CSC set to write-off £1bn spent on NPfIT

Computer Sciences Corporation has been told by the UK government that it will not get a long-anticipated revised NHS IT deal from the UK government worth up to £2 billion.

As a result, the US IT services firm has warned investors it will potentially get no deal at all, and will now have to write off £1 billion invested in the National Programme for IT in the NHS to date.  CSC has withdrawn its financial outlook for fiscal year 2012.

The move comes after the UK government told the firm it would not sign a re-negotiated version of CSC’s £3 billion local service provider contract for the North, Midlands and East, a deal CSC has been unable to deliver against.

The IT services firm has been very publically criticised by UK politicians over its performance on the deal and, in particular, its failure to deliver the Lorenzo ‘strategic’ electronic patient record system to acute trusts.

However, as recently as November CSC told investors it thought a new deal would be signed which would prove profitable.

In its latest SEC filing, CSC says it was recently informed that neither a memorandum of understanding nor a contract amendment would be approved by the government.

“CSC previously disclosed that in May 2011 it had substantially completed negotiation of the terms of a memorandum of understanding 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."

As a result, CSC said it will "recognise an impairment of its net investment in the contract in the third quarter of fiscal year 2012."

And it added: “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."

CSC is developing the Lorenzo electronic patient records system under the £12.4 billion NPfIT, for which it has invested £1 billion ($1.5 billion).

In May 2011, CSC announced it had closed talks on an MoU with the NHS that would see a significant cut in the scope of the contract, in return for steep savings in contract value – approximately £700m.

However, this was overtaken by the coalition government announcing a review of NPfIT led by the Cabinet Office’s Major Projects Review Body, which has declined to sign the deal that had been reached.

A damning review of NPfIT and the CSC’s performance was published by the National Audit Office in May and the House of Commons’ Public Accounts Committee in August.

The UK’s coalition government subsequently said in September that it would “urgently dismantle” NPfIT, of which CSC’s remains the largest contract, and give local health trusts the power to choose their own systems.

CSC held further negotiations with the Cabinet Office and DH in November on a significantly revised new MoU. In the same month, CSC advised investors that it remained confident of securing a new deal on favorable terms.

The latest, late-2011 MOU is understood to focus on providing a heavily cut down version of Lorenzo to a couple of dozen NHS hospital and mental health trusts. Under the original contract, over 100 NHS trusts were to get state of the art EPR systems.

CSC said until it closes talks for a possible contract amendment, it is unable to estimate the exact amount. The impairment could be equal to CSC’s net investment in the contract, which, as of November 30, 2011, was about £934m ($1.5 billion).

CSC said it expected to resume discussions with the NHS in the New Year.