Government Lose Arbitration

Government ‘loses £700m NHS IT legal battle with Fujitsu’

By Brian Wheeler

Taxpayers could be hit with a bill for up to £700m after the government reportedly lost a legal battle with Fujitsu over a failed NHS IT system. The case was heard in secret but the arbitrator is thought to have found in favour of the Japanese IT giant. Legal arguments are now thought to be continuing over the size of the damages the company will receive. Fujitsu and the Cabinet Office both refused to comment, after the story appeared in The Daily Telegraph.

The Fujitsu Connecting for Health contract was part of the £12bn NHS national programme for IT, large parts of which have had to be abandoned at a cost estimated by the National Audit Office to be £2.7bn. Fujitsu won the contract – to digitise patient records in the South of England – in 2002 but it was terminated in 2008, after disputes over changes, including a new system for electronically displaying and storing X-rays.

‘Reputational damage’

The company announced its intention to sue the Department for Health for £700m – the majority of the £896m it would have received for completing the entire project. When the coalition came to power in 2010, the Cabinet Office stepped in to try and broker a deal with Fujitsu but the two parties ended up in arbitration.

The legal bill for fighting the Fujitsu case stood at £31.5m, according to a Public Accounts Committee report in September last year. But that is likely to be dwarfed by the size of the settlement, once the arbitration process has been completed. Conservative MP Richard Bacon, a member of the Public Accounts Committee who investigated the Fujitsu case, said he would be surprised if it was as much as £700m, because the company had only completed a relatively small part of the contract.

But he warned the government that it could not cover-up the size of the bill when arbitration had finally been completed. “I don’t know how the government can honestly keep this number quiet. It simply cannot do it. It is not possible or sensible to keep it quiet when you are spending this much money.”

E-borders programme

Companies agree to go to arbitration, where hearings are held behind closed doors, to prevent “reputational damage” and save on legal bills, a legal source said. Such is the secrecy surrounding these cases that the parties are even prevented from revealing where the hearings were held.

Tony Blair launched the NHS IT programme in 2002. But some MPs have questioned whether it is appropriate for the UK government to use this method, given the large amounts of taxpayers’ money at stake.

The suspicion is that government wants to avoid civil servants being questioned in open court about what goes on inside their departments. In 2011, the Financial Times reported that Fujitsu and the Department of Health had been unable to resolve their dispute in arbitration and a court case was “almost inevitable”.

But, writes investigative journalist and campaigner Tony Collins, on his blog: “The FT article did not take account of the fact that major government departments do not take large IT suppliers to an open courtroom. “Though there have been many legal disputes between IT suppliers and Whitehall they have only once reached an open courtroom.”

Mr Collins says Cabinet Office officials were being “coy” about the unconfirmed rumours about the Fujitsu case reported in the Daily Telegraph, “which implies that Fujitsu has indeed won its legal dispute with the Department of Health”.

Last month, MPs raised transparency concerns about another legal battle that has gone to arbitration – the government’s fight with e-borders supplier Raytheon, which is suing it for £500m.

That case has been in arbitration for four years and despite the Home Office saying a year ago that a result was due soon there is apparently no end in sight.

‘Train wreck’

Richard Bacon said the culture of secrecy surrounding IT projects was one of the main reasons why they kept going so badly – and expensively – wrong.

He said it had been obvious to experts from an early stage that the NHS IT programme, launched by Tony Blair’s government, would be a “train wreck” because the contracts lacked clarity, were signed “in an enormous hurry” and contained confidentiality clauses preventing contractors from speaking to the press.

“Contracts were set in stone before the suppliers knew what it was they were expected to supply,” he told BBC News.

But he said the urge to cover things up means that “we never learn from our mistakes because there is learning curve, but when things go wrong with IT the response is to keep it quiet”.

Citing the example of air accident investigations, which were normally conducted in a spirit of openness so lessons can be learned, he said: “It is the complete opposite in IT projects, where everyone keeps their heads down and goes hugger-mugger.”

The two parties in the Fujitsu case both refused to comment on their ongoing dispute.

A Cabinet Office spokesman said: “Fujitsu are an important supplier of IT services to the government. The government does not comment on contractual disputes with suppliers.”

A Fujitsu spokesman said: “Fujitsu has been a strategic partner to the UK government implementing critical IT for the last 40 years and we are committed to working closely with the UK public sector for the next 40 years and beyond.

“However, we do not comment on our government contracts.”

This is a BBC report available by clicking here