The government has held out a lifeline to embattled supplier CSC over its disastrous effort to provide systems for the National Programme for IT in the NHS (NPfIT).
CSC, which has struggled to deliver Lorenzo-based electronic patient record systems to the NHS, took a £1 billion write down on its contract at the end last year, as it looked like the government would pull the plug on its CSC contract.
Under a new deal now being negotiated, CSC may be able to get back some of the cash it was forced to write off in December.
CSC signed a “non-binding” letter of intent with the Department of Health which it hopes to be transformed by the end of March into a "set of high-level principles" that form part of a binding framework.
CSC says that, should a new binding agreement be reached, the NHS would commit to a minimum number of trusts that would take the Lorenzo system, including some that would be named.
This raises the potential for renewed conflict between trusts, the NHS centrally and CSC. The NHS has said that trusts themselves will decide whether they adopt Lorenzo or not. A spokesman insisted, "The agreement we have negotiated gives choice to trusts about taking this software, rather than imposing the decision on NHS organisations. This is in line with the government's overall approach to the NHS."
However, with the government being told that the cost of cancelling the CSC contract was higher than continuing with it, the potential exists for the government to be left paying for systems no one wants. Equally there could be pressure put on local NHS organisations to adopt unwanted systems. Many NHS organisations may feel that they don’t have the budget to adopt alternative systems if they reject those centrally agreed by the Department of Health.
CSC, for its part has made plain that there is no guarantee that an agreement with the NHS will be made, but if it is, it “contemplates that a mutual release of all accrued claims with respect to the Lorenzo deployments will be included as part of the interim agreement".
The company spelt out what this could mean for shareholders. In a filing to US regulatory authorities, it stated, “Based on the terms of the letter of intent, it is reasonably possible that the interim agreement and the amendment, if concluded, could result in a payment for the recovery of a portion of the amounts that have been written off as of December 30, 2011, and therefore could generate a gain.
“The letter of intent also contemplates that the interim agreement will provide for a structured set of payments following certain product deliveries, as well as additional payments to CSC, which would cover, among other items, various deployments for the named trusts and payments for work already performed. Any payments would be made only if the binding interim agreement is entered into by the parties.”
CSC will be anxious to get money from the NHS. It is facing cancelled projects, investor lawsuits and an aggressive fraud investigation, and is planning to make nearly a third of its entire UK healthcare employees redundant.
In addition the company is experiencing an accounting scandal and deepening financial problems in the Nordics and Australia.