The Financial Services Authority (FSA) has signed an IT outsourcing deal with Fujitsu Services for £80.8 million – more than four times the original estimated value of the contract.

The financial industry watchdog is outsourcing its core IT functions, which are understood to include infrastructure services including hosting for 350 servers, provision of network services and support for the authorities 3,200 desktops.

The deal comes at a crucial time for the FSA, which is set to see its regulatory powers increased with implementation of the European Union’s (EU) Markets in Financial Instruments Directive (Mifid), which comes into force in November. Last month, the FSA signed a £16.6m, seven-year contract with Detica for an intelligence system to support its Mifid work.

The contract award notice filed with the Official Journal of the EU does not specify the precise scope of the deal, nor its duration.

The contract has escalated enormously in value since the tendering process began in August 2005, when the value was estimated at between £15m and £20m. At that time, eventual savings from the project were anticipated to be comparable with costs.

The outsourcing project is also running a year behind schedule – the initial contract notice stated that the arrangement was "expected to commence in April – July 2006".

Around 100 staff are expected to be transferred to Fujitsu under the terms of the deal.

The outsourcing deal follows application development contracts signed by the FSA last August with Capgemini, Tata Consultancy Services and Xansa.

Together, the outsourcing deals make up the FSA's project Delta, an IT overhaul launched after an independent report slammed the watchdog's IT department.

The report, commissioned by FSA IT director, Darryl Salmons from consultancy firm Orbys in 2005, found that the FSA's IT department cost more than twice as much for its size as those at the finance houses the watchdog monitors.

The department was ranked as poor or very poor on the seven criteria used to measure its performance. But Orbys, which praised the FSA's IT staff and their technical skills, blamed the poor performance on the authority's management, saying the business did not fully understand the complexities of implementing IT and had no agreed definition of what it required from the department.

The deal is an important one for Fujitsu Services, which has hit problems in some of its major public sector contracts. Slow progress of NPfIT in the southern region where Fujitsu Services is the lead contractor was recently revealed in a parliamentary written answer that showed the firm had completed just £27m worth of work – less than 10% of the £287.5m paid out to contractors in the other four regions.

In February, Fujitsu lost its Libra contract to provide a new case management system and infrastructure for magistrates' courts, when the contract for the long-delayed and troubled systems was split in two and awarded to Atos Origin and LogicaCMG.

And last month, the IT services firm's parent company Fujitsu cited a fall in value of the UK subsidiary as a key factor behind forecast losses of £1.2 billion for the 2006 financial year.