£12bn NHS computer upgrade faces fresh turmoil

The ambitious plan to upgrade the National Health Service's IT infrastructure has been dealt yet another blow after Accenture, the largest contractor to the programme, pulled out only three years into the project.

Despite sinking hundreds of millions of pounds into the project, the American giant has decided that jumping ship is a better bet than fulfilling its obligations over the decade-long programme.

The plan to create an electronic patient record for all UK residents and rapidly improve the communication and technology systems used by the NHS is already two years behind schedule. The project has been dogged by cost over-runs, technology failures, squabbling between contractors and criticism from the very medical staff it was supposed to benefit.

Richard Grainger, head of the division of the Department of Health charged with effecting the upgrade, said: "This is a very difficult task and it will continue to be difficult.".

The National Audit Office has found that the programme was well behind schedule and criticised Connecting for Health, the division of the Department of Health in charge of the upgrade, for not adequately consulting NHS staff when the original contracts were awarded. The NAO also said that costs had risen as the benefit of replacing older technology had not fed through as planned. Yet it dismissed fears that the cost of the project could balloon to £20bn, arguing that the total cost of the project was £12.4bn, including the original £6.2bn in contracts.

Computer Sciences Corp (CSC) has stepped into the breach and taken over Accenture's responsibilities in two regional NHS clusters, in the North-east and east of England. CSC has been leading the upgrade in the North-west and the West Midlands.

Whether CSC, or the other major contractors, BT and Fujitsu, end up making money out of the upgrade has yet to be seen. CSC and BT both remain confident that the project will prove fruitful over its 10-year life span. Recent revelations that BT has thus far received a pitiful return despite investing hundreds of millions of pounds into the upgrade have been batted away by the company, which expects profits to feed through further into the deal once medical staff begin using the systems. Yet the threat of massive fines - up to 50 per cent of the contract value in drastic circumstances - loom large over the deal, with contractors forced to meet onerous delivery targets set by Connecting for Health. The software supplier iSoft, a key participant in the programme, has been criticised by Accenture for failing to deliver its Lorenzo system to the service providers in time.

Accenture, one of the world's largest system integrators, has been rumoured to be in favour of cutting its losses and exiting the programme since March, when it booked a $450m provision against future losses related to the contracts. That followed $110m in losses in the previous year, and the company pointed the finger firmly at iSoft.

Accenture will keep £110m of the £173m it has been paid as a result of completed work, and return the rest. The value of the two contracts to CSC is equal to the £1.9bn that Accenture was eligible to receive under the original contract terms. Mr Grainger stressed that the changeover will not result in additional charges for the Department of Health. He remained confident that Accenture's exit would accelerate the deployment of systems across the NHS, at no extra cost to the taxpayer. He stressed that hundreds of computer systems have already been deployed across the NHS, and reiterated the benefits of replacing the hundreds of different and isolated systems across the country.

Mr Grainger attributed some of the problems that the upgrade has encountered to the size of the project. "It is one of the hardest nuts to crack," he said, arguing that it is the only British institution still dependent on paper records.

Although it is the first service provider to cut its ties with the project, Accenture is not the first company to exit the NHS upgrade. Fujitsu, the service provider in the southern cluster, replaced IDX with its rival Cerner not long after the contracts were announced. BT effected the same switch in London earlier this year.

Connecting for Health's decision to carve the NHS up into regional clusters with different contractors so that it was not left high and dry if a supplier pulled out now looks justified.

Lis Astall, head of Accenture's European division, played down the bad publicity that the exit has garnered, arguing that it has recently won deals with the likes of Unilever and New Look in Europe, while its healthcare division is performing well in Australia, Spain and the US.

She said the systems integrator has deployed 800 systems over the past two years, which Ms Astall said was "a track record for success". She also argued that it did not make sense for both CSC and Accenture to deploy the same iSoft products across different regions.

Guy Hains, CSC's European president, said that CSC's decision to concentrate on deploying systems in hospitals helped it to achieve critical mass and hit Connecting for Health's demanding delivery targets, thus triggering payments. He said that in areas like Birmingham and Manchester there are millions of electronic patient records already in use. Accenture chose to deploy its systems across GP practices, which turned out to be a more fragmented approach.

Mr Hains said that CSC would invest significant capital in the two additional contracts it has taken over from Accenture, but it still expects to make a profit on the upgrade. He said that the company would look to apply the CSC model in the ex-Accenture clusters. "We will ensure that we do not fumble or in any way drop the ball," Mr Hains said.

Shares in iSoft rose on news that Accenture would not be pursuing legal action against the software supplier. It was welcome relief for a company that has restated its accounts, lost its chief executive, renegotiated its banking arrangements and discovered accounting irregularities over the past few months.

ISoft has also maintained its position as exclusive supplier to the North-east region and will retain preferred supplier status for future deployments in the east of the country.

Project woes

June 2002 - Plan to upgrade NHS IT infrastructure launched by ministers. Department of Health establishes unit that would become Connecting for Health

February 2003 to February 2004 - Contracts with a combined value of £6.2bn are awarded to IT companies including Accenture, CSC, Fujitsu, BT, IDX and iSoft

April 2004 - First systems go live as Quality Management and Analysis System is delivered

June 2005 - Software company IDX replaced by Cerner in Southern cluster

January 2006 - iSoft unveils massive profit warning, blaming delays to NHS contracts

March 2006 - Accenture raises possibility of exiting NHS programme after booking $450m provision. Blames iSoft for delays, while Connecting for Health blames Accenture

June 2006 - iSoft CEO resigns as company restates accounts and shares hit record low. Company later reveals accounting irregularities

August 2006 - BT dumps IDX in London contract in favour of Cerner

September 2006 - Accenture exits the contracts, handing control to CSC