NHS project dispute contributes to $4.3bn loss for CSC

By Graeme Burton
21 May 2012 View Comments
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In 2013, it will be 50 years since CSC (Computer Sciences Corporation) floated on the New York Stock Exchange after it had become the largest software company in the world. But if 2013 is no better than 2012, the company will have little to celebrate.

In its latest fourth quarter and full-year financial report, CSC reported a pre-tax loss of $4.3bn (£2.72bn) on revenues of $15.88bn (£10.1bn) – down by 2.9 per cent in constant currency.

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A major part of the reason for that accounting loss, of course, were write-offs relating to a number of underperforming deals. And the biggest write-off of all, accounting for more than one third of the total, was the $1.5bn (£950m) charge relating to the cancellation of the long-troubled NHS National Program for IT (NPfIT), of which CSC was one of two lead contractors.

CSC claims that the write-off relates to the cost of investments it has already made in the stalled system, and is continuing negotiations with the government. That followed a 2011 proposal by CSC to reduce the cost of deployment by one third, while only supplying Lorenzo, the integrated care records system, to just 80 out of 220 NHS trusts – a deal that would effectively double the cost of the remaining deployments.

An early leak of that proposal led Margaret Hodge, chair of Parliament's Public Accounts Committee, to declare in 2011 that "there is no way that these guys ought to be working for the government". That followed a damning report from the Committee

But the NPfIT project was just one of 40 projects in the "emergency" ward that CSC's new CEO, Mike Lawrie, is examining. Lawrie was formerly CEO of banking software supplier Misys for five years and, earlier in his career, had served under the legendary IBM CEO Lou Gerstner. He is considered to be a "turnaround specialist".

It is not unusual for an incoming CEO to "find" all kinds of problems in his first few months in control and take some hefty charges to cover the costs associated with them. But the NHS dispute is certainly very real. Hodge's scorn and her suggestion that CSC ought to be barred from future government contracts does not appear to have impeded CSC in continuing to scoop up public-sector contracts.

Most high-profile of all its most recent contract wins was the £400m contract with the Ministry of Defence to manage pay, human resources and pensions administration for the Service Personnel and Veterans Agency (SPVA) in April. That followed a seven-to-10-year outsourcing deal with Royal Berkshire NHS Foundation Trust.

In a conference call, Lawrie revealed that he had put in place a "systems assurance programme" to review all contracts worth more than $50m (£31.7m). And, over the next 12 to 18 months, Lawrie hopes to cut costs by about $1bn (£630m), including job losses in the UK. CSC announced two tranches of cuts this year, totalling an estimated 1,100 jobs. Computing broke the story of the second round of 640 UK-based cuts on 20 April.

Analysts, however, are hopeful that CSC will now get to grips with some of its problems.

"As for the NHS contracts, Lawrie is now talking to the head of the NHS on a weekly basis and is 'hopeful' that the long-awaited interim agreement will get completed ‘in the not-too-distant future'," said Tola Sargent, a director of analyst TechMarketView. "It's this kind of top-level engagement that's needed to get the deal across the line and we too hope the outstanding issues can finally be resolved," she added.

Lawrie was keen to stress new business bookings, up from $14.8bn (£9.4bn) in the year to the end of March 2011 (fiscal 2011) to $19.8bn (£12.5bn) in fiscal 2012. He will no doubt be hoping that they prove more robust than the NPfIT.

The NPfIT was cancelled after a decade of missed deadlines and a damning 2011 National Audit Office report that slammed both the civil servants managing the project, as well as the suppliers for failing on many counts to provide workable systems to the NHS.

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