Fujitsu Kicked off £896m NHS Contract

• Posted: Monday, June 02, 2008
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• Author: pradhana
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• Filed under: Business Analysis

By Tola Sargeant, senior analyst at Ovum

“NHS Connecting for Health (NHS CFH), the agency in charge of England’s 12 billion+ National Programme for IT in the NHS (NPfIT), announced late on Wednesday that it was terminating its £896 million contract with Fujitsu Services. Fujitsu Services has been in negotiations to ‘reset’ its contract with the NHS to deliver IT systems to hospitals in the south of England for over a year. On Wednesday, despite earlier indications that progress was being made to resolve the differences between the two parties, NHS CFH announced that they had failed to reach an agreement.”

“According to the NHS CFH statement work has started immediately on planning the necessary arrangements for the termination of the contract. It goes on: ‘NHS CFH has to continue to protect the interests of the taxpayer and preserve the basis of contracts which ensure payment on delivery.’ ”

“News that Fujitsu Services’ Local Service Provider (LSP) contract is to be terminated now will have come as a shock to many.”

“There were reports about a month ago that NHS CFH was on the brink of replacing Fujitsu in the South, but the contract negotiations between the two parties seemed to have been making real progress over the last few weeks. We suspect the NHS had two main concerns during the contract reset process – firstly, affordability, and secondly, confidence in Fujitsu to deliver a product that was fit for purpose within a reasonable timescale. In the end, the latter may well have been the biggest sticking point given the new power that the local NHS CIOs have under the NPfIT Local Ownership Programme (NLOP).”

“So, what does this mean for Fujitsu, NPfIT and for taxpayers?”

“On the one hand, taxpayers should welcome the fact that NHS CFH has taken the bold step to terminate Fujitsu’s contract. The contracts were established to protect the taxpayer and in this respect they appear to have done their job – the NHS won’t have to pay for something that hasn’t been delivered. However, the fact remains that, in terms of patient administration systems in the South, very little has been delivered. The contract needs to be re-let. And no supplier is going to take over from Fujitsu without doing its best to ensure that the contract will be profitable. This may mean that in the long run the NHS ends up paying a higher price than it would have done had it managed to come to an agreement with Fujitsu.”

“For the National Programme as a whole, this is yet more unwelcome news. It will inevitably put another major dent in public confidence in the Programme and it is hard to see how it will not lead to further delays.”

“For Fujitsu - however you spin things - it is also a severe blow. Beyond the sizeable financial cost to the company, there is the damage to its image, particularly in the public sector, and to its ambitions in the healthcare sector. The company had high hopes of building its healthcare business on the back of its flagship LSP contract and, though not impossible, that will now be a much harder task.”

The other burning issue is who will take the contract over from Fujitsu? Of the two remaining LSPs, BT, the LSP for London which is also deploying Cerner’s software, would be the obvious candidate (and is currently the ‘favourite’). However, BT has its hands rather full enough already with the London deployment and we’d urge NHS CFH to think twice before handing it the South as well.

Instead, NHS CFH may choose to use its new Additional Supply Capability and Capacity (ASCC) framework agreement for the procurement. ASCC was born as a result of Accenture’s sudden departure from the National Programme and is designed to make it easier for NHS CFH to replace a key supplier in a situation like this. That would put the likes of Capgemini, EDS, LogicaCMG, McKesson and Siemens IT Solutions and Services in the frame alongside BT and CSC. The question is; do any of them really want the job? /PR

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