BT writes off £340m as it reviews major IT contracts - full details

BT Global Sevices has been reviewing its largest and most complex contracts including its work...

BT Global Sevices has been reviewing its largest and most complex contracts including its work for the NHS's National Programme for IT (NPfIT).

It comes as the company seeks to cut costs in the light of disappointing financial results. Global Services is the BT division that manages large contracts with multinational organisations and the NHS, for IT, outsourcing and telecoms services.

The reviews have involved contracts with the NHS, Swisscom, Reuters, Inbev, Credit Suisse, Nestlé, Visa, Fiat, Unilever, Procter and Gamble and the Department for Work and Pensions.

BT says it has reviewed 15 of 17 major contracts and has written off £340m as a result. It is not saying what contracts are the subject of the write-off.

The write-off was announced in a company trading update statement yesterday, which led to a drop in its share price of about 9%. The share price was down a further 2% this morning.

BT has yet to review two other contracts, one of which is its £1bn deal as a local service provider to the NHS as part of the NPfIT. The review could lead to further write-offs by BT.

Its contract to supply unified systems to the NHS in London has been dogged by years of delays.

Some of the London trusts that have taken from BT the Cerner Millennium Care Records Service have had disruption to the running of the hospitals, and to the care and treatment of patients, after go-live. The problem sites include the Royal Free, Barts and The London and Barnet and Chase Farm.

Trusts are putting on hold deployments of new hospital systems from BT while the lessons from the Royal Free are learned.

A further potential issue for BT on its NHS work is that semi-autonomous foundation trusts in London may produce business cases to buy outside of the NPfIT - and not necessarily from BT. Most if not all acute trusts in London are expected to become foundation trusts.

In 2003 when BT signed contracts with the NHS, the Department of Health had been working on the assumption that all hospitals in London would install BT's systems. Despite the lack of deployments, BT has invested in advance in systems for trusts. It is paid only after trusts accept its systems.

Another local service provider, Accenture, has already quit the NPfIT with large losses, and Fujitsu, the local service provider for the south of England, has had its contract ended. Fujitsu's losses are said to run into millions of pounds.

If BT and the Department of Health were to part company over the London local service provider contract that would leave CSC as the only remaining local service provider. Already there are concerns about whether CSC and BT can cope with their workloads under the NPfIT.

A BT spokesman confirmed that the NHS is included in its list of 17 major projects that have been reviewed or have yet to be.

The spokesman said that the reviews involve challenging assumptions made when the contracts were signed and the cost savings that were hoped to be delivered.

Specialists working on the NPfIT say BT is likely to have made money on the N3 network, the data spine and supplying "community" health systems to support services such as child health.

Analyst Richard Holway of Techmarketview quotes in his blog today an editorial in The Times, which said: "It appears that for the past three to four years, the global services arm [of BT] underpriced contracts, overestimated the cost savings it could make and then failed to deliver them"

Holway added: I think that's pretty much exactly what happened."

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