supplemental agreements. 20 Can we just then look, please, at the knowledge 21 within Post Office Counters Limited about some of the 22 things that they did or didn't know at the time of the 23 acceptance decision. Can we look at FUJ00080690. This 24 is a review of the EPOSS PinICL task force. Ignore the 25 date in the top right-hand side, 14 May 2001. That's, 140 1 I think, an artifact of either printing or some other 2 process that's been applied to this document because one 3 can see from the abstract that the document reports: 4 "... on the activities of the EPOSS PinICL task 5 force which was in place between 19 August and 6 18 September 1998 to reduce to manageable levels the 7 EPOSS PinICLs outstanding at that time." 8 You can see the distribution list includes Terry 9 Austin. Do you remember what his role was at that time, 10 so August/September 1998? 11 A. I don't specifically. Either operations or maybe QA. 12 Q. And Mr Bennett, Mark Bennett, at that time? 13 A. No. 14 Q. And D McDonnell -- I think that is David McDonnell, Dave 15 McDonnell? 16 A. No. 17 Q. You don't remember his role in September 1998? 18 A. No, you would need to, as you are going to, talk to 19 Mr Bennett, not -- John Bennett. 20 Q. We can see the authors of it. Do you recognise the name 21 that's Jan Holmes and the D McDonnell is 22 David McDonnell? 23 A. I don't recall, no and I don't recall seeing this 24 specific report -- 25 Q. At the time? 141 1 A. At the time. 2 Q. No, I haven't got any material that suggests that it was 3 passed to you. 4 Can we look please at page 7 of this document please 5 at the heading "EPOSS code" and the authors point out: 6 "It is clear that senior members of the Task Force 7 are extremely concerned about the quality of code in the 8 EPOSS product. Earlier this year the EPOSS code was 9 reengineered by Escher and the expectation is that the 10 work carried out in Boston was to a high standard and of 11 good quality. Since then many hundreds of PinICL fixes 12 have been applied to the code and the fear is that code 13 decay will, assuming it hasn't already, cause the 14 product to become unstable. This presents a situation 15 where there is no guarantee that a PinICL fix or 16 additional functionality can be made without adversely 17 [affecting] another part of the system. 18 "However, a more worrying concern from the 19 Programme's perspective should be the reliance on the 20 EPOSS product in its current state as a basis for 21 planning and delivery." 22 Then secondly, at page 17 of the PDF please, at 23 paragraph 7.3 at the bottom: 24 "Although parts of the EPOSS code are well written, 25 significant sections are a combination of poor technical 142 1 design, bad programming and ill-thought out bug fixes. 2 The negative impact of these factors will continue and 3 spread as long as the PinICL fixing culture continues. 4 This is partly due to the nature/size of the bug-fixing 5 task and partly due to the quality and professionalism 6 of certain individuals within the team." 7 And then he gives some code examples -- they give 8 some code examples. 9 Was information of this type, of raising serious 10 concerns with the EPOSS code, drawn to the board's 11 attention so far as you are aware? 12 A. I don't have any recollection of what you just covered. 13 Q. Would you expect, under the revised arrangements for 14 a design and build contract, for this kind of 15 information to be revealed to the client? 16 A. In the contents we have just discussed, I apologise but 17 I don't have all the individuals calibrated. I would 18 have expected that the team would have taken a view as 19 to what was being resolved, what was fixed, yes, by the 20 time that we signed the new contract. But you may get 21 more insight from my colleagues. 22 Q. Would you, looking at this information here, expect it 23 to be revealed to the client? 24 A. I would want to do a thorough review of it, what its 25 saying, what remedial actions were taken and then assess 143 1 the consequences of it. It clearly needs -- you know, 2 it would need to be fixed. 3 Q. So it would need to be fixed not necessarily revealed to 4 the client? 5 A. If there was any risk to the programme delivery, it 6 should be revealed to the client. 7 Q. You mean the timing of the programme delivery, or do you 8 mean the quality of what was delivered, the reliability 9 and integrity of what was delivered? 10 A. I think if there was any doubts on the reliability and 11 integrity of what was being delivered, it should be 12 declared to the customer. I was just reflecting on the 13 fact when code is written, even with good developers, 14 it's not uncommon to find, through peer review or unit 15 testing or systems testing, issues which then get fixed. 16 The customer doesn't -- I think it's a poor use of the 17 customer's time when those sort of processes are 18 occurring but, if there was any question on the 19 integrity of the system, then it should be declared. 20 Q. And, in your position, I don't think you will know one 21 way or the other whether this information was revealed 22 to Post Office Counters Limited? 23 A. As I said, I have no knowledge of this. 24 Q. Thank you. In the time allowed, they are the only 25 questions that I would ask, save for this: are there any 144 1 reflections or broader statements that you would wish to 2 make in the light of what we now know as to the 3 consequences of the system that was designed and 4 delivered under your watch? 5 A. Quite clearly and in my statement -- and we have talked 6 about it today -- signing a contract with two customers. 7 As I reflect on the whole question, even over this last 8 weekend, with the intense battle that went on to try and 9 get some common sense, in my opinion -- you know, 10 hindsight is wonderful but maybe it would be better had 11 we not bid for the contract. 