A risk assessment for prospective suppliers to the UK NIS

by David Moss

November 2007

updated January 2008

updated February 2008

updated March 2008

updated April 2008

updated August 2008

updated December 2008

The tune has changed since August 2007. The dance is more sombre than expected, the host of dancers is reduced, less numerous, the fever has passed and the only jostling is towards the exit. Now suppose ...

... you're the chief executive and your marketing department suggest that you submit a bid for work on the UK National Identity Scheme (NIS). Should you?

As you work your way towards the answer, bear in mind that Accenture and BAE Systems first announced that they would bid, and have now withdrawn. Why? BT were thought unlikely to bid, then said they would, then said they wouldn't. Why? Steria have been on the list of prospective suppliers from the start. No longer. They've withdrawn. Why? Could it be for any of the following 32 reasons?

1. Tendering for work on the NIS may look like a case of arbitrage, i.e. a risk-free investment. But only as long as Labour remain committed to the NIS and only as long as they remain in power. Every day reduces the expectation that Labour will win an overall majority at the next election, the smart money now is all on a hung parliament (please see 24 below). Given the Liberal Democrats' outspoken opposition to the NIS, cancelling it would be the first Labour concession needed to form a Lib-Lab administration.

2. Labour are unique. They are the only party advocating ID cards. The other parties have promised to tear up any supplier contracts on day one. Would you, as a supplier to the NIS, fancy your chances against David Davis (Dominic Grieve (Chris Grayling))? With only the ineffectual Identity and Passport Service (IPS) as your champion?

3. It is a truth universally acknowledged that when government contracts fail, the suppliers are bailed out. But not Metronet. They are in administration. And not Accenture. When they pulled out of the disastrous NHS NPfIT project, they swallowed a nine-figure loss. How sure would you be, as a supplier to the NIS, that you would be compensated in the event of failure (please see 28 below)?

4. Ever since the Strategic Action Plan for the National Identity Scheme was published in December 2006, it has been understood that ID cards would be issued to UK citizens from the end of 2009. That has been the UK's own timetable and it also fits the European Union's timetable for eGovernment. Now it transpires, in a leak to the Daily Telegraph, that ID cards will not start to be issued in earnest in the UK until 2012. How can the dwindling band of prospective suppliers to the NIS model their cashflow, if the timescales keep changing? How can they assess the investment opportunity, when the customer cannot be depended upon to say what is wanted and when (please see 26 below)?

5. Ever since planning for the NIS began in July 2002, it has been understood that everyone resident in the UK aged 16 and over would be fingerprinted. The NIS makes little sense otherwise. Now it transpires, in a leak to the Observer, that only selected groups may be fingerprinted. See 4 above, how can the dwindling band of prospective suppliers to the NIS model their cashflow, if the volumes keep changing? How can they assess the investment opportunity, when the customer cannot be depended upon to say what is wanted and when (please see 26 below)?

6. Political will is all very well but there has to be a feasible project in there somewhere. The House of Commons Science and Technology Committee don’t think there is. They reviewed IPS’s plans for the NIS and published their report in July 2006. The Committee declared themselves "concerned", "surprised", "regretful", "sceptical" and "incredulous" at the "confusion", "inconsistency" and "lack of clarity" in the plans. Equity analysts can read, too. Your share price, as an NIS supplier, could go south, your shareholders would not be amused and your hopes of future non-executive directorships could dry up.

7. The only UK trial of the biometrics on which the NIS depends was a fiasco. IPS are advised by PA Consulting. Take a look at p.4 of their paper on Biometrics – Is that really you? According to PA, the mass consumer biometrics industry is mostly hype. (Please see 13 below.) Far from making it easier for people to prove their identity, these biometrics would make it harder for about 20 percent of people. With 50 million ID cardholders, that’s about 10 million people who can’t prove their right to work in the UK or get non-emergency state healthcare or get state education for their children. That’s about 10 million dissatisfied customers. Equity analysts can read, too, see 6 above.

The Innovation Highway
from Biometrics – Is that really you?
by PA Consulting:

8. BT and QinetiQ are thought to have decided not to bid for NIS work. If true, is there a lesson there? Do these companies think the investment is too risky?

