EDS gets £9m compensation for cancelled NHS e-mail contract

Size of settlement raises questions about government’s reasons for terminating the contract

IT services supplier EDS is to receive £9m in government compensation and other payments after the Department of Health prematurely ended its contract to supply a secure e-mail and directory system to the NHS, Computer Weekly has learned.

The contract was terminated in March, less than two years into a 10-year deal, amid criticisms of the system by some users and the Department of Health, which said it was not as widely used as expected. It had about 65,000 users among the NHS’s 1.2 million staff.

A replacement contract has since been signed with Cable & Wireless, which will go live with its service in October. EDS will continue to provide the e-mail and directory service until then.

The size of the settlement won by EDS raises questions about whether the contract was terminated purely on the grounds of the disappointing level of usage of the system, or whether the government was concerned with the ease of use of the system and wanted to replace the deal with better terms and a tougher agreement with a new supplier.

If other suppliers interpret the settlement with EDS as an acknowledgement by the government that it ended the contract in part for its own convenience, it could deter some international firms from bidding for large-scale public sector IT deals in the UK, said Paul Goss, director of consultancy Silicon Bridge Research.

EDS’s contract reportedly contained a standard clause which allowed the deal to be terminated at the NHS’s convenience, for any reason and at a cost of almost £11m in compensation. The £9m won by EDS is therefore not far short of what it would have been paid had the contract been cancelled for the convenience of the government.

Some users of EDS’s e-mail system that Computer Weekly spoke to were unhappy with it but were surprised that the contract was cancelled. They said the system lacked features such as archiving but one senior representative of users said, "We would expect these sorts of problems to be worked through."

Although it alleged that EDS breached parts of the contract, the Department of Health did not pursue its allegations in court. Instead the dispute was settled in private mediation with no attribution of blame on either side.

The settlement means EDS will receive payment of its outstanding invoices and an indemnity against the actual costs of any redundancies it makes because of losing the deal. It will also receive what the government calls "payments in respect of costs relating to the conclusion of the project".

The government will pay most of the £9m, but Cable & Wireless will also pay an undisclosed sum to EDS for assets needed to take over the contract.

EDS and the Department of Health declined to comment.

Who is responsible for system take-up?

The £90m contract to deliver an e-mail and directory service to the NHS was awarded to EDS on 26 September 2002. When it was cancelled, a spokesman for the Department of Health told Computer Weekly, "There has been a low take-up of the services and therefore the contract is not delivering the value hoped for."

But new supplier Cable & Wireless said it was not wholly responsible under the new contract for how many people use the service.

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