12 Do I think that ICL Pathway, ICL Group, Fujitsu have 13 the skills -- had the skills to implement this project? 14 Absolutely. Was it a complex project? Yes, it was. 15 The nature of these Inquiries are always focused on 16 the -- and appropriately focused on the things that went 17 wrong. What I have no understanding of is what 18 actually, other than as a user of the Post Office, where 19 many more services are provided, I have always liked to 20 think that some of those came from this project. 21 I mean, the overriding thing, and I think we 22 referred to this earlier on, there can be no comfort but 23 absolute complete sympathy with the victims of the 24 events that have actually occurred over the last 25 22 years. 145 1 MR BEER: Thank you, Mr Todd. As I say, they are the 2 questions that I ask for the moment. 3 Sir, could we take the afternoon break before you 4 may hear questions from Mr Stein, Mr Henry and possibly 5 Ms Patrick? 6 Sir, we can't hear you, you are on mute? 7 SIR WYN WILLIAMS: Certainly we will take our break. What's 8 the time now? 9 MR BEER: 3.30. 10 SIR WYN WILLIAMS: It is 3.30. 11 MR BEER: It is half past in England, sir. 12 SIR WYN WILLIAMS: Have we got any idea how long any further 13 questioning is to be? I say that because I want to say 14 now that I would be reluctant to expect Mr Todd either 15 to go much beyond 4.30 or to return tomorrow, so that 16 people need to understand that their questioning needs 17 to be fitted in to the remaining period this afternoon 18 I think. 19 MR BEER: Sir, I think that's understood and I see both 20 Mr Henry and Mr Stein nodding. I'd calibrated the 21 questions I had asked accordingly to allow a reasonable 22 time before 4.30 for such questions to be asked. 23 SIR WYN WILLIAMS: That's fine. All right then. I will see 24 you again then at 3.45, if that's sufficient time for 25 the others. 146 1 MR BEER: Thank you very much, sir. 2 (3.30 pm) 3 (Short Break) 4 (3.46 pm) 5 Questioned by MR STEIN 6 MR STEIN: Sir, can you hear and see me? 7 SIR WYN WILLIAMS: I can hear you and no doubt now I can see 8 you as well. 9 MR STEIN: I'm very grateful. 10 Mr Todd, good afternoon. My name is Sam Stein. 11 I represent a number of subpostmasters, 12 subpostmistresses and managers before this Inquiry. 13 I would like to ask you a question or some questions 14 about the Fujitsu and Post Office contract and I'm going 15 to take you directly to a document which is at 16 FUJ00000087 and you will see there this is a particular 17 page of the contract and the relevant part that I'm 18 going to take you to now is under paragraph 4.1.6 and 19 you will see there it says "Prosecution support". 20 Now, just to familiarise yourself with this, I'm 21 going to read it out. So this is part of the contract 22 between Fujitsu and the Post Office, "Prosecution 23 support": 24 "Fujitsu services shall ensure that all relevant 25 information produced by the Horizon Service 147 1 Infrastructure at the request of Post Office shall be 2 evidentially admissible (and, where relevant, capable of 3 certification) in accordance with the requirements of 4 the law in relation to criminal proceedings." 5 Then the second part at 4.1.6 says this: 6 "At the direction of Post Office, audit trail and 7 other information necessary to support live 8 investigations and prosecutions shall be retained for 9 the duration of the investigation and prosecution 10 irrespective of the normal retention period of that 11 information." 12 So the first part, at 4.1.6, is about the provision 13 of information to the Post Office in relation to 14 criminal proceedings. 15 Can you help us, Mr Todd, understand what was 16 Fujitsu's understanding of the requirements of the law 17 in relation to criminal proceedings? 18 A. I'm afraid I'm not going to be able to assist. I don't 19 have a specific recall of this clause. The fact that 20 the words here are talking about Fujitsu Services 21 suggests that it is in a document that was post ICL 22 Pathway -- my time at ICL Pathway. But, putting that on 23 one side, my observation on it is that it is -- if it's 24 part of the contractual document, it would and should be 25 complied with by the service provider. 148 1 Q. Can you recall whether there was any guidance or advice 2 given to Fujitsu Pathway from an experienced criminal 3 lawyer, as to what this meant by way of requirement? 4 A. I have no recollection of that. 5 Q. Right. Who out of the team of people involved with this 6 contract preparation and then operation of Horizon would 7 have been in charge of this aspect of the Horizon 8 systems services? 9 A. Our -- at the time I was involved, between the proposal 10 stage and 2000 -- July 2000, the legal head and 11 commercial head was Richard Christou. I recall but I'm 12 not sure I could name -- I think there was some legal 13 advice taken in relation to the contract originally, but 14 we had an internal legal team as well, as using external 15 counsel. 16 Q. Are you talking about the contract itself and advice in 17 relation to contract law, or are you talking about this 18 particular aspect of the contract which targets criminal 19 prosecutions and the potential for Horizon Systems to 20 give information -- 21 A. I have no recollection -- 22 Q. Let me finish, would you, please? 23 A. Sorry. 24 Q. And the potential for information to be given to the 25 Post Office regarding criminal investigations. So which 149 1 is it: contract law or advice in relation to criminal 2 law? 3 A. I don't have any recollection of a conversation with any 4 of my colleagues about, specifically, the criminal law 5 aspects. 