9. There is no sign of the Crosby Forum report being published. (Please see 17 below.) Indeed, according to the Guardian, Gordon Brown is thought to want yet another review. If true, is there a lesson there? Does Sir James – actuary, retired chairman of a bank, deputy chairman of the FSA – perhaps think that the banks and the major retailers would be unwise to rely on the NIS? Why else has his report not been published?

10. "Other countries seem to be implementing NISs quite successfully", your marketing department may say. Are they?
• Do these NISs work? In Pakistan, for example, they have NADRA, the National Database and Registration Authority. And in the Autumn of 2005, Brigadier Saleem Ahmed Moeen (Retd), Chairman of NADRA, received an outstanding achievement award for "[fighting the] war against terror in a more effective manner" – NADRA had, at that stage, issued 60 million Pakistanis at home and abroad with biometric ID cards. On Thursday 27 December 2007, former Prime Minister Benazir Bhutto was nevertheless assassinated by terrorists.
• The rule that "they do it in other countries so we should, too" is not always convincing. In Hungary, they speak Hungarian. That is no reason for us to speak Hungarian in the UK. You have to make your own mind up. About Hungarian and about ID cards.

11. IPS already refuse to sign their correspondence. (I have about 20 examples.) They daren’t put their name to their own letters. Get involved in the NIS, and you may have to lie about what you do for a living when you’re at dinner. Indeed, you may have to be escorted to dinner by Blackwater.

12. The NIS is and always will be a political football. It is not comfortable being kicked from one end of the pitch to the other. Dissident insiders are already briefing against the scheme and leaking documents to the press. In addition to the examples at 4 and 5 above, remember the Sunday Mirror exclusive ‘Brown scraps ID card plans’ and the Office of Government Commerce emails leaked to the Times, giving it as their opinion that the NIS fails to take account of reality and is doomed to fail. Why do the NIS requirements keep changing? It's nothing to do with the scheme itself and all to do with the polls. It's a political football. What happens to political footballs? Ask Paypoint. They were lined up to take over the Post Office Card Account. They presumably put a lot of work into winning the project. Then:

Mr Purnell said the Government had decided to rip up the tender process in the wake of the near-collapse of the banking system in September.

He told MPs: "Global economic events have made people, particularly the most vulnerable in our society, more concerned about financial transactions.

"The Post Office is a trusted brand, and is seen as a safe, secure and reliable provider of services in these turbulent times."

Mr Purnell suggested that PayPoint had bid less for the contract. But he had decided to overrule the competitive tendering process because these were "exceptional times".

13. The NIS is bound to fail. The biometrics it depends on are simply not reliable enough. It cannot deliver the benefits expected. People don’t like failed projects appearing on their CVs. So those who can, will leave the company. That will tend to be the better staff. So, to bid for NIS-related work, is deliberately to reduce the average quality of your staff.

14. Prospective suppliers may tell themselves that, never mind all of the above, the ID cards scheme simply will not be cancelled. It cannot happen. Well, STOP PRESS, STOP PRESS. Not only can it happen, it has happened, in Australia:

 

The Labor Government has moved quickly to scrap the Howard administration's controversial $1.1 billion Human Services identity card ... Bidders are understood to have spent millions on preparing their tenders for systems integration and card issuing ...

15. And it's not just Australia. Scotland also has fired a shot across the bows of the NIS, as has Wales, as have 50 local authorities in England. The market for the associated goods and services is evaporating ...

16. ... and will disappear entirely when ministers finally realise that, in the mobile phone system, we already have a global ID cards scheme and we don't need a second, inferior one based on smart cards.

17. Initially due to be published in April 2007, the Crosby report finally saw the light of day in March 2008. IPS's ambitious bid to insert the NIS into the UK's payment systems was turned down by Crosby, elegantly and firmly: "Quite legitimately, the Government may not regard its ID cards scheme as the best way to stimulate the creation of the universal ID assurance system as envisaged in this report". The Crosby Forum spoke for the UK's banks and our major retailers. It's not just the banks and the retailers that have rejected the NIS. So has the airline industry. So has the TUC. With that, the huge volumes of financial transactions prospectively associated with the NIS disappeared, and along with them, the opportunity for suppliers to make a return on their investment.

