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The Post Office has paid more than £600m of public money to continue using the bug-ridden Horizon IT system despite deciding it needed to be replaced more than a decade ago.
It has emerged that the government was warned about potential problems with the original £548m deal the Post Office struck with the Japanese company Fujitsu before it was signed in 1999.
The then prime minister, Tony Blair, and other senior Labour government figures were aware that, under the terms of the deal, the Post Office would not own the core computer code to Horizon, which would make it difficult to ever shift supplier, according to the BBC.
To date, the Post Office has spent £2.5bn on contracts with Fujitsu, including £600m on extensions since it started looking for new suppliers in 2012, and ultimately attempting to build its own technology, called the New Branch IT system (NBIT).
The Post Office stopped private prosecutions based on Horizon IT data in 2015, after more than 900 branch-owner operators were wrongly prosecuted over shortfalls resulting from the faulty system, a practice it has promised not to restart.
The Post Office started the hunt for a new supplier in 2012 and asked IBM to build a replacement system to Horizon in 2015, but that project was abandoned at a cost of £40m in 2016.
A later plan to build a new system running on Amazon’s cloud computing system had to be abandoned in 2022.
The embattled business has been developing its own proprietary system, NBIT, which was meant to roll out this year.
However, it has been beset with delays and increasing costs that could run to more than £1bn, raising doubts the new system will ever be rolled out, with the Post Office and Fujitsu admitting they are likely to still be working together until 2030.
“We are implementing changes across the entire organisation so that we can build a Post Office fit for the future, fundamentally changed and with postmasters at its heart,” a spokesperson for the Post Office said.
According to the BBC, Blair received an update from the Treasury in May 1999 warning that discussions with a Fujitsu subsidiary, ICL Pathway, over the terms of a deal for Horizon had “foundered”.
One of the issues related to the implications of not controlling all intellectual property rights, with the Treasury saying Fujitsu “would be in a strong position to drive a costly settlement with the Post Office”.
A spokesperson for Blair did not directly address his knowledge of the intellectual property ownership problem but told the BBC that the former prime minister “took very seriously the issues raised about the Horizon contract” at the time.
“The final decision was taken after an investigation by an independent panel recommended it was viable,” the spokesperson said. “It is now clear that the Horizon product was seriously flawed, leading to tragic and completely unacceptable consequences, and Mr Blair has deep sympathy with all those affected.”
In the same year a document was sent to Gordon Brown, the then chancellor, warning of the issues over code ownership.
A spokesperson for Brown said he “would not have been shown the memo” from 20 May 1999 and he would have been copied in as a “formality”.
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The spokesperson told the BBC: “He was not involved in any work related to the purchasing, award or management of the Horizon contract.”
This month, the postal minister Gareth Thomas announced a further £276.9m of funding for the organisation, including £136m for future technology for this financial year.
“We are working at pace to ensure Post Office has the technology it needs across the business, including replacing the Horizon system,” he said. “The fact Post Office is still using Horizon indicates past underinvestment, which can’t be rectified overnight, so we need to ensure postmasters have the tools they need to continue serving their customers.”
Separately, the Post Office is to announce a new £1.75bn five-year deal with dozens of banks to allow their customers to continue to use its retail network for services.
The new agreement, which is due to be announced next week, is reportedly worth £500m more than the existing deal over the five-year period, according to Sky News.
Under the current deal, which expires at the end of this year, the Post Office makes about £250m annually.
The new deal, which includes commitments to improve the service that the Post Office provides to banks’ customers, is worth roughly £350m a year.
About 30 banks and mutuals are part of the banking agreement with the Post Office, including Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander.