6 Q. Right, so Richard Christou was in charge of what aspect 7 of things, that's legal? 8 A. Legal. 9 Q. So generally legal? 10 A. All aspects of contract and where any expertise was not 11 available, I would expect to -- I would have expected to 12 get external advice on any specialist area. 13 Q. Now, the operators of the Horizon System, do you recall 14 whether they were ever informed of the relevant -- this 15 particular relevant section regarding prosecution 16 support and what they needed to do to make sure that the 17 Post Office was provided with information about the 18 Horizon System? 19 A. I have no specific recollection of a conversation about 20 this particular clause, whether it was in the original 21 contract or this one. As I said, this refers to Fujitsu 22 Services and it would not have done in the original 23 contract, but -- 24 Q. The second part, if you can help us at all with this: 25 "At the direction of Post Office, audit trail and 150 1 other information necessary to support live 2 investigations/prosecutions shall be retained for the 3 duration of the investigation and prosecution 4 irrespective of the normal retention period of that 5 information." 6 Can you help with what was done to make sure that 7 information was saved for the purposes of possible 8 prosecutions/investigations? 9 A. The system, as I recall, had audit trail and resilience 10 built in to ensure that the data was retained. I have 11 no specific recollection of any direct conversation with 12 the ICL Pathway team about the retention period that you 13 are referring to. 14 Q. Do you understand that, overall, these two paragraphs 15 relate to the use of data from the Horizon System being 16 put into the possible investigation of subpostmasters 17 and whether or not they committed any offences? Do you 18 understand that that's what this is about? 19 A. I do with your assistance, yes, and seeing this clause. 20 Q. Do you understand that, if this isn't complied with and 21 if the information isn't being passed into the 22 investigations properly about bugs, errors, difficulties 23 with the systems, that innocent people could go to 24 prison? 25 A. Well, that clearly shouldn't happen. 151 1 Q. No, we all agree it shouldn't happen. It did happen, 2 Mr Todd. 3 A. Yes. 4 Q. Do you understand now the importance of this paragraph? 5 A. I understood it when you first raised the importance of 6 the paragraph. What I was addressing was your question 7 about whether I knew how this was being addressed and 8 I -- 9 Q. Was it understood -- going back, you mentioned a number 10 of times things happened a long time ago. Was it 11 understood how important this section was in the 12 contract at the time the contracts were signed? 13 A. I have to just repeat, I don't recall any specific 14 conversation about this particular clause and any 15 deviation from what we would do in our other 16 environments where we are dealing with -- whether it's 17 retail systems or banking systems. 18 Q. Okay. Two last questions. From your particular level 19 within the organisation, what do you recall being put in 20 place to monitor the operation of this system? 21 A. There was, within Pathway, monitoring of the services 22 that were being delivered. I do not recall, if you're 23 referring back to this particular aspect, any particular 24 application or service which was defined to ensure this 25 was complied with. 152 1 Q. Lastly, we know that the Benefits Agency withdrew from 2 the original tripartite contract, yes? We know that the 3 Benefits Agency had a real interest in ensuring that 4 their systems were not misused by way of fraud, you 5 agree? 6 A. Mm-hm. 7 Q. Can you just help us in relation to this particular part 8 of the contract: was this particular part of the 9 contract a hangover from the time of the Benefits Agency 10 and their involvement? In other words, was this adapted 11 from an original discussion in relation to the fraud 12 requirements of the Benefits Agency or not? 13 A. I have no knowledge, I'm afraid. 14 MR STEIN: Thank you very much. 15 A. Thank you. 16 Questioned by MR HENRY 17 MR HENRY: Mr Todd, my name is Henry. A few questions. 18 Could we please go up to FUJ00077834, please. This is 19 your chief exec's report in May 1997. Now, we know that 20 the Labour landslide was on 2 May 1997 and this is dated 21 7 May and, by that time, you had already had a meeting 22 with the Minister of state for Social Security. 23 A. Yes. 24 Q. I suppose you don't become a chief executive of a major 25 company without being able to -- well, without being 153 1 able to cultivate power, would you agree? 2 A. You have to engage with all stakeholders, political as 3 well as business partners. 4 Q. Absolutely. Was this a sort of mending fences, building 5 bridges and, therefore, getting new opportunities 6 meeting? 7 A. I recall having a progressive programme through both 8 political regimes. I recall -- nothing to do with this 9 particular project -- spending a Saturday with John 10 Major and some of his colleagues around the future of 11 the internet, so we had an extensive programme, as most 12 of the technology providers in the UK did, to keep 13 engaged with current government representatives, both on 14 the Civil Service side as well as the political side. 15 Q. Thanks. I mean, the tone of the chief exec's report is 16 pretty positive. For example, "The opportunity" -- 17 political -- paragraph 2: 18 "The opportunity to accelerate our reengineering 19 proposition for DSS is improved." 20 You also mention other opportunities, for example 21 with the Department of Education, correct? 