18. Not only that, but Crosby makes the point, again elegantly and firmly, that people simply do not trust the government when it comes to the NIS: "The scheme’s governance should be designed to inspire the highest level of trust among citizens. It should be operated independently of Government" – and this, not from some juvenile anarchist, but from the deputy chairman of the FSA. The NIS will be a low-volume scheme operated by the wrong people against a background of distrust.

19. Crosby makes the point, further, that the banks are well placed to offer identity assurance services. If they do, they might supplant the NIS, which would wither away for lack of interest. How do you, as a supplier, make money out of a nakedly irrelevant computer system?

20. The Strategic Action Plan for the National Identity Scheme included two strategic actions which have not been performed. One was to make an enhanced ID checking service available to employers by June 2007. The other was to issue invitations to tender (ITTs) for biometrics technology, again by June 2007. Nine months later, the enhanced ID checking service is still not available and there are still no biometrics ITTs. Prospective suppliers must be confident that IPS can deliver. They will be dependent on IPS. What confidence can they place in an organisation which fails to perform its own avowed strategic actions?

21. According to IPS, remember, the NIS is meant to ensure that:
(a) only those entitled to them, receive state benefits – but the Department for Work and Pensions have no published plans to use the NIS to check the entitlement of claimants.
(b) only those entitled to non-emergency state healthcare should receive it – but the Department of Health explicitly deny having had any communication with IPS on the subject.
(c) only those entitled to it, should be able to get state education for their children – but the Department for Children, Schools and Families have no published plans to use the NIS to check entitlement and neither do the Department for Innovation, Universities & Skills.
The claims (a)-(c) above are wishful thinking on IPS's part, a figment of their imagination.
These departments of state operate in silos, often, it is thought, not talking to each other, their co-operation is not assured – you have to sell your services to them, just as with any customer, and IPS haven't. They are failed salesmen.
The volume of transactions involving the NIS could be lower than expected and so could the probability that prospective suppliers will earn a return.

22. Prospective suppliers may assume that the Home Office have been working with other departments of state since July 2002, planning how to achieve the objectives above, and they may assume that those plans are by now, after the best part of six years, far advanced. That seems not to be the case. IPS say, in an interview published on 9 April 2008, that they are "aiming to run some early pilots" but that "so far none have progressed beyond discussions". These pilots have the "enthusiastic support of the home secretary". There is no mention of enthusiasm among the ministers of any other departments of state. Can IPS deliver?

23. When the media mention the cost of the NIS, they always refer to the Home Office's cost estimates, as reported every six months, currently £5.4bn. These are likely to fall, now that fingerprinting is to be outsourced. There may be some misplaced rejoicing in the land about the cost of the NIS falling, but these are only the costs incurred by the Home Office. People would still have to pay some organisation to get themselves fingerprinted. It's just that it wouldn't be the Home Office. And, as the 9 April article above makes clear, there are costs for other departments of state: "... for [other] departments' computer systems to use the NIR as a core source of identification will take years. We're putting in place a piece of national infrastructure for the 21st century, and the full impact will not be felt for five, 10 or 15 years". And then we have to pay for all the GP surgeries to use the NIS. And all the schools. And all the employers. And supermarkets and off licences and pubs. The total cost of the NIS would be much greater than the £5.4bn that goes through the Home Office's books. In the present credit crunch, will the gentle patience of the British people prevail or will there now be some muscular questions asked about the cost of all these supplies? What are we getting for our money? What are the benefits of the NIS?

24. The government faced problems with its own party getting its own Finance Bill passed to enact its own 2008-09 Budget. Has the government lost control of its own agenda? Will we get nuclear power? Will there be a third runway at Heathrow? Will parts of Royal Mail be sold? They couldn't get 42 days detention without charge through the Commons. How confident can you be as a supplier that the government will succeed with its plans for the NIS?

25. Some poll data shows the Conservative lead to be 10 points or more, 18 points in one poll. There is strike action by teachers and oil refinery workers and the police are challenging their pay deal in the courts. The Labour press are withdrawing their support. Reports that Tony Blair (Labour) thinks Gordon Brown (Labour) cannot beat David Cameron (Conservative) have been denied by Tony Blair. Reports that Tony Blair thinks Gordon Brown is a liar have not been denied. Will there be a hung parliament at the next general election? Or will Labour actually lose? How do you deal with a government in this state? Is it wise to deal with them at all?

