Is CSC losing money on NHS IT?If CSC is in a hole should it stop...

Is CSC losing money on NHS IT?

If CSC is in a hole should it stop digging? asks Techmarketview

Published 12:42, 10 February 11

On 31 March 2010 the FT reported that "failing NHS supplier faces dismissal".

The FT's Nicholas Timmins said: "The biggest single supplier to the �12bn NHS IT programme [CSC] is on the brink of being fired from a key part of its contract after failing to meet a deadline to install systems at hospitals in the north-west."

Now, nearly a year later, the threat to CSC has apparently re-emerged. Techmarketview reports this week:

NHS considers terminating CSC �black hole� contract

Techmarketview says that while most eyes were transfixed by CSC�s Q3 �miss� and profit warning, "we were more concerned about the news that the implementation of Lorenzo Release 1.9 at Pennine Care NHS Foundation Trust has slipped and now won�t happen until mid-2011".

The article adds that the NHS has formally notified CSC that it considers it has breached its contract by missing a key milestone last month and is considering whether to terminate the contract - in part or indeed the lot.

CSC's NPfIT contracts are worth about �3.2bn. The Department of Health has been negotiating with CSC to sign a memorandum of understanding that reduces the total worth of the contracts by about �500m to �2.7bn.

Meanwhile, says Techmarketview, CSC continues to "pour money into the NHS programme with miniscule returns". The company is said to have invested a further $69m in the contract in Q3 for which it achieved the return of only $18m in revenue.

"As bad as this looks, it is at least better than the prior quarter when it invested $120m for $23m return...At what point, you might reasonably ask, might management take heed of the maxim, �if you are in a hole, stop digging�?

Could CSC quit the NPfIT and sue?

Christine Connelly, the DH CIO, may be worried that CSC, if pushed into a corner, will join Fujitsu in a joint legal action against the Department.

Fujitsu has been in legal discussions with the DH since it quit the NPfIT in 2008. In any legal action were to involve CSC, it is likely that CSC would have better records of what has happened to influence the contracts than the DH and Connecting for Health, especially given the many changes of staff and executives at DH and CfH.

The DH is at a further disadvantage in any legal action with CSC because government has a history of not taking major IT suppliers to court - largely because ministers don't like putting civil servants in the witness box, especially if they have moved onto different jobs. Or they may be former civil servants, having left government altogether.

It's noticeable that a legal dispute between Fujitsu and the DH has continued for nearly three years without any sign of court action.

On the other hand, Connelly is under pressure not to sign a deal with CSC merely to keep the supplier from quitting the NPfIT.

Last month Richard Bacon MP, a Conservative member of the House of Commons' Public Accounts Committee, warned Connelly, in writing, not to sign NHS IT deals with CSC or BT for now.

Bacon said that signing a deal now could breach civil service responsibilities...................

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CSC likely to keep its NHS IT contracts

Officials are threatening to end CSC�s NPfIT contracts - but the end is not in sight.

Published 09:53, 18 February 11

The Department of Health is doing the right things legally: on 4 February 2011 it notified CSC of a breach of contract, relating to a delay in achieving a milestone at Pennine Care NHS Foundation Trust.

The breach is disputed by CSC, so it looks as if the two sides are locked in a legal battle. Indeed it�s customary for the DH, when giving statements to the media, to say it will not discuss commercial negotiations. But this time a spokesman for the DH told E-Health Insider:

�We can confirm that the Department of Health is considering the options available under the current contract, including termination.�

Is this just macho talk, though?

Termination is not the desired option for either side, nor is it likely. CSC had to implement successfully Lorenzo at four named NHS sites to receive milestone payments and comply with its contract. None of the four sites has signed off acceptance - and indeed there is no guarantee that Pennine Care is going to take iSoft's Lorenzo. The DH seems in a good position to terminate CSC�s contract.

On the other hand CSC has hinted that it is willing to drop one of its main contractual holds on the NHS: a minimum revenue commitment. Under the original contracts, the DH guaranteed minimum volume payments to each local service provider.

In its negotiations with the DH, CSC may drop its contractual right to minimum volume payments. It may also comply with the DH's request to reduce the overall size of its �3.2bn NPfIT contracts by about �500m. In return CSC would have its commitments to deliver a fully-functioning Lorenzo to trusts in the Midlands, North and Eastern England much relaxed.

Mike Laphen, Chairman and CEO of CSC suggested during a conference call on the company�s third quarter results that CSC may take on the risk of selling to the NHS rather than receiving guaranteed minimum payments.

�We are still in discussions [with the DH]. I think it�s fair to say the customer has publicly said they want more flexibility. There�s a lot of ways to provide flexibility. I can�t tell you that there is no chance for some sort of a P&L [profit and loss] hit... There�s a lot of trade-offs.

�We haven�t included any numbers relative to that � I think the area that probably will come in for most, for the biggest part of negotiation, is what volume. Right now we have pretty significant volume commitments and I think they would like to have more flexibility around that and have us [take] more risk in terms of selling rather than them guaranteeing.�

One question lingers: why did the DH guarantee its suppliers a minimum level of payments in the first place? It seems odd to commit the NHS to buying systems it may not actually install. Indeed the commitment weakens the DH's position in its negotiations with CSC.

Is CSC apt to be optimistic in its financial forecasts?

During the conference call on CSC�s third-quarter, an analyst from Credit Suisse, Bryan Keane, questioned Mike Laphen on the company�s forecast of growth of 4% to 7% in 2012.

Keane said: �� I guess I'm a little surprised that number [4% to 7%] seems a little bit aggressive, especially coming off some delays in contracts where your visibility is a little bit out of your hands� why not take a more conservative approach, maybe more like flat revenue or something like that and then if there is some upside and these contracts come through then that will really help I think the shareholder base.

�Right now, a lot of people are just concerned that the numbers are always being set too high..."

Laphen replied that CSC tries to give analysts �the best visibility we can give you

http://blogs.computerworlduk.com/the-tony-collins-blog/2011/02/csc-likely-to-keep-its-nhs-it-contracts