Cabinet Office rings up cost-cutting deal with BT

The government has signed a Memorandum of Understanding with BT that is aimed at cutting costs for IT and networking.

BT is the latest of nine companies to sign such an agreement, following similar deals with suppliers including HP, Oracle, Microsoft, Siemens, Atos Origin, Accenture, Logica and Capgemini.

BT's largest contract is understood to be an ongoing networking deal with the Ministry of Defence for the Defence Fixed Telecommunications Service, due to be worth approximately £3.2 billion, including a recent contract extension made public in September.

Arguably the company's most well known deal is on the controversial NHS National Programme for IT, with around £1 billion allocated to delivering patient administration systems to trusts, and a further £1 billion allocated to the NHS N3 broadband network and the NHS ‘spine’, or database, of patient records.

It also has a large deal with the Department for Work and Pensions, delivering voice, data and contact centre systems. This was extended in February for three years, with a minimum value set at £237 million.

It is not known how these contracts will be affected by the change. In March, BT agreed to carve £112 million from the total value of its NHS contracts, in return for delivering a reduced scope. Both BT and the other lead national programme supplier, CSC, have experienced troubled early rollouts of their systems. Last month, the Department of Health announced it was decentralising the programme, but the total contracts remain in place.

BT earns around 10 percent of its global revenues from the public sector in Britain. It did not give more details on how much the contracts would change, suggesting only that it was making “no change” to its “overall" financial outlook.

What is known, is that as with the other suppliers that have signed similar MoUs, BT will retain its contracts. It is expected that savings could include the government buying as a single supplier instead of as different departments, but it remains unclear whether work will be rescoped or slowed down on any of the contracts - two steps analysts have highlighted as possibilities.

BT Global Services, the company’s IT services division, has moved aggressively in the last year to turn itself around and slash its own costs, by taking steps including cutting nearly 5,900 jobs as part of a total group cull of 35,000 people. Following the signing of the MoU with the government, Jeff Kelly, chief executive at the IT unit, said: “Having found efficiencies in our own business, we have considerable experience which can help the government meet its efficiency objectives.”

Copyright © 2010 IDG Communications, Inc.

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