22 A. Yes. If I may just take a brief moment for you. 23 I referred to it earlier on. The transformation that 24 was occurring in the 1990s, albeit we are talking 25 25 years ago, with the advent of new technologies was 154 1 requiring organisations, both business as well as 2 government and public sector, to look at their business 3 processes and that there was a significant opportunity 4 for businesses like ICL and our competitors. 5 Q. Thank you. Could we go to page 5, please, and I'm going 6 to touch on this very briefly because Mr Beer has 7 already taken you to this paragraph, 7.5. This is 8 talking about delay and we notice, of course, 9 paragraph 1, software bugs: 10 "We have advised the customer [second paragraph] 11 that there could be a six week delay in the next 12 release. The customer is appreciative of the open 13 approach. Actions are in place to mitigate the 14 consequence of delay, ie national rollout starting in 15 January 1998 rather than November 1997." 16 Do you think that the customer would have been quite 17 so sanguine if they could foresee a delay to 1999/2000? 18 A. No. Quite clearly, with the events that unfolded, those 19 timetables were wrong. 20 Q. Did you have a policy under your watch of complete -- 21 and I'm not making any loaded comment against you -- but 22 of complete candour in your subordinates so that you 23 were going to be given, as it were, a completely 24 accurate picture? 25 A. Well, I believe so. I'm -- as many can attest, a very 155 1 open person. I do not shoot messengers. I embrace 2 messengers and deal with issues. Bad things happen in 3 life, bad things happen in business, they need to be 4 dealt with. I have not strayed from that principle from 5 my days running 20,000 people to my days, these days, 6 running, you know, 300 people. So I believe that they 7 would tell me in appropriate candour. 8 Q. Because, obviously, that wasn't an accurate prospectus. 9 I'm not suggesting you were being dishonest but that 10 wasn't an accurate prospectus, was it? 11 A. Well, the complexities -- it's almost -- this process is 12 like fast-forwarding 20-odd years, but even five years 13 into a few hours. You know, you would need to do it 14 frame by frame, you know, month by month. Things were 15 evolving and being identified throughout this project 16 and being dealt with. I said earlier the team were 17 under a lot of pressure on a complex project, they were 18 resilient and, to this day, I would say they were doing 19 all they could do to ensure the project was a success 20 for everybody. Things happened then that resulted in 21 delay. 22 Q. Yes. Could we go now, please, to FUJ00075721. This is 23 a follow-up meeting, or -- well, it's the following year 24 as well. The minutes are on 6 July 1998, relating to 25 a meeting on 3 July 1998 with the Minister, Frank Field. 156 1 Mr Field's opening remarks to you are recorded that he 2 was keen to see you to talk about social banking. You 3 are reported to have said -- and this is actually 4 composed by John Bennett, one of your staff: 5 "Keith's opening remarks was that he was here to 6 talk about the programme in the round and the key points 7 were that the programme is deliverable, that it is 8 critical to ICL as well as DSS, POCL and Government and 9 that the infrastructure being built is essential for all 10 aspects of fraud, welfare reform, the future of the Post 11 Office and all aspects of better government." 12 Do you think, on reflection, that that was 13 an oversell? 14 A. The -- as I referred to earlier, at each stage where we 15 bid for the contract, we believed that the proposal we 16 put in were deliverable. At the reset, they were 17 deliverable. It did require that we were able to bring 18 together the constituents and with the benefit of 19 hindsight, the statement was clearly overoptimistic in 20 terms of our ability to bring all the parties together 21 on the timeframe that we thought. 22 What happened subsequently is also tragic. 23 Q. Yes. I'm going to come now to page 2, paragraph 4.8, 24 running immediately into paragraph 4.9. You had 25 a conversation and Frank Field described the Post Office 157 1 as a "dependency culture"; do you recall that? 2 A. Not specifically. 3 Q. You don't recall it specifically, but then this is 4 reported: 5 "There was no strong reaction to our key comment 6 that the progress to ACT was inevitable but would take 7 time and had to be managed alongside re-engineering of 8 the post office network." 9 Of course, that is a reference, isn't it, to 10 retaining the BPC, retaining the benefit card system, or 11 the Benefit Payment Card, correct? 12 A. Yes, it was. There were -- 13 Q. Could I just ask you, were you, as it were, side by side 14 with the Post Office, complicit with them, prolonging, 15 for as long as possible, the BPC, making haste slowly 16 because that was in the Post Office's best interests, as 17 they perceived it, but also, of course, you had revenue 18 per swipe, didn't you? 19 A. I certainly don't recall that thought process at all. 20 We had a customer, one of the customers, DSS, who were 21 very keen, as we have discussed earlier, on the benefit 22 cards basis. It made sense to us. It was the emergence 23 of smartcards which we thought was the right way 24 forward, but -- you know, magnetic stripe. There had 25 been a historic desire from DSS to go to straight bank 158 1 transfer, but, you know, at the end of the day, it was 2 the customer who had to dictate. 3 Q. So, with that in mind, could we come please to 4 FUJ00075723. Of course, the problem is: which customer? 