HP is set to lose a desktop management contract with the Department for Work and Pensions, after Fujitsu was named preferred bidder for the deal.

The deal represented the largest part of EDS’s £3bn work with the DWP. EDS was acquired by HP in 2008.

Fujitsu now looks likely to take the deal, after being named preferred bidder, but the government will take its final decision early next month.

No value has been put on the new deal, but it is thought to be over a billion pounds. The government's contract negotiators told Computerworld UK in 2008 they were looking to cut the cost of the deal and that it would play a part in setting "new standards [for contracts] across the public sector”.

The news will be a welcome respite for Fujitsu, which two years ago exited an £896 million deal with the NHS for the National Programme for IT, reportedly after the cost of participating became excessive. Fujitsu already has a large contract with HM Revenue & Customs, as a subcontractor to Capgemini. In that deal the suppliers replaced EDS again.

It less positive for HP, which may take solace in the continuation of its hosting with the DWP, as well as its £7 billion Ministry of Defence DII deal, its largest public sector work.

Morale at EDS is reportedly heavily affected by extensive job cuts as well as a pay freezes, and in November HP narrowly averted a strike by 1,000 ex-EDS workers at the DWP. Fujitsu is also embroiled in its own strike, over planned redundancies, and changes to pay and pensions.

The DWP is set to put integration and application services work out to tender, and last year HP-EDS and Fujitsu both lost out on deals for ID cards and the biometric passport database.

Tola Sargeant, research director, at TechMarketView, said there “can be no doubt” that losing the deal is a “significant blow” to HP.

EDS’ work with the DWP has faced controversy in the past, after £450 million was spent on a failed Child Support Agency system, which had over 500 faults. HP could not immediately comment.

Fujitsu and the DWP did not make any statement.