NHS sees £100m reduction in exposure to CSC contracts

The Department of Health’s (DoH) financial exposure to its toxic contracts with troubled NHS supplier CSC has decreased by £100m in just three months.

In CSC's latest quarterly results, the outsourcer estimated that if the NHS were to terminate its entire £2.9bn contract with CSC it would cost the government a maximum of £329m in fees as of 29 June 2012. But in the company's previous results statement, CSC said if the NHS had terminated the entire contract as of 30 March 2012, the termination fee would have been capped at £430m.

The figures suggest a continued winding down of the contract between DoH and CSC, with the organisations currently locked into lengthy contract renegotiations due to be resolved by the end of August. The original date for signing the renegotiated interim agreement was due to be 31 March, but the timetable has so far been twice extended.

The DoH said it was unable to comment on the reduction in termination fees because of the negotiation process underway.

In its results CSC said it lost $97m (£62m) in the NHS contract in the first quarter of the year. The company saw total sales fall by 2% to $3.96bn. 

In February CSC had to write off $1.5bn after its continued failure to meet a 2007 deadline to deliver its Lorenzo patient records software to NHS trusts across two-thirds of England.

Robert Morgan, director at sourcing broker Burnt-Oak Partners, said it is likely the termination fees will drop further as negotiations continue.

He said the two organisations were locked into a tit-for-tat situation. “The termination fee will continue to reduce as they negotiate the terms and conditions, transfer liabilities, and write [assets] off the books," said Morgan.

“CSC’s main mission will be to retain as much of the £329m as possible while at the same time getting out of obligations with the government.”

Morgan said it was unlikely that CSC and the DoH would meet the latest agreement deadline at the end of this month: “This is hugely complex and controversial, with a lot of vested interests involved. It’s a war of attrition and they’ll probably keep extending the deadline for some time.”

CSC has repeatedly warned shareholders that there can be no assurance that an agreement with the NHS will be concluded by the August deadline, or that the terms of any such agreement would be favourable to CSC.

The DoH is also "seeking clarification" from CSC over allegations the supplier was involved in the illegal rendition of European citizens in the US "war on terror".