5 You have identified that already, haven't you? 6 A. Yes, yes. 7 Q. Now, let's go to that document. Could we go down to 8 paragraph 5 please and we've got the following: 9 "Stuart Sweetman pointed out that what the Minister 10 was looking for could be provided by POCL with 11 automation of the branches (a not very veiled reference 12 to Horizon but well put across). Stuart was backed up 13 by Girobank [et cetera, et cetera]. Customers want 14 control, want cash and get it now through the post 15 office." 16 Again, this is another meeting with Frank Field, 17 17 July 1998, minutes 20 July 1998. Did you regard 18 Stuart Sweetman as an ally? 19 A. Certainly not particularly, no. My recollection -- 20 Q. From memory -- from memory, was he on side? 21 A. I think he was a competent businessman. I had no 22 personal relationship with him. I knew him through 23 business but, you know, I repeat, it's going back a long 24 time. Listening to many conversations, which are not 25 minuted, about what is the best way for society to pay 159 1 Social Security. At the end of the day, a lot of 2 society that received benefits wanted cash still. The 3 Post Office was the right way to go. The means to get 4 there was a decision for the wider political environment 5 and the -- and, specifically, the Department of Social 6 Security. 7 Q. But, obviously, you would have -- either you directly or 8 your representatives would have acute antennae as to who 9 was on side and who was not? 10 A. We would have a view and we did not -- if you go back to 11 the beginning of this, early days, we did not have -- as 12 far as I recall -- any influence on Peter Lilley's ideas 13 about the benefits card. We reacted to that idea. 14 Q. I see. Could we turn over the page, go down to 15 paragraph 8 please, and if we could just -- yes, thank 16 you so much. 17 If we go from the paragraph "Overall" which is the 18 third one down. In brief POCL gets a tick; Girobank 19 gets a tick; DSS gets a cross, because they're now 20 definitely anti-card; Sarah Graham, who was the 21 secretary to Frank Field, his right arm, as it were, she 22 gets a cross; and then at the end: 23 "We need to keep convincing David that the payment 24 card is GOOD." 25 Do you see that? 160 1 A. Yes. 2 Q. The payment card -- and David Sibbick, of course, wasn't 3 he at the Treasury? I might be wrong. 4 A. I'm not certain but could be, could be. 5 Q. Don't worry, we can find it. But the payment card, of 6 course, had a particular remuneration to it, did it not? 7 A. Yes, and this -- sorry, I have forgotten the date of 8 this particular document because the timescales are, 9 I think, important in relation to this set of concepts. 10 You know, we were focused on the "requirements", quote, 11 our customers had which was for the card, and so -- 12 Q. Right. Could I -- thank you very much, Mr Todd, I'm 13 sorry, I'm trying to be brief because I have to finish 14 by 4.15 because I have been told by my colleague that 15 she is going to take ten minutes. 16 A. Okay. 17 Q. Could we go, please, to POL00028525, please. This is 18 13 November 1998 and, by this time, you would agree, 19 would you not -- and obviously this is not your 20 document, but it refers to you -- by this time there was 21 a massive deterioration in relations between your 22 company, you, and others, in government and departments, 23 correct? 24 A. 13 November which year? 25 Q. 1998. 161 1 A. Thank you. As I have said earlier, we took a robust 2 position trying to get a positive answer for POCL, DSS 3 and ICL Pathway. 4 Q. The point is, however, that the analysis that is 5 referred to -- and this is from the Treasury -- that 6 DTI/POCL has put to you, "completely ignores the 7 transfer of risk that underlines ICL's proposals", and 8 then I omit words: 9 "... with scant regard to the level of performance, 10 significant price increases, payment in advance, 11 acceptance of the project before it is fully trialled in 12 any systematic form." 13 And then "redrawing the project in terms of the 14 contractual basis", et cetera, et cetera, et cetera. 15 I mean, obviously a clear split in government, but 16 it seems that -- 17 A. We were -- sorry to interrupt you, but if I may, the 18 challenge was finding a single principal person that 19 could bring this together. We were constructive 20 throughout the years we were engaged in these 21 discussions. As I said earlier, working on the project, 22 trying to find solutions but, until it was finally 23 resolved in 1999, we had found great frustration through 24 the inability to get a single unified, if I may call it, 25 a government position. 162 1 Q. This was all in response, wasn't it, to a letter that 2 you sent on 9 November. For that we can go to 3 BEIS0000421, please. We have just seen that the DTI and 4 POCL are, as it were, seemingly in your camp, 5 notwithstanding this letter of 9 November and if we 6 could get it up, BEIS -- yes, thank you so much. 7 Could we go to "ICL Proposals": 8 "No progress was made on other aspects, but at the 9 last moment ICL came forward ... with an immensely 10 complex and comprehensive set of proposals for 11 restructuring almost every element of the Horizon 12 contractual basis." 13 Then it refers to a diagramatic illustration. 14 A. Yes. 15 Q. Over the page, please, the ministers' reactions, so no 16 doubt some of this would have fed back to you, "wholly 17 unacceptable", line 6: 18 "They saw the attempt to revise almost every aspect 19 of the contract to ICL's and Fujitsu's advantage moving 20 almost all liability and responsibility for funding the 21 project", et cetera, et cetera, et cetera. 22 Would you read the next few lines to yourself, 23 please, up to "There were strong voices" -- 24 A. Sorry, from where? 25 Q. From "They saw the attempt". 