NHS Disaster Will Cost CSC Dearly

American IT services firm Computer Sciences Corporation (CSC) has performed a dramatic climbdown after it admitted that it faces a substantial write-down of its costs associated with the botched NHS National Programme for IT (NpfIT) project.

The admission came in a new filing to the US Securities and Exchange Commission.

Write-down Expected

In the filing, CSC warned its shareholders that negotiations with the British Government over its controversial participation in the NHS NPfIT had broken down, and it now expects a write-down of its investment in the project.

“CSC previously disclosed that in May 2011 it had substantially completed negotiation of the terms of a memorandum of understanding (MOU) with the NHS which set forth the key terms of a reduction in the scope, and related contract value downgrade, of the parties’ agreement relating to the NHS IT programme,” said the American IT services giant in its filing.

“However, CSC recently was informed that neither the MOU nor the contract amendment then under discussion would be approved by the government,” it said. It also stated that CSC will continue discussions with the NHS in the New Year.

“As a result of the circumstances described above, CSC has concluded, as of the date of this filing, that it will be required to recognise a material impairment of its net investment in the contract in the third quarter of fiscal year 2012,” it said.

CSC warned its shareholders that until CSC and the NHS concluded their discussions, it was unable to estimate the amount of such impairment. However, it admitted that such impairment could be equal to CSC’s net investment in the contract, which was approximately £943 million, as of 30 November.

CSC U-Turn

“There can be no assurance that CSC and NHS will enter into a contract amendment or, if a contract amendment is negotiated and entered into, that the contract amendment as finally negotiated will be on terms favourable to CSC,” the filing said.

“As a result of the foregoing, CSC is withdrawing its previously disclosed fiscal year 2012 financial guidance,” it concluded.

The admission is a climbdown by the services giant, which even as recently as 8 December stated in a regulatory filing that it was entitled to receive another £2 billion from the British taxpayer, thanks to an extended contract from the British Government.

A Department of Health (DH) spokesperson told TechWeek Europe that it was determined to secure value for money for the British taxpayer.

“We are in discussions with CSC and it would not be appropriate to comment further at this point,” a DH spokesperson said in an emailed statement. “However, we are determined to ensure that the NHS has access to working solutions at a cost which provides value for money for UK taxpayers.”

Costly Failure

The Coalition government confirmed in September it was finally axing the project. It said at the time that the £12.7 billion NHS Programme for IT would be “urgently dismantled”, and it gave local health trusts the power to choose their own systems.

The NpfIT was hugely controversial right from the start. The project was meant to provide better communications across the NHS infrastructure, based around a central database for patients’ medical records, scans and X-rays. It was also perhaps one of the most expensive of the many failed IT projects created by the Labour government.

The project was initially set up in 2002, but it came under continuous criticism for rising costs and dubious management. The Coalition government inherited the deeply unpopular project when they came to power and, in September 2010, pledged to pull the plug on NpfIT, claiming that a centralised, national approach was no longer required.

The NPfIT was thought to be the world’s biggest civil IT programme, but its death was assured in August when the House of Common’s Public Accounts Committee (PAC) demanded its axing. The PAC also laid the blame squarely on major suppliers BT and CSC.

CSC in particular came in for stinging criticism at that time.

“CSC has yet to deliver the bulk of the systems it is contracted to supply and has instead implemented a large number of interim systems as a stopgap,” said the PAC at that time. “The Department [of Health] has been in negotiations with CSC for over a year, and told us that it may be more expensive to terminate the contract than to complete it.”