Three technology-led consortia are bidding to run the operation, which could earn them pounds 1.5bn over the eight-year period of the contract. Last week the Department of Social Security issued the three with an invitation to tender.
In an attempt to limit potential political fallout from the scheme, which has already met with opposition as an "identity card by the back door", the consortia have been asked to include marketing plans in their bids. The brief is to develop a public-information campaign.
Automation of the benefit system is the cornerstone of Social Security Secretary Peter Lilley's grand plan to eradicate an estimated pounds 1.4bn annual bill for benefit fraud. It also forms part of a Government "efficiency drive" to slash pounds 1bn from the running cost of the system which has forced social security up the pre-election political agenda.
It is a high-risk programme for the Government. If automation goes wrong - if the technology fails and claimants are left without benefits, or it is found to impinge on privacy, or fraud is not reduced - the Government faces alienating even more voters, sparking a civil-liberties uproar, or being left short of money to pay for pre-election tax cuts.
Advertising agencies are being approached by the consortia to sell the idea of the automated system. "They are looking for something to defuse the political bombshell that something like this could represent," says one advertising agency source approached to find a solution. "It is an identity card by another name. Each consortium will be trying to launch the scheme with the most positive marketing spin they can muster."
The majority of claimants drawing income support, pensions, child allowance and a host of other benefits will not need an incentive to use the scheme ; if they don't then they will not receive any money. But there are concerns in the voluntary sector that some will fall through the net and that the scheme is being introduced for the wrong reasons.
DSS figures estimate that between pounds 740m and pounds 1.6bn - the latter a greater figure than is lost to fraud - goes unclaimed each year. Critics want the automation to improve the take-up rates for benefits and not just catch people out. They argue that any marketing programme should reflect that.
"There needs to be modernisation of the system," said a spokeswoman for the National Association of Citizens Advice Bureaux, "but it depends whether the scheme is being automated to improve the system for claimants or as part of cost-cutting measures to crack down on fraud."
The consortia will be expected to develop a campaign which explains the new system to the population using television, press and posters. It will represent one of the biggest public-information campaigns of recent years, along with Aids and drink-drive programmes, and will command a budget of more than pounds 10m.
The automated system will be phased in over the next three years, allowing claimants to collect benefits via Post Office Counters. Child benefit is planned to be the first automated payment, with pilot schemes scheduled to begin in the summer.
The three consortia are: IBM UK; Cardlink UK, which is Andersen Consulting and computer company Unisys; and Pathway, a group including ICL, Girobank and the printing group De La Rue, which is also a shareholder in Camelot. They will have to submit completed tenders within four weeks. The DSS will select the winning consortium in May.
The three consortia are competing for an eight-year contract to install more than pounds 140m worth of equipment into 20,000 post offices. The operator will pay all the upfront costs and then, once the system is operating, will charge the Government for each transaction. Gross revenues are estimated at pounds 1.5bn during the period of the contract, but all three are scouting for marketing advice. Cardlink has spoken to five advertising agencies and is believed to be drawing up a shortlist, though an inside source says no final decision will be made until after the DSS has selected a winner.
The IBM consortium is understood to be relying on its existing agency, Ogilvy & Mather. ICL, which uses Delaney Fletcher Bozell for its consumer work, is also believed to be developing plans to market its scheme.
There has been a debate within the DSS as to whether the card should be of the simple magnetic "swipe" or the "smart" variety.
The smart card is believed to offer greater security but is politically more sensitive because it has a built-in chip with the potential for holding masses of information.
Favoured by Mr Lilley, it has also won the support of Labour's Social Security spokesman, Chris Smith, with some reservations. "I am concerned that the Government is effectively leaving important decisions in the hands of private investment companies as to whether the card should be of the swipe or smart variety," Mr Smith said.
"A swipe card is cheaper but easier to tamper with and would not reduce fraud. The smart card is more expensive, far more secure but it must not threaten liberties of the citizen. I am concerned that the DSS will go for cheapness."
It is understood that for now the benefit card will be of the swipe variety, restricted to just benefits information.
But a DSS reply to a parliamentary question last month emphasised the need for the successful bid to use technology that would allow it to be upgraded to smart-card status.
"All the consortia have been asked to get involved in the education and marketing process as part of their tenders," said a spokeswoman for the Benefits Agency, which is handling the tender, "but it is all highly confidential at the moment."