163 1 I will read it out aloud: 2 "They saw the attempt to revise almost every aspect 3 of the contract to ICL's and Fujitsu's advantage, moving 4 almost all liability and responsibility for funding the 5 project's financial deficit onto POCL, as deeply 6 insensitive, and as demonstrating a refusal by ICL to 7 accept responsibility for the serious delays to the 8 project which have cost the public sector hundreds of 9 millions of pounds in fraud and administrative savings 10 forgone." 11 A. I don't -- sorry to interrupt you, but I don't recall 12 whose minutes these are but I think they are 13 a misreflection of the positive engagement we were 14 trying to make to put forward some ideas. We were open 15 to discussion, but we had been -- from my 16 recollections -- sort of blanked with being able to move 17 forward, so we came forth with a set of propositions in 18 order to try and instigate some engagement with us. 19 That's my recollection. 20 Q. I've got only one more document to deal with but, before 21 we leave this, please, sir, could you go to page -- 22 I think it is page 4 and this is your contemporaneous 23 view -- forgive me, page 3. It is paragraph 9. If we 24 keep that page up on the screen but I will read 25 paragraph 9 to you verbatim: 164 1 "At both meetings Keith Todd expressed his 2 disappointment, frustration and sense of shock that 3 ministers still appeared to fundamentally misunderstand 4 ICL's position. ICL was in fact the aggrieved party, 5 not the guilty party, yet ministers appeared determined 6 to punish them. ICL had put forward a positive and 7 helpful set of interlocking proposals designed to enable 8 the project to move forward. The company had given up 9 its 'right' to make a profit on a ten-year programme of 10 work and was carrying -- and would continue to carry -- 11 a considerable element of commercial risk. ICL had 12 explained its position extensively to officials but had 13 found it difficult to gain access to the relevant 14 ministers. ICL could only conclude that officials had 15 represented badly -- or indeed had misrepresented -- the 16 company's view to ministers", et cetera, et cetera. 17 Then I'm going to omit words: 18 "The future of the project now lay between ICL and 19 POCL, but at a meeting the previous evening, John 20 Roberts had made it clear that he had been told by 21 Government that he had no authority to negotiate further 22 with ICL. Ministers should now empower John Roberts to 23 negotiate a deal." 24 So John Roberts spoke your language? 25 A. I -- John Roberts was his own man. I think you may have 165 1 already seen John Roberts. He was his own man. He 2 represented the Post Office. This project was important 3 to the future of the Post Office. Separately, it was 4 important to DSS for the benefits programme. There was 5 no cabal. I think I refer in my own statement to the 6 fact that it did feel there was more alignment with the 7 Post Office, so when, our surprise, in May 1999 the 8 suggestion was it was just the Post Office came out, we 9 concluded that we should accept the loss and move on and 10 work with the Post Office. 11 Q. But it seems from the last document that POCL -- and 12 I suppose the DTI as well -- were prepared to put up 13 with no live testing, transfer of risk, et cetera, 14 et cetera -- 15 A. That is incorrect. 16 Q. Right, well, let's go to the final document, please, 17 that I wish to put to you, HMT and then I think it's -- 18 oh, dear, I think it's 0000030 and if I'm wrong it could 19 even be 00000030. 20 A. I'm happy for you to ask me the question. The document 21 can come up. 22 Q. This is a HM Treasury document and it is an update for 23 the Prime Minister and I think if we could get it up on 24 screen, it is HMT and then I think it is 00000030 but 25 I shall read it out verbatim, while we're waiting for it 166 1 to get up on screen, Mr Todd. 2 Thank you so much. Could you expand it to go to the 3 bottom half of the page, please. 4 Certainly there was a meeting in April 1999. This 5 is actually undated, but whether it took place before or 6 after your meeting with the Prime Minister, in 7 connection with Mr Naruto, I don't know, but, anyway, 8 three key points: 9 "ICL want unconditional agreement today ... if they 10 and Fujitsu are to avoid a provision in their accounts 11 ... unforeseen terms and conditions [if they come 12 up] ... the public sector would have no right to 13 withdraw." 14 That is basically making POCL a hostage to fortune, 15 isn't it? 16 A. Yes, and I think it misrepresents completely what would 17 have been said. I think it's completely inappropriate 18 to expect an unconditional agreement today, so -- 19 Q. So the Prime Minister is being misled? 20 A. No, no. I think that the way this has been documented 21 is inaccurate from the conversation and I don't know who 22 was at this meeting, but if this is the meeting I was at 23 that was not the way it was put across. 24 Q. I see: 25 "ICL are not prepared to allow part of the 167 1 contractual payment to be dependent on the system 2 performing satisfactorily when fully rolled out. This 3 means that the Post Office could pay for a system which 4 did not perform as necessary." 5 True or false? 6 A. It's clearly -- 7 Q. Clearly false? 8 A. Yes, it's nonsense. 9 Q. Then, finally, this: 10 "ICL are not prepared to give evidence of ownership 11 of the assets involved, or to give perpetual licences 12 for all the IPR ..." 13 I presume that's the intellectual property: 14 "This means the Post Office could find that, when 15 the system is installed and operating, the IPR is owned 16 by a third party. Such a third party would be in 17 a strong position to drive a costly settlement with the 18 Post Office." 19 Who was the third party: Escher? 