The extension pushes up the value of the contract, which came into effect in 2000, from £680m to £929m. Customs & Excise said the additional spending would support the department's long-term e-business strategy, including the development of an electronic customs declarations system.
"When the contract was awarded in 1999, contract change controls were put in place - this was designed to ensure that once the e-programme had been developed and defined we would be able to revise the contract accordingly," a spokesman said.
When the initial contract came into effect in 2000, Customs & Excise was preparing its first e-business strategy. However, a draft strategy document at the time admitted that the Customs IT infrastructure was "unsuitable for e-business", and that the upgrade was " the area of greatest risk" in the department's plans to meet Tony Blair's 2005 e-government target.
The contract extension announced on 14 August could also support future integration with other government departments, the Customs spokesman said. Last month the Treasury announced a major review of the Inland Revenue and Customs and Excise.
One suggestion has been to create a "Ministry of Finance", which could see the merger of both departments' IT systems
Both the Inland Revenue and Customs have a mixture of old and new IT systems and both rely heavily on Fujitsu (formerly ICL) mainframes, which use the proprietary VME operating system.
The Customs & Excise spokesman said, "This contract revision will make links with other government departments easier, depending on the outcome of the review."
Fujitsu, with its consortium partner Cap Gemini, was shortlisted last month for the £4bn Inland Revenue IT contract, against the incumbent suppliers EDS and Accenture.