26. Meanwhile, IPS have issued a Consultation on the Delivery of the National Identity Scheme. They and their predecessors have had six years to think about the NIS, what it is for, and how to deploy it. And only now are they seeking views on how and where to enrol in the scheme, how to make the scheme attractive, what the benefits of the scheme might be, ... What have they been doing for six years? Would you run an R&D project in your organisation for six years without asking why? Can you work with such a slow partner?

27. You may believe that Labour will still be in power after the next election. The civil service aren't sure, please see Civil servants 'preparing for Conservative Government' with secret meetings.

28. Do you still believe that your company would be compensated in the event of cancellation of your contract? ETS Europe would love to agree but they've just had their contract cancelled and they have to repay £24 million. Liberata, too, have just said goodbye to £60 million of future income. "ETS Europe and Liberata were incompetent, that's why they failed, they deserved their fate", your ever inventive marketing department may say. They may be right but don't forget, the NIS is bound to fail, too, however competent you are.

29. No compensation, and the value of the IPS contracts available has just been reduced by a third:

The home secretary has said the three main contracts establishing the National Identity Scheme will cost between £800m and £1.05bn combined, down from an earlier estimate of £1.5bn.

30. IPS really are their own worst enemy:
• They have now introduced ID cards (biometric visas) for non-EEA students and fiancé(e)s. They're not ID cards in the sense of the Identity Cards Act 2006 – they can't be checked against the NIR. Not least, because there is no NIR. They are no more than an extention of the ARC scheme we have had for years.
• The new ID cards have the student's fingerprints recorded on them. To verify the student's identity, you need a fingerprint reader so that you can check the student against the card. That seems obvious enough. But:

Britain's first ID cards, issued last week with fingerprint and facial details, cannot be read by any official body because the government has not issued a single scanner.

31. At which point, you may wonder if IPS are entirely serious about the NIS. Italy (population 58 million) has a national network of about 8,000 ID card registration centres. The Netherlands (17m) has or plans about 4,000 centres. The UK (61m) was recommended in one study to set up a network of about 2,000 centres, a curiously low number, but not as low as the number IPS came up with, 69. Instead of setting up their own network, IPS want retailers and others to record our fingerprints for them. Would that make good commercial sense? What would it do to the goodwill in your balance sheet? What is the expected gross profit per square foot? Most surveys indicate that people would expect to register their biometrics at an official location, like a police station, not in a shop. Would there be any money in it? Maybe. But the lure certainly wasn't great enough for anyone to keep Woolworths afloat.

32. If, after all, you do decide to bid for NIS work, remember that you will have to sign a non-disclosure agreement (NDA). Thanks to No2ID, the NDA is now in the public domain. One provision of the agreement is that, for the next 25 years, at the sole discretion of the Home Secretary, you will permit his or her agents:

to gain entry and access to the premises and any and all records, computers and other property of the Company and ... Individual Recipients containing or including any NIS information ...

That's your office. Your home. The same for your fellow directors. And your staff. And anyone else under the control of your company. Remember Damian Green.

Conclusion

The question you have to answer is: should you make the investment required to bid for work on the NIS?

Many commercial decisions are difficult.

This isn't one of them. Where there should be facts, there are only unknowns. It is impossible to build a mathematical model of the NIS investment opportunity from which to derive an internal rate of return.

In theory – elementary economic theory – that should be the end of the matter. The answer to the question is no.

In practice, that is naïve. There are externalities. It may be argued that, by investing in the NIS, your company is being a good, patriotic citizen, helping to counter terrorism, reduce crime and deliver more efficient public services.

That argument fails. There is no reason to believe that the NIS could deliver those benefits. In fact, the reverse is the case. Investment in the NIS diverts resources from effective measures which could achieve those benefits. It is the commercially illiterate IPS who are unpatriotic, and there is no good reason for you to assist them.

So now how sensible does it look to invest in this project? Which sensible chief executive would commit the funds? Why? What return is sensibly to be expected? What price risk?

David Moss has spent five years campaigning against the Home Office's ID card scheme.

© 2008 Business Consultancy Services Ltd

on behalf of Dematerialised ID Ltd