20 A. No, no, no. The context of this, I think, is 21 challenging. It sounds to me that this was part of 22 a discussion/negotiation about alternatives where -- 23 when the revision of the contract was put in place and 24 what would happen at the end of the contract and the 25 ownership of the infrastructure, so I think it's -- 168 1 Q. But surely -- I mean, Escher were the -- 2 A. Subcontractor. 3 Q. Yes, and they owned Riposte? 4 A. Yes. 5 Q. I mean, is that not a reference to Escher and Riposte? 6 A. Does it say that? 7 Q. "ICL are not prepared to give evidence of ownership of 8 the assets involved, or to give perpetual licences for 9 all the IPR." 10 A. I don't know what it's referring to. I'm sorry, I can't 11 help. 12 Q. All right. 13 Mr Todd, I represent five Core Participants. Three 14 went to prison when they should not have done, one was 15 wrongly prosecuted and another one was sued and 16 bankrupted on a travesty. Do you have anything to say 17 to them? 18 A. That is appalling and I have immense sympathy and, as 19 I have said today and in my statement, complete support 20 for this process to get to the bottom of what actually 21 happened, why that miscarriage of justice shouldn't have 22 occurred. 23 (Pause) 24 Questioned by MS PATRICK 25 MS PATRICK: Mr Todd, my name is Angela Patrick. I'm 169 1 instructed, together with Mr Tim Moloney KC on behalf of 2 64 subpostmasters who were wrongly convicted and we're 3 instructed by Hudgells Solicitors. 4 I have a few questions. You have heard Mr Henry say 5 that I gave my hand away and said I would be 6 ten minutes. I think he has actually left me seven, so 7 I'm going to try and be as quick as I possibly can. 8 A. And I will be succinct. 9 Q. But if there is anything you don't understand -- I'm 10 Glaswegian -- if I'm going too fast just tell me to stop 11 and we will go a bit slower. 12 So Counsel to the Inquiry, Mr Beer, has raised the 13 issue of the float and its significance. I don't want 14 to go back to that but I want to pick up something you 15 said in your reply about the need for a strong 16 performance. I'm going to read it back. You said: 17 "With strong performance through 2020, float was 18 still achievable a significant valuation above that 19 which Fujitsu had invested." 20 You would stand by that, a strong performance -- 21 A. That's what I said earlier. 22 Q. -- was important, wasn't it? 23 A. Yes. 24 Q. Thank you. Others have looked at the period before 25 May 1999 and how the relationships were affected by the 170 1 negotiations and other witnesses who are to come will 2 look at acceptance and the detail. I want to look at 3 what came after May 1999 for some of the relationships 4 you had with government and POCL. 5 I think you have confirmed today -- and I think it 6 is raised by Mr Henry just now -- that even from early 7 on in this process, ICL had an eye on future commercial 8 opportunities or opportunities that might arise from 9 Horizon; is that right? 10 A. That's correct. 11 Q. Those included opportunities working with POCL, didn't 12 it? 13 A. That's correct. 14 Q. If the Inquiry heard evidence that POCL and ICL were 15 already looking into partnership opportunities and 16 government tenders by the spring of 2000, would that fit 17 with your recollection? 18 A. As a broad statement, yes, and -- or the strategic 19 reason the infrastructure was being put in place, which 20 was to provide a longevity to the Post Office 21 infrastructure within the UK. 22 Q. Okay. Can we just be absolutely clear -- Frankie has 23 this reference -- it's a document POL00021470, and we're 24 going to look at page 2, halfway down the page. I'm not 25 pausing on the first page because this isn't a document 171 1 I would expect you to have seen. It's the Post Office 2 board minutes from April 2000, and if we can highlight 3 point (vi) there, which begins "Horizon", underlined: 4 "Horizon Roll-out continued with over 4,500 offices 5 installed with the equipment. The Post Office was 6 involved with ICL in a tender to provide electronic 7 government services -- me.gov -- in which the automated 8 Post Office network would play a leading role." 9 So not your minutes, Mr Todd, but that would fit 10 with your recollection that you were starting to look 11 into new commercial opportunities arising off the back 12 of Horizon in spring 2000? 13 A. Yes, that's correct. I don't specifically remember 14 me.gov but -- 15 Q. I don't think we need to go to specifics, thank you. 16 So if we can move on, whatever had happened in 1998 17 and 1999, ICL had not ruled out a future government 18 business opportunity being a possibility, had they? 19 A. No. Throughout the history of the company, the 20 government had been a big customer and we would have 21 been looking to continue that relationship and expand 22 that relation in the years subsequently. 23 Q. Indeed, if we can -- I'm going to look at a couple of 24 examples. There are lots in the papers that are 25 provided to the Inquiry but can we look at two. If we 172 1 can look at BEIS0000263, please. I want to look at 2 page 2, from about a third of the way down the page. 3 This is not a document I would expect you to have seen, 4 Mr Todd, it's a document which is essentially a briefing 5 for a meeting between yourself, Mr Akikusa and the 6 Secretary of State for the Department of Trade and 7 Industry, which took place on 3 November 1999, so 8 3 November 1999 just for chronology, going back to the 9 really helpful chronology, that's after Acceptance but 10 before rollout. 11 A. Before rollout, thank you. 12 Q. We see there in the bullets, the briefing points that 13 are being given for that meeting. First: 14 "Acknowledge that the Post Office has formally 15 accepted ICL's Horizon automation system. Emphasise the 16 importance to the commercial success of the Post Office 17 attached to ICL and the Post Office achieving roll-out 18 of the system by the target date of March 2001. Ask for 19 Mr Akikusa's perspective on latest progress." 