The Ministry of Defence’s decision to award preferred bidder status in a £100 million a year payroll outsourcing contract to CSC was made on the basis of cost alone, and the company may not be able to meet its obligations under the contract, according to the PCS union.

PCS, which represents staff at the Service Personnel and Veterans Agency, has warned that industrial action against the proposed outsourcing could not be ruled out. PCS has significant concerns for members’ jobs and conditions if these costs savings are to be realised and delivered by CSC.

The decision to choose CSC has shocked MPs and analysts. The union has also cited Prime Minister David Cameron’s statement in May 2011 that the government has no plans to award CSC new contracts following the outsourcer’s failure to deliver satisfactorily on the NPfIT NHS IT modernisation programme. CSC has written off £957 million and has yet to settle its dispute with the government on the programme.

The union said: “PCS members have already adapted to significant change and it is impossible to consider further staff savings without significant changes to the IT systems.

“If CSC is expected to bring in new IT systems to deliver a more efficient approach to our work then the track record of CSC in delivering such new IT systems is significantly in question and poses a significant risk for the MoD, especially in light of the problems from the NHS IT contract.”

PCS cited the decision by Fujitsu to withdraw from the DWP desktop contract last year due to difficulties in meeting the contractual obligations. The union  has a great deal of experience in dealing with IT outsourcing and TUPE transfers and it is not unusual for a transfer not to go through as the preferred bidder has confused aspiration with ability.

The union will hold members’ meetings over the next few weeks to gauge feelings on the proposed outsourcing. It said “jobs and conditions will not be sacrificed to pay for the savings required by MoD and CSC.”

The MoD said CSC was selected because its bid represents “excellent value for the taxpayer through a significant saving on current costs, as well as providing a very strong technical solution to the needs of the MoD.”

HP holds the current contract and it is proposed to have a six-month transition period between CSC and HP from when the seven-year contract begins in November 2012.