The Identity and Passport Service has been forced to write off £5.5 million of software development costs after the failed launch of its EPA2 electronic passport application system last year.

The government agency began development of the EPA2 system with contractor Siemens Business Services in 2004 and launched a live pilot of the service in one regional office in May 2006.

EPA2 was intended to allow electronic transmission of applicants’ details to a new back-office system, known as ePASS, to support online credit card payments and to enable applicants to print out a form to sign and mail back to IPS.

But the system began to go badly wrong shortly after it was switched on, with procedures that should have taken seconds taking several minutes, creating a backlog of thousands of applications.

Other passport applications became stuck in the system because of software defects or user error.

In its annual report and accounts for 2006-07, the IPS states that it took a £5.5m hit in impairment charges after a write-down of the software development costs associated with EPA2.

“This was required as the project has changed its scope and as a result some of the development will no longer be used,” the accounts say.

Residual hardware and development work worth £4.2m could still be used in EPA2 and other IPS projects, the documents add.

In its report on the lessons learned from the project, the IPS said major changes to the passport application processing system had brought significant changes and made the system “progressively more complex to build and test”.

The IPS is now attempting to simplify the EPA2 specification before relaunching the system. Siemens is carrying out the work at no extra cost.

But the accounts reveal that overall outsourcing service costs for the IPS have shot up over the year, rising from £48.9m in 2005-06 to £86.6m in 2006-07.

The charges include payments to Siemens for initial receipt, cashiering and data capture of passport applications and to 3M SP&SL (formerly the Stationery Office) for manufacturing, personalisation and issue of passports.

The agency extended its 10-year contract with 3M SP&SL for two years in 2005 to cover work on biometric passports and is expecting to extend Siemens’ contract for a year “to allow for a robust procurement and safe transition to a successor arrangement”.

IT running costs have also increased sharply from £7.4m to £11.9m, the accounts reveal, while an audit has uncovered weaknesses in the agency’s IT disaster recovery strategy. These are to be tackled through an action plan, the annual report says.

The accounts also reveal details of spending on the government’s controversial £5.3bn ID cards programme.