CSC braces for NHS impairment blow

IT services giant to take hit of up to $943m after failing to reach agreement over future of NHS deal

CSC has withdrawn its financial guidance for fiscal 2012, citing uncertainty over the future of its engagement with the NHS.

The IT services powerhouse announced last week that it will be forced to absorb an impairment charge of up to $943m (£604m) in its current quarter after failing to reach agreement with the government over how the contract will proceed.

This is equal to its net investment in the controversial project, which has come under intense scrutiny since the coalition government took office last May. Additional costs could also be incurred, CSC warned.

As a result, the US-based company has ripped up its previously disclosed fiscal 2012 financial guidance, with an updated guidance due in February.

In a filing with the US Securities and Exchange Commission, CSC stated: "The failure of the parties to enter into a contract amendment, a significant delay in entering into a contract amendment or the execution of a contract amendment on terms unfavourable to CSC would result in a material impairment of CSC's net investment in the contract (up to the amount of impairment noted above) and could have a material adverse effect on CSC's consolidated financial position, results of operations and cashflows."

Discussions with the government will continue this month, CSC added.

For the past decade, CSC has been developing and deploying an electronic patient record system as part of the government's £11.4bn NHS IT programme. A report published last August by the Commons' Public Accounts Committee blasted both CSC and fellow provider BT for failing to deliver on their contracts.

Tola Sargeant, research director at analyst TechMarketView, said the development shows the government has finally decided to get tough with CSC.

"As we have warned repeatedly over the last year, the financial implications for CSC are dire," she stated. "Indeed, we would not be at all surprised to see CSC change hands in 2012 as a result."