Supplier Raytheon is suing the UK government for £500m for terminating an IT contract with the UK Border Agency.
Raytheon's contract to supply an immigration computer system was terminated in 2010.
According to the Telegraph, Raytheon UK CEO, Robert Delgorge, sent a letter to a Commons committee alleging the termination was unlawful. Delgorge added: "Raytheon is entitled to recover substantial damages for wrongful termination."
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In July last year the UK government sacked Raytheon, which was responsible for delivering the £750m e-Borders contract. The government said it had serious concerns about the running of the much-delayed programme.
However, Raytheon blames government officials for failing to make targets and objectives clear.
The e-Borders system will track the movement of people in and out of the UK's borders, and will involve checks being made against incoming passengers at their point of embarkation to see if they are on police and security watchlists. The system would also require integration with transport infrastructure, including firms running airlines and ports.
The decision to drop Raytheon was taken by home secretary Theresa May, although the project had been examined by the Efficiency Reform Group (ERG), set up in the Cabinet Office to review the progress and budgets for major projects.
Immigration minister Damian Green said: "The history of the programme was a succession of missed milestones, coupled with issues of quality." The ERG is looking at many large IT programmes across Whitehall, and this is the first to be targeted for such radical changes.
A UK Border Agency spokesperson said: "Last year we terminated Raytheon's contract because it was unable to deliver key elements of the e-Borders programme. The contract has now been transferred to alternative suppliers. e-Borders continues to reduce the risk of terrorism, crime and immigration abuse."
Raytheon said: "We properly and legitimately responded to a request for information from the Home Affairs Committee Chairman. However given that we are, as the report accurately states, in the midst of an arbitration, and that arbitration is confidential, it was would not be appropriate for us to comment further."
"Last year we terminated Raytheon's contract because it was unable to deliver key elements of the e-Borders programme. The contract has now been transferred to alternative suppliers. E-Borders continues to reduce the risk of terrorism, crime and immigration abuse."