Feature

Fujitsu won £800m Post Office contract after misrepresenting itself, says lawyer

High Court claim by ex-employee makes damning accusations

Tony Collins
By
Published: 28 Apr 2003
High Court claim by ex-employee makes damning accusations

Fujitsu won a new £800m contract from the government after misrepresenting itself as an innocent victim of Whitehall duplicity, a lawyer who spent 10 years working in the company's legal department has claimed.

The solicitor, who is a member of the New York and US Supreme Court Bars, also claimed that Fujitsu routinely entered into contracts it "could not possibly fulfil".

The accusations were made by Warren Spencer, a senior executive at ICL, now Fujitsu, in a claim filed in the High Court after the company dismissed the lawyer. Fujitsu denies all of Spencer's allegations.

Spencer claimed he had been marginalised by his employer after he refused to participate directly in a pretence that the Pathway computer disaster was due to the unforeseeable bad behaviour of the customer, the Department of Social Security (now renamed the Department for Work and Pensions).

Spencer claimed Fujitsu's chief executive Richard Christou was "incensed by the claimant's [Spencer's] candour" when briefing legal firm Masons in preparation for large-scale litigation. With the customers claiming the supplier had defaulted on the contract, and Fujitsu facing a loss of hundreds of millions of pounds on the £1bn Pathway project for the DSS and the Post Office, Christou engaged Masons.

When instructing Masons, Spencer claimed that, knowing what he did, he "would find it ethically impossible to participate directly in the pretence that the [Pathway project] disaster was due to unforeseeable bad behaviour on the part of the DSS, which was the defendant's [Fujitsu's] only route to survival".

He further claimed, " Mr Christou's misrepresentation of the defendant [Fujitsu] as an innocent victim of DSS duplicity proved far more successful than anyone in the company had believed possible. In return for accepting a one-time £180m write-off on the original contract, the defendant was given a new, highly profitable contract, with opportunities for significant additions and extensions." In due course, Fujitsu's chairman Michio Naruto, chairman of the board of ICL, "even received a CBE for services to UK-Japan trade", Spencer alleged.

If Spencer's claims are proven in his action against Fujitsu, it could raise new questions about why, in 1999, the government ended a private finance contract in which significant risks were passed to Fujitsu, and awarded the supplier a new, more conventionally funded £1bn deal which carried fewer risks. The new deal to computerise about 18,000 post offices did not go out to open tender.

The Trade & Industry Select Committee investigated the failure of the Pathway contract, which it described as "the largest IT disaster ever for the government" and said there was no shortage of competition.

On the new deal awarded to Fujitsu in 1999, the committee said, "Éthe impression remains of an essentially political deal to ensure that ICL has a substantial contract with the Post Office, at a price which seems to have been largely determined in advance of contractual renegotiations, as a means, however inadequate, of making up some of the £180m written off by ICL in its 1998-1999 accounts."

Under the original PFI deal awarded in 1996 to Fujitsu - for which it was the cheapest bidder - the supplier would fund new automation for post offices and also provide a swipe-card system as a means of paying welfare benefits. Fujitsu would recoup its outlay on the basis of how much the system was used, so there was no certainty that it would recoup its costs or make a profit.

The original contract was scrapped in 1999 before new systems could be delivered to all post offices. More than £100m in taxpayers' money was written off.

Even so, Fujitsu was awarded a new contract, worth between £600m and £1bn, to computerise post offices, without having to deliver the swipe-card systems, and at much lower risk to the supplier because payment was no longer to be linked to transaction volumes. This new contract was "to Fujitsu's great advantage", said Spencer in his legal claim.

In pre-contract negotiations with the government on the original Pathway deal, Spencer said the "proposed contractual terms and conditions remained the most onerous" he had seen.

Spencer claimed he repeatedly advised Christou against signing the contract. He said Fujitsu's bid team made a unanimous recommendation to Christou that the supplier cease to pursue the project.

He also claimed that Fujitsu was deliberately misled by ICL over the risk involved in the project. Christou is alleged to have told Spencer that winning Pathway might very well lead to the company's demise but that continued failure to win major contracts definitely would lead to its demise.

A spokesman for Fujitsu Services said, "ICL senior management reviewed the proposal for the Post Office contract in the light of all relevant considerations. The matter was discussed with Fujitsu, which supported all the proposals. We are contesting Mr Spencer's claim."

In its defence to the High Court, Fujitsu said, "This claim is frivolous, vexatious and an abuse of process."

A date for the hearing has been set for October 2003.

Read more on IT legislation and regulation