CSC, which was this year roundly branded by government committees as a failure for its dismal performance on the NHS National Programme for IT (NPfIT), is set to be paid £2 billion more and given an extended contract.
As each income tax payer in the UK faces a £77 bill for CSC, the IT services firm delivered what sources described as a 'veiled threat' to the government over the costs of any potential cancellation. In a regulatory filing with the US Securities and Exchange Commission it said there was "no existing right" for the NHS to terminate the contract, and added that it could seek to recover hundreds of millions of pounds in court.
After delivering patient record systems to only three health trusts in a decade, CSC is expected to receive the £2 billion cash payment, whilst giving a £7 million golden handshake to its retiring chief executive who managed the performance. An agreement is on the table but has not been signed.
In an indication that the government is unwilling or unable to follow the parliamentary committee advice that cancelling CSC's contract may still be the cheaper option, ministers seem set to make the payments and extend the contract. This is after announcing with great fanfare in September that the project was over.
The Department for Health declined to give any explanation for the expenditure. The Cabinet Office also failed to answer the question, saying only that "major government projects have not always delivered what they set out to achieve", and adding that the Major Projects Authority - which recommended the end of the project - was created to deal with the problems. It did not respond to questions on why a project it officially cancelled will cost £2 billion more.
CSC, which is embroiled in several high profile fraud investigations and investor lawsuits, declined to explain the costs. It said it had a "strong and continuing commitment" to the NHS.
In papers filed with the SEC – which is investigating alleged fraudulent accounting by CSC in the Nordics – the company continued to assert it intended to sign a new agreement with the government, even though the conclusion of talks may not be successful.
While the contract scope was set to be reduced and there could be "no assurance" of a deal being agreed, CSC told investors that the agreement on the table "anticipates that the contract term will be extended one year to June 2017 and the company estimates revenue of £1.5 to £2.0 billion over that remaining term".
In spite of CSC spending £909 million on the scheme so far, the company said with the new agreement "the contract remains profitable and the company would recover its investment".
At a hearing of the Public Accounts Committee in May, the then-head of the project Christine Connelly told parliament that the scheme could not sensibly be cancelled – because the legal and other exit costs would take total expenditure past CSC's £3.1 billion deal.
The claim was branded as "rubbish" by IT expert Anthony Miller of TechMarketView, and PAC member Richard Bacon MP described it as an unreasonable line of argument used to keep CSC on board.
As the largest civilian IT programme in the world, NPfIT represents a significant chunk of CSC revenues, and the company is determined to limit the repercussions of any failure from its near billion pound investment in the scheme.
CSC told investors in the regulatory filing that if the NHS terminated the contract "for convenience" it would owe "significant termination fees" and would be "subject to claims by the company" over costs.
It said it believed the NHS "will consider costs and risks that [it] may incur over and above those related to termination fees, damages and costs that may be payable to the company and the associated legal processes", including hiring another IT company, operational risk, and transitioning services to another supplier.
CSC expects it could recover up to £430 million for the period to 30 September – under a contract cap – as well as further cash for each year after that, based on damages due to delays and costs.
Outgoing chief executive Mike Laphen is set to be handed a £7 million payment upon his impending retirement, the Times newspaper reported today.
Laphen's quarterly assurance to investors – that the programme was performing well – has also come under scrutiny. A large Canadian pension fund that owns many CSC shares, the Ontario Teachers' Pension Plan, is suing the company, claiming it deliberately gave a false picture of the programme's prospects.
Meanwhile, the UK government has been advised to reconsider whether CSC is fit for any more public sector IT projects.