U.K. National Health Service Terminates $1.76 Billion Agreement with Fujitsu Services
LONDON, 4 June 2008 - The U.K. National Health System has canceled its Connecting for Health (CfH) contract with Fujitsu Services, saying the two organizations were unable to reach consensus on renegotiated terms for contract changes.
Fujitsu was awarded the contract on 26 January 2004, for the Southern Program for IT with Cerner as its primary subcontractor. The 10-year agreement was originally worth £896 million ($1.76 billion), and is estimated to be worth £1.07 billion ($2.1 billion) today.
The breakdown is regrettable for both parties. It is clear that an effective partnership between NHS and Fujitsu Services, which is crucial for success in any strategic vendor relationship, was never effectively forged in this case. An NHS procurement policy, which calls for vendors to take on "completion risk" in exchange for higher service fees, has proven problematic in execution.
According to NHS in a 2007 release, "Under the terms of our contracts, suppliers do not get paid until they deliver - which demonstrates the strength of the contracts and the way they protect the NHS and the public purse." While Monadnock Research has found that risk sharing terms are present in approximately 5 percent of consulting and advisory agreements, this specific arrangement has placed a significant financial burden on NHS vendors, and contributed to the breakdown here.
Fujitsu is the second service provider to exit the NHS CfH program since contract awards began in 2003. Accenture withdrew in January 2007 after it incurred expenses of approximately 35,000 person-hours of effort above its original estimates. Accenture's contracts, worth £1.97 billion ($3.86 billion) were transferred to CSC after the firm took a £300 million ($590 million) charge to cover associated penalties.
The South and West of England clusters covered in the Fujitsu agreement include the U.K. counties of Kent, Surrey, East and West Sussex, Hampshire and the Isle of Wight, Buckinghamshire, Berkshire, Oxfordshire, Dorset, Somerset, Wiltshire, Bristol, Gloucestershire, Devon, and Cornwall and Isles of Scilly.
BT is the most viable candidate to take over for Fujitsu. BT is now responsible for the London cluster, and has used Cerner software in its implementations, albeit a different version of the application. Perot Systems is BT's sub-contractor, so it would also benefit if BT is selected.
CSC is responsible for 3 clusters in Northern England, the Midlands, and East of England. But it is a less likely candidate for several reasons. CSC implementations employ the iSoft application, and Fujitsu's Cerner implantations are fairly advanced. Also, CSC is involved in renegotiations of its own and awarding the Fujitsu contracts to CSC would give it all the implementations outside London.
Fujitsu Services provides consulting, systems integration, and managed service to clients across a range of industries, including retail, financial services, healthcare and public services. The services subsidiary had £2.46 billion ($4.83 billion) in revenue and employs over 19,000 people in 20 countries. Fujitsu Services is headquartered in London, and is the European IT services arm of the $43.2 billion Fujitsu Group.
The NHS released the following statement regarding the Fujitsu contract:
"Regrettably and despite best efforts by all parties, it has not been possible to reach an agreement on the core Fujitsu contract that is acceptable to all parties. The NHS will therefore end the contract early by issuing a termination notice. Work has started immediately on planning the necessary arrangements. NHS Connecting for Health (NHS CfH) has to continue to protect the interests of the taxpayer and preserve the basis of contracts which ensure payment on delivery. We acknowledge the work that Fujitsu has done providing key information services to trusts in the south of England and recognize their commitment to providing a smooth transition to new arrangements."
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