20 Then we go on and there's a thank you for the 21 engagement with Newton Aycliffe, again we have heard of 22 that today, and then we have gone on: 23 "Ask Fujitsu about their plans for developing their 24 e-commerce capability and the impact of this in the UK." 25 Now, despite acceptance having occurred there was 173 1 here a continuing emphasis of the importance of the 2 project staying on track, wasn't there? 3 A. Yes, there was. It was in all parties' interests that 4 the project was successful. 5 Q. In fact, was it really crucial for ICL and for POCL that 6 Horizon actually worked in practice? 7 A. Yes. 8 Q. And perhaps that it was not seen not to work? 9 A. I'm not quite sure what you mean by that, but there was 10 certainly in both organisations' interest, as well as 11 the national interest, as well as the Government, that 12 the project was successful and what happened to your 13 clients is, as I have said, tragic and inappropriate. 14 Q. Okay. Can we look at another document. It's another 15 example from November 1999. It is BEIS0000260 please. 16 Again, not a document you would have seen, Mr Todd. 17 It's a briefing, which unfortunately we don't know if 18 it's a briefing for a meeting with an official, or 19 a minister, but it's a briefing prepared within the DTI 20 and it is for a meeting with you on 8 November 1999 and 21 I want us to look at -- if it makes it any easier to 22 read -- bullet point 1 and it reads: 23 "ICL's performance in major public sector IT 24 projects - especially ELGAR and Horizon." 25 Was ELGAR another project that you were involved in 174 1 at ICL, Mr Todd? 2 A. I recall the project name and I think it was to do with 3 the DTI infrastructure. 4 Q. Okay. As we go on: 5 "Keith Todd should be left with no doubts about the 6 seriousness DTI attaches to ICL delivering on these. 7 "We know Horizon has been difficult for all parties. 8 (It has damaged relations with Fujitsu, the largest 9 single Japanese inward investor to the UK). 10 "DTI (and especially CII) as the 'focus' for the 11 information age needs to be (and be seen as) an exemplar 12 in its use of technology. There are alarming signs that 13 the ELGAR project is in some continuing difficulty." 14 Now, it's not a document you would have seen. 15 A. No. 16 Q. But here you were, in November, on behalf of ICL and 17 Fujitsu, meeting with either officials or ministers and 18 continuing to try to cultivate a continuing relationship 19 with government; is that fair? 20 A. With all my customers, not just government. 21 Q. At that stage, again after acceptance and after the 22 negotiations in 1998 to 1999, from DTI's perspective it 23 appears the relationship with ICL is one that is going 24 to continue; is that fair? DTI were still willing to 25 have meetings with you and maintaining that 175 1 relationship. 2 A. Yes, that is my recollection because we conducted 3 ourselves professionally and dealt with issues to the 4 best of our abilities, as and when they occurred. 5 Projects, as we discussed earlier, do have challenges 6 and issues. That is no reason for what happened to your 7 clients. 8 Q. Indeed, but at this stage, from that minute it seems at 9 least fair -- and it was "Keith Todd should be left in 10 no doubt about the seriousness DTI attaches to ICL 11 delivering..." It was clear that those projects had to 12 work, didn't they? 13 A. Yes. 14 Q. And then if we go on again -- to come back to the 15 question I asked earlier, would any perceived failure of 16 Horizon have impacted negatively on that commercial 17 relationship with government? 18 A. The failure of any major national project -- and I will 19 just be very brief -- if you take the lottery we were 20 involved in, it was a great success. If that had been 21 a failure, that would have damaged the reputation. If 22 Horizon had been a massive failure, it would damage the 23 reputation. What happened to your clients is -- 24 Q. Let's not look at what happened next. 25 In 1999 and 2000, if it became known that there were 176 1 serious problems with Horizon, or if it was failing, 2 that would have damaged your continuing commercial 3 relationship with government; is that fair? 4 A. If that was the case. 5 MS PATRICK: Thank you. 6 A. Yes. 7 SIR WYN WILLIAMS: Well, I think, Ms Patrick, you have 8 actually had 11 minutes now, so I think unless there's 9 some truly burning point that must be made, I think 10 that's it for this afternoon. 11 MS PATRICK: Sir, I'm very grateful for your indulgence and 12 I'm very happy to shut my laptop. Thank you very much. 13 SIR WYN WILLIAMS: Fine, jolly good. 14 At the beginning -- which now I have no doubt for 15 you, Mr Todd, seems a long time ago -- Mr Beer thanked 16 you for making a witness statement and coming to give 17 evidence and I repeat those thanks on behalf of the 18 Inquiry. 19 A. Thank you, sir. 20 MR BEER: Thank you very much, sir, and that brings today's 21 business to an end. We're back at 10.00 am tomorrow 22 with Tony Oppenheim please. 23 SIR WYN WILLIAMS: Yes, fine. Thank you all. 24 MR BEER: Thank you. 25 (4.35 pm) 177 1 (The Inquiry adjourned until 10.00 am on Wednesday, 2 26 October 2022) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 178 1 2 INDEX 3 4 KEITH TODD (sworn) ...................................1 5 Questioned by MR BEER ............................1 6 Questioned by MR STEIN .........................147 7 Questioned by MR HENRY .........................153 8 Questioned by MS PATRICK .......................169 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 179