Government considers pulling plug on ICL benefit claim system

A pounds 1.5bn project to replace Benefits Agency order books and Giro cheques with plastic payment cards and to computerise all Post Offices appeared close to collapse last night.

Following a series of delays and technical hitches, the Government is thought to be increasingly concerned about the likelihood of ICL, the computer services company, completing the contract.

PA, the consulting firm, has been asked to look at the options for the project, while the Departments of Social Security and Trade and Industry are holding a series of high-level discussions about the best way to proceed with it.

One option under consideration is understood to be the termination of the contract with ICL Pathway, the ICL subsidiary which is running the project. According to industry sources, rival computer services companies have been approached about taking it over.

A DSS spokesman said: "We meet DTI ministers on a regular basis and this is one of the issues under discussion. We are discussing the problems at the moment." But an ICL Pathway official denied there were problems: "This contract is running according to an agreed plan. There is no consideration of the government pulling out." The Post Office said it remained committed to the project.

The project, which is the largest information technology (IT) contract ever awarded under the private finance initiative (PFI), was awarded to ICL in 1996 amid fierce competition. It envisaged issuing 20 million benefit claimants around the country with plastic "smart cards" with which they could claim pensions, income support, child benefit and disability benefit.

Payments would be made through 19,000 post offices around the country, which would be linked up to a central computer system. The system was intended to reduce social security fraud by pounds 150m a year.

The system was originally supposed to be up and running by the middle of 1998. However, it has been beset by delays. At the moment it has been installed in just 205 post offices, and only issues child benefit.

ICL Pathway insisted that the project was on schedule to be ready by a revised target of the middle of the year 2000. But industry experts say the system faces a number of serious technical hurdles.

Problems are thought to centre on the complexity of certain social security payments, such as income support, and the need to link the Post Office computer system to the Benefits Agency's system. It is thought that the software being used by ICL may be ill-equipped to deal with a project of this size. In addition, staff are believed to be leaving the project as they fear they are unlikely to receive bonuses related to work being completed on time.

The delays are a serious financial burden for ICL, because its payment is determined by the number of transactions that go through the system. Industry sources said the company had already spent pounds 30m on the project and was currently losing a further pounds 2m every month. But an ICL spokeswoman denied that the costs were one of the reasons why the company has delayed its flotation until the year 2000.