nhs made ?200m april advance to csc

NHS made ?200m April advance to CSC
22 June 2011 Jon Hoeksma

The NHS paid struggling local service provider CSC a ?200m advance in April; just three months after notifying the firm it was in breach of its contract for the North, Midlands and East of England.

The failure to meet a February deadline to deliver iSoft?s Lorenzo software at Pennine Care NHS Foundation Trust, did not stop the LSP receiving an advance payment of ?200m towards the revenues it expected to earn for new NHS IT systems.

The advanced payment is at odds with the Department of Health?s long-standing claim that the National Programme for IT in the NHS contracts mean it only pays on delivery.

Under the terms of its ?2.9 billion NHS IT programme contract, CSC gets to keep the payment unless it fails to finalise a new agreement with the DH by September.

If a new agreement is not in sight, the NHS can demand the payment back. The DH has been locked in long running memorandum of understanding negotiations with CSC, based on extending the deal by a year to June 2017 and cutting ?764m from the value.

Key features include halving the number of NHS hospital sites it delivers to; not replacing supposed ?interim? legacy systems; cutting functionality; and dropping ambulance systems.

Negotiations on a new memorandum of understanding have yet to be finalised but are said to be awaiting "final government review and approvals".

The details are set out in financial documents filed with the US Securities Exchange Commission by CSC last week, which show that despite the advanced payment, it missed out on other NHS payments of $46m.

To date, the US computer services firm says it has invested $1 billion in the NHS contract.

The CSC document makes clear that there remains a risk that no new deal will be signed with the NHS, a move that would almost certainly lead to litigation.

?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," states the SEC filing.

However, CSC still believes a new deal is highly likely. ?Notwithstanding this dispute, both NHS and the company have continued discussions with the intention of finalising the terms of the MOU.?

It adds that should the NHS choose to terminate the contract ?for convenience?, it would owe significant fees but these could be less than the $1 billion asset value CSC has on its books for the contract.

?Further, under the contract the NHS has the right to terminate the contract for convenience, in which case NHS would owe significant termination fees to the company.

?However, the total amount recoverable by the company from termination fees payable by NHS and from claims by the company is uncertain and it is possible the company's total recovery would be materially less than the net asset value associated with the contract.?

This appears the mirror image of the position described to the Public Accounts Committee in May by Department of Health chief information officer, Christine Connelly.

She told MPs that the cost of terminating the CSC deal could ?potentially leave us exposed to a higher cost than if we completed as it stands today?.

In May the National Audit Office said in its third report on NPfIT that to date CSC has delivered new electronic patient record systems to just four of the 97 organisations its current contract requires.

The NAO said to deliver to all 97 ?over two systems a month would need to be delivered in this programme area over the next five years.

The public finance watchdog described contract changes that reduce volume and increase unit price as a bad deal for the NHS.

The NAO said the ?2.7 billion spent by NPfIT on electronic patient records to date had not delivered value for money, with little prospect of the remaining ?4.3 billion likely to be better spent

http://www.ehi.co.uk/news/acute-care/6971/nhs-made-%C2%A3200m-april-advance-to-csc