US computer giant EDS stripped of £3bn Inland Revenue contract

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The Independent Online

EDS, the American computer giant founded by Ross Perot, was yesterday stripped of a £3bn contract to run the Inland Revenue's IT network after the botched introduction of a new system to administer tax credits.

The Government instead awarded the contract, Whitehall's largest-ever IT outsourcing deal, to Cap Gemini Ernst & Young, which will work in partnership with Fujitsu of Japan.

The contract, which involves administering everything from tax and National Insurance collection to self-assessment and the payment of tax credits, will run for at least 10 years and is worth £300m annually.

EDS, which was launched by Mr Perot in the 1970s and initially staffed entirely with Vietnam veterans, said it was "extremely disappointed" at the decision. The company has been the Inland Revenue's IT supplier since 1994.

The relationship hit crisis last April when EDS bungled the introduction of a new tax credits system which left thousands of families without payments and resulted in the Revenue's helpline being swamped by 1.7 million calls on one day alone.

EDS blamed the Revenue for compressing the testing period from 19 weeks to four weeks but the Revenue said this was necessary because of late delivery.

The two parties are now negotiating a compensation deal and an EDS spokeswoman said the matter was likely to be settled quickly although she would not comment on the size of any potential payout. She also rejected suggestions that the Revenue fiasco would threaten EDS' contracts with other government departments. It is the biggest IT contractor in Whitehall, handling IT systems for large parts of the Home Office including the Metropolitan Police and the Prison Service.

The new Inland Revenue contract with CGE&Y will start in July next year after a six-month hand-over period.