ITnet dives after Government axes contract

Shares in ITnet, the computer services business, plunged more than 36 per cent yesterday, after it announced the loss of an £83m government contract, which it won just 11 months ago.

Shares in ITnet, the computer services business, plunged more than 36 per cent yesterday, after it announced the loss of an £83m government contract, which it won just 11 months ago.

The Cabinet Office said it had terminated the agreement due to a breach of contract. It said the move came after several months of trying to resolve the many problems surrounding the implementation of a new data-centre service, provided by Itnet. ITnet said it had already spent some £25m on the project, for which it has received a pre-payment of £5m. It said it would take all steps necessary to recover its costs, including legal action.

The company said it was extremely disappointed, and had believed it was making good progress towards delivering the project on schedule. It added that even without the contract, 2004 revenues for the overall group were still expected to be in line with expectations. However, it said operating profits would be lower.

Oliver Whitehead, ITnet's chairman, said: "Although the development is clearly disappointing, I and my board colleagues are committed to making full recovery of the costs we have incurred on this contract. We remain confident of our prospects for growth in the future."

A spokesman for the Cabinet Office said: "This termination demonstrates the Government taking a pro-active approach to avoid non-delivery of this IT project and to prevent unacceptable and unplanned over-expenditure against contractually agreed costs.

"None of the services under the remit of ITnet's data-centre hosting contract have either been delivered or accepted and the project is several months behind schedule and was forecast to be considerably over budget if continued."

The spokesman added that the Cabinet Office wouldbegin looking for an alternative supplier of the technology, but that none of its existing services would be affected in the meantime.

The contract loss is not the first for ITnet. Four years ago, it lost a £70m contract from Hackney Council, after allegations that its systems had caused a backlog of benefit claims. The news sent the company's share price tumbling more than 25 per cent.

Yesterday's news sent the stock spiralling back to year lows of 177.5p, giving the company a market value of approximately £130m. During the dot.com boom in 2000, ITnet's shares reached highs of £11.52.