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Fujitsu set for further £180m deal as Post Office Horizon replacement delayed

Fujitsu is set to receive a further £180m in taxpayers’ cash to extend its contract to run the controversial Post Office Horizon IT system for a further five years.

As revealed by Computer Weekly yesterday (30 May), the project to replace Horizon has hit major problems, and the Post Office has requested £1bn of extra public funding from the Treasury to get the programme back on track. The budget has spiralled from £180m to £1.1bn, and the implementation has slipped from 2025 to 2030.

The existing contract with Fujitsu to run Horizon is due to conclude in March 2025, and the aim was to have a replacement system, called New Branch IT (NBIT), in place by that time. However, delays, cost over-runs and a lack of quality in the software being developed in-house by the Post Office means Horizon is not likely to be fully shut down until 2030.

A further complication has arisen in that Fujitsu has told the government it is not willing to continue supporting Horizon after March 2025 unless the Post Office has a “credible plan” to exit the arrangement.

If Fujitsu were to withdraw its services after March 2025, the Post Office would have to either find another supplier to manage the Horizon system on which its business and income depends, or bring its management in-house.

According to government auditors from the Infrastructure and Projects Authority (IPA) who were sent in to review the programme in April, the Post Office does not consider either of those two fallback options to be “economically viable”.

The supplier has told the government that, if both parties agree to extend the contract, it is willing to do so on the same basis as a previous one-year extension, which cost the Post Office £36m.

A further five years on the same terms and conditions implies another £180m going to Fujitsu, which would be funded by taxpayers as part of the £1bn requested from the Treasury.

However, sources close to the project say that Fujitsu may prefer to renew on the basis of a 12-month extension that is renewed annually, rather than an upfront five-year commitment.

A Post Office spokesperson said: “Working in collaboration with postmasters, we are continuing to drive forward development and expand our pilots for the introduction of a new system that is fit for the future across our 11,500 branches. We are determined to get this right and with such a large network, careful planning and extensive testing are of overriding importance ahead of full roll-out.

“We are also investing to ensure the successful operation of our existing technology, including extending commercial relationships with suppliers where this is required, as this will ensure postmasters and customers have continuity whilst we develop the new system.”

Fujitsu declined to comment when asked by Computer Weekly.

Significantly cheaper

The Post Office expects that when NBIT is rolled out, it will be significantly cheaper to run than Horizon – its estimates suggest NBIT will cost £18m-£25m a year to run, compared to £60m-£70m predicted for Horizon.

The IPA warned that were the replacement programme to fail or to not make sufficient progress, “there would be significant operational and financial risk in attempting to insource Horizon” – and that the ensuing risks could lead to a failure of the services offered by the Post Office, which would “directly impact customers”.

As such, it is likely the Post Office will have little choice but to persuade Fujitsu to extend the contract. At the moment, there is no contingency plan in place should Fujitsu step away at the end of the current deal.

“Detailed planning for the event that an extension contract is not achieved, is only just underway and this could become very challenging should the supplier not wish to enter into a contract extension after March 2025,” said the IPA review team, adding that they have “questions about whether a Plan B is sufficiently mature at this stage”.

Voice of the Postmaster, a representative group for Post Office branch workers, has published a letter to Post Office CEO Nick Read, following Computer Weekly’s revelation of the problens with NBIT. The group claimed that it met with Read On Wednesday (29 May) and he “expressed satisfaction with the progress and testing of the NBIT project”.

“This situation evokes memories of past issues related to information withholding from postmasters. It is imperative that we avoid repeating such history,” the letter said.

Problems building

Problems have been building with the Horizon replacement project for some time. IBM started work on a £100m project for a replacement system in 2015, but the complexity involved forced the Post Office back to Fujitsu.

Computer Weekly reported in December last year that increasing costs and a lengthening timeline had already forced the government to hand the Post Office an extra £103m towards the project.

Fujitsu is believed to have earned over £2.5bn from its Horizon contract across the 25 years the system has been in use by the Post Office.

Horizon is a retail and accounting system used in Post Office branches, which was introduced in 1999 to replace mainly manual accounting practices. Originally from ICL, which was acquired by Fujitsu in 2002, it was rolled out across the Post Office branch network from 1999.

Horizon’s introduction led to a sudden increase in subpostmasters reporting unexplained shortfalls in their accounts, for which they were blamed. The Post Office told each of them that nobody else was experiencing problems and covered up the computer errors. A High Court case in 2019 proved that bugs in Horizon caused the phantom accounting losses for which hundreds of subpostmasters were wrongfully prosecuted.

The Post Office scandal was first exposed by Computer Weekly in 2009, revealing the stories of seven subpostmasters and the problems they suffered due to the accounting software (see timeline of Computer Weekly articles about the scandal below). 

• Also read: What you need to know about the Horizon scandal

• Also watch: ITV’s documentary – Mr Bates vs The Post Office: The real story

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