Under the terms of the controversial contract, which has faced stiff trade union opposition, Sema will take over the management of 220 Civil Service doctors, 1,200 administrative staff and the 3,000 part-time doctors who help assess whether claimants qualify for disability or incapacity benefit.
The DSS said Sema would bring enhanced management and increased investment in technology to the Benefits Agency Medical Service (BAMS), thereby speeding up the service.
John Tilley, managing director of Sema, said: ``The Sema Group, working with the DSS, will modernise the existing provision with the aim of giving claimants service improvements and taxpayers better value for money.''
The move is unusual for Sema, which normally specialises in information technology outsourcing and systems integration projects. Although the BAMS project involves some information technology, it is more of a pure outsourcing project, requiring superior organisational and management skills. Sema is understood to have beaten off bids from rival outsourcing groups such as Capita and Andersen Consulting to win the contract.
The DSS insisted that the decision to award the contract was not part of the wider review of the welfare state which is currently taken place, and added that it did not have a dogmatic view about outsourcing services to private contractors.
However, the award of the contract suggests that the pace of outsourcing is unlikely to slow under the Labour government, even though several contracts, like BAMS, were first dreamed up under the previous administration.
The Labour government has already awarded a pounds 450m contract to handle the pay, pensions and administration for the armed forces to EDS, the US outsourcing giant.
It is also currently conducting trials for a huge contract to improve efficiency in the Benefits Agency and help reduce fraud. Groups on the shortlist include a partnership between IBM and EDS, as well as a consortium including Sema and the management consultancy group Deloitte & Touche. The contract is expected to be awarded in the next six months.
However, many large government outsourcing deals have run into problems. The Inland Revenue computer system, designed by EDS as part of a pounds 1.6bn contract, crashed under the burden of self-assessment claims. And a two year delay to a pounds 1.5bn contract designed to pay benefits with electronic "smart cards" and computerise Post Offices around the country, managed by the computer group ICL, has prompted the government to consider bringing in rival suppliers.
Given the size and complexity of the contracts, industry experts are not surprised that they frequently run into problems. "If I had a huge computer contract to award I would divide it between three or four companies," said Richard Holway, an industry analyst. "But the Government seems to think that these large contracts still make sense."