The Department for Work and Pensions (DWP) has cancelled its desktop support contract with Fujitsu before it passed to the supplier from incumbent HP.
HP lost the £300,000 contract to Fujitsu Services last year as part of an IT overhaul at the department.
A spokeswoman from the DWP says the contract was cancelled on 11 March and the department will continue to use services provided by HP in the interim.
Fujitsu was to provide support and services to 140,000 desktops across the UK as part of the deal, and had planned to use thin client technology to cut the DWP's IT costs.
Although the contract with Fujitsu did not get off the ground, the company has clearly spent money in development, a spokesman from Fujitsu says.
The company said in a statement: "Fujitsu can confirm that it has received notification from the Department for Work and Pensions (DWP) that they wish to bring the desktop contract, awarded in February 2010, to an end. We are not able to provide any further comment at this stage."
The news follows an announcement that the government will cancel 32 projects as part of an efficiency drive from the Cabinet Office.
Outsourcing expert Lee Ayling, a partner at KPMG, says the government will be looking at the economics of current contracts. "A lot has changed since the DWP deal with Fujitsu was signed," he said.