NHS pays £200m advance to CSC as contract renegotiation nears conclusion

The NHS has paid £200m to troubled supplier CSC as an advance against contractual charges that were not due to be paid until the company's 2012 financial year.

CSC also revealed in an annual filing to the US Securities and Exchange Commission (SEC) that it has almost completed negotiations with the NHS over a £764m reduction in the value of its controversial £2.9bn deal to supply electronic patient record systems.

The document laid bare the financial impact of CSC's much-delayed contract as part of the NHS National Programme for IT.

Discussions have been underway on changes to the contract since the new government said last year it required better value for money from its IT partners, and due to ongoing problems with delivery of the project.

CSC said the contract value is likely to reduce by £764m, but will be extended by a year to June 2017 - although the deal is awaiting "final government review and approvals".

But the filing also reveals that the NHS paid the firm £200m on 1 April 2011 as an advance against forecasted charges due to be paid in 2012. The payment is dependent on successful agreement of changes to the contract and on future performance of the supplier.

"On April 1, 2011, pursuant to the contract, NHS made an advance payment to the company of £200 million related to the forecasted charges expected by the company during fiscal year 2012," said the SEC filing.

"The advance payment is secured by performance bonds obtained by the company. The advance payment arrangement provides, as one of its conditions, that the company could be required to repay the advance payment upon NHS demand on September 30, 2011, if the parties are not progressing satisfactorily toward completion of the expected contract amendment."

The document also makes repeated references to reductions in profitability for CSC, due to the renegotiated contact value and the effect of delays to its contracted deliverables which mean that expected payments have not been received.

The filing highlighted a $46m revenue decline in the 2011 fiscal year due to such delays, and warned that failure to conclude a satisfactory resolution to the current negotiations "could materially adversely affect" the company's financial performance.

CSC also warns that if it does not agree a contract amendment with the NHS, it could face legal action over breach of contract - but could also seek damages against the NHS in return.

"If a contractual dispute or litigation ensues, the outcome is uncertain and there can be no assurance that the company would prevail or that the NHS would not obtain a judgment and a material reward of damages against the company which could have a material adverse effect on the company's financial statements," said the SEC filing.

NHS CIO Christine Connelly warned last month that the CSC contract could cost more to cancel than to complete, but insisted that the deal still provides value for money.

Read an exclusive interview with NHS CIO Christine Connelly about what went wrong - and right - with the National Programme for IT >>