EDS settles contract dispute with U.K.'s NHS

The 10-year, $164M pact with EDS was terminated March 1

The U.K. National Health Service and Electronic Data Systems Corp. have reached a settlement after the NHS pulled out of a deal for the Plano, Texas-based company to supply a secure e-mail and directory system.

Both sides said this week that an amicable settlement had been reached but that the terms of the deal are commercially confidential. According to local media reports, EDS will receive a settlement payment of $16.45 million to be paid mostly by U.K. taxpayers. Cable & Wireless PLC, the London-based company retendered in July to manage the NHS e-mail and directory system, will also pay an undisclosed sum to EDS for assets needed to take over the contract.

The NHS National Program for IT terminated the original 10-year, $164 million contract with EDS on March 1, citing unacceptable delays and other concerns related to the project, such as poor uptake by NHS staff. EDS had threatened to sue the NHS for $18 million for breach of contract.

EDS was awarded the contract in September 2002, just before the appointment of Richard Granger to the post of director general of NHS IT, to provide the IT infrastructure and service support, as well as 24-hour telephone and online support, to all 1.2 million NHS staffers. At the time, the NHS, a government-run organization providing health care to all U.K. residents and the largest employer in Europe, had about 7,000 different e-mail services in operation.

"Since termination EDS has continued to provide [its e-mail service] and the NHS National Program for IT wishes EDS to continue to do so until handover to Cable & Wireless," a spokesman for the NHS said in an e-mail response to questions yesterday. "As part of this settlement, arrangements for continuity of service and handing over the service to Cable & Wireless have been agreed so there will be no interruption of service to the NHS."

That existing service is built around Sun Microsystems Inc.'s Sun Open Net Environment messaging platform with a Web-based front end, while IBM's Directory Integrator product provides integration with other NHS directory services.

The new contract with C&W spans nine years and is valued at $53.6 million, based on the number of users the company will initially support. Under the first phase of its contract, scheduled to begin in September, C&W is due to roll out the system to 65,000 users, including the 25,000 who are currently using the EDS system. When C&W secured the contract in July, a spokesman said that it expected the e-mail service to become fully operational in the fourth quarter of this year, and once the system is available to the entire NHS workforce, the contract will be valued at between $91.5 million to about $165 million.

EDS has recently faced a number of contractual setbacks in the U.K. On Tuesday, London-based British Sky Broadcasting Group PLC (BSkyB), the U.K.'s largest digital TV service provider, announced that it filed a legal claim against EDS for "deceit, negligent misrepresentation and breach of contract" in relation to its contract to provide a CRM system for BSkyB's call centers.

EDS denied the charges and said that it, not Sky, ended the deal in December 2002.

In December of last year, EDS lost its outsourcing contract with the U.K.'s tax authority, the Inland Revenue, which it had held with Accenture Ltd. since 1994, after very public problems with the launch of the government's tax credit plan. Instead, the Inland Revenue awarded the 10-year, $5.4 billion IT outsourcing deal to Cap Gemini Ernst & Young and Fujitsu Ltd., saying at the time that the new deal offered better value for the money.

EDS also lost out on other NHS contracts, including a contract awarded last year to BT Group PLC to design and install a patient-record system.

Scarlet Pruitt of the IDG News Service in London contributed to this report.

Copyright © 2004 IDG Communications, Inc.

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