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The £12.7bn NHS National Programme for IT is on the brink of collapse, with the next key hospital implementation facing possible failure, according to an in-depth report.

Failure by CSC to deliver a patient administration system at Morecambe Bay could result in a legal battle with the supplier, potentially worth billions of pounds, The Guardian newspaper reported. Testing at the trust in recent weeks was believed to have failed.

The Department of Health had set a target of the end of this month for CSC to have a useful working example of the iSoft Lorenzo system in place at Morecambe Bay, a large hospital with an Accident & Emergency setting. Andrew Spence, CSC’s UK director of healthcare strategy, told Computerworld UK in recent weeks that the company was “ruthlessly focused on getting things right” at the trust.

The government had threatened that missing the target could lead to CSC losing its contract. iSoft, the software manufacturer partnering with CSC, insisted last week in a financial report that the Morecambe Bay implementation was running on schedule.

But press reports have suggested the date is slipping. While a new deadline has apparently been pencilled in for early April, health website E-Health Insider said sources claim “a meaningful go-live” will not come until “later this year, and possibly much later” than that.

If CSC and the Department of Health fail to agree that a working system is in place, and enter a legal battle, it would put 80 percent of care records contracts “in the hands of lawyers”, the Guardian noted. A reported £700m legal case continues with Fujitsu, the supplier that left the programme in 2008. Accenture, another supplier, quit a year earlier.

As of one year ago, CSC had only been paid £784m out of its £3bn contract, because of delays to system rollouts – payment is only made to suppliers when systems are delivered.

The only other contractor left, BT, had been paid £326m, compared to an original expectation of £1bn, for its own rollout delays in London. BT’s latest equivalent system implementation, at Kingston Hospital last November, has been assessed by the Department of Health but a decision on the usefulness of the system in practice has not been publicly disclosed.

The government is attempting to renegotiate the contracts with both CSC and BT. The Conservative party claimed earlier this month that renegotiated contracts could effectively tie the hands of a future government by introducing cancellation clauses worth “billions of pounds” to the suppliers.

A “back room compromise” may be reached with CSC, the Guardian noted. This would slash the functionality of patient administration systems and even reduce the number of trusts in which CSC will install the software.

The Department of Health and CSC had not responded to requests for comment at the time of writing.

The government has already announced it will cut £600m from the National Programme. But with chancellor Alistair Darling’s open criticisms of the scheme last year as "something that I think we don’t need to go ahead with just now", observers are anticipating whether this week’s Budget will see even tougher reductions to NHS IT.