BT Group has confirmed a £336 million write down on IT contracts at its troubled global services consultancy arm in its Q3 results.

Profits at BT plunged in the last three months of 2008 after management were forced to write down the value of 15 of its 17 largest IT contracts.

The move had been pre-announced on 22 January.

BT chief executive Ian Livingston warned investors an ongoing review of its final two contracts "may result in further substantial one-off charges in the fourth quarter".

The contract review will involve a "reassessment of the estimates and assumptions associated with certain major contracts and have been conducted jointly with external advisers," BT said.

BT has not named the two outstanding contracts, but one is believed to be a five-year outsourcing deal with Credit Suisse, while the other is the multi-billion pound deal for the NHS National Programme for IT (NPfIT), which has hit major difficulties.

BT holds three major deals in the NPfIT scheme, worth a combined £2.4 billion, according to the National Audit Office (BT). This includes a deal to roll out the NHS summary care records application in London where the deployments have experienced major delays.

Under the terms of NPfIT contracts, suppliers such as BT only receive payment on delivery of systems. In four years BT has earned only £191 million of the estimated £1.08 billion value of the 10-year IT contract for London, according to the NAO.

Roll outs in the capital have resumed after technical faults in some London hospitals brought deployments to a halt.

Last week NHS London and the NHS London Programme for IT gave BT the green light to re-commence deployments in the capital, despite known problems at two London trusts - Barts and The London and the Royal Free Hampstead. These two London hospitals found they were unable to track some patients. The problems resulted in millions of pounds in extra costs.

The chief executive of Royal Free, Andrew Way, has publicly criticised the IT system for patient records, which has left a £10 million gap in costs.

BT is understood to be renegotiating its contract terms with NHS Connecting for Health and seeking to further expand its NHS role into the south of England.

BT is one of the two remaining main suppliers for NPfIT of an original four, after Accenture and Fujitsu left the programme.

The NPfIT contracts have also come under scrutiny recently, as MPs accused the NHS of handing over eight IT contracts to BT without a proper tendering process.

Veteran analyst Richard Holloway said: "BT’s review must decide what BT Global Services is for and either acquire (extremely unrealistic!) or divest accordingly."

BT said the charges in BT Global Services are "primarily due to high costs and the slow delivery of cost savings, the continued decline in higher margin UK business, changes in assumptions and estimates on some major contracts and the negative effect of foreign exchange movements".

Gartner research vice-president Scott Morrison said BT’s results show that tighter financial controls are having a positive impact on the majority of the business. But, as Global Services continues to become a more significant part of the total business, what happens there will impact the business as a whole.

"BT Global Services is paying the price for poor decisions made in the past. The desire of the new management to reach a clean slate by the end of the current financial year has led to some re-engineering of current contracts, and while some costs have been taken out of Global Services – notably a reduction in total staff numbers - the underlying cost base has continued to rise," said Morrison.

Gartner expects BT to make further cost cutting efforts, "not just in people but in systems consolidation and rationalisation".

BT will also become "more picky about projects it goes after".

"We would expect to see a rationalisation of types of products and services Global Services brings to the market, and the way in which it supports customers internationally, focusing more on the service layer where it can control margins, and less on the underlying 'plumbing' of the network, where it is beholden to third party suppliers," said Morrison.

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