ICL Post Office fiasco costs UK taxpayers £1bn

Just over £1bn of taxpayers' money was wasted on a failed PFI project to make benefits payments through the Post Office, according to a National Audit Office (NAO) report out today.

The NAO lays the blame for the failure on all three players: the DSS, the Post Office, and contractors ICL, who lost an additional £180m itself in the debacle.

The Department of Social Services (DSS) cancelled the Pathway Project last year after it fell more than three years behind schedule.

Martin Pfleger, deputy auditor general at the NAO, outlined the reasons for the failure: "First, the project was too rushed. Second, the choice of contractor was driven by price rather than quality. Third, there was divided control between the two purchasers - the DSS and Post Office had different objectives and different priorities. And finally, there was poor management of risk."

Pfleger said problems were apparent right from the bidding stage. "ICL were cheapest on price. Importantly, they were the only firm that accepted £200m worth of risk of fraud in their bid, and therefore they complied with the Private Finance Initiative. But their bid came last of the three bidders on most technical and management criteria."

The Post Office has been hardest hit by Pathway's failure - since benefits payments will now be made through banks, Post Office Counters will lose £55bn a year in business.

Speaking to silicon.com earlier this year, John Main, sales and services general manager of Post Office Network Eastern Territory, said: "Clearly there is a risk and a threat to quite a big proportion of our business because a third of our income is now derived from the benefit payment business. If a significant part of that goes, then we've got some real worries about the viability of some of our post offices."

In the wake of Pathway's demise, ICL renegotiated a contract with the Post Office and has continued to work on automating Post Office Counters under the Horizon project. That system is scheduled to be fully active by next spring.

No-one from ICL was available for comment but it did release a statement that said: "The Benefits Payment Card project was part of a ground-breaking public finance initiative (PFI) contract and all the parties have learned important lessons."