NHS lost pounds 1m on computer agency sale

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A National Health Service information technology agency was sold too cheaply to a United States firm which, in recent months, has been picking up the bulk of government computer contracts, according to an official report out today.

The study by the National Audit Office, the public spending watchdog, found that the South and West Regional Health Authority could have secured better value for the taxpayer when it sold the SWift computer division to EDS last year.

The NAO report will fuel the controversy at Westminster about the amount of public sector work being awarded to EDS. Computer contracts from several government departments are now in the hands of the company, once run by maverick United States presidential candidate, Ross Perot. Opposition MPs have been pressing for more details of how the firm has come to dominate the Government's computer market.

In a highly critical report, the NAO said that the health authority put a value on SWift's software and hardware but did not pay enough attention to the agency's worth as a business opportunity. Consultants hired by the audit office put a likely value on SWift of pounds 7m to pounds 11m. This compared with the deal agreed with EDS, which saw the American firm pay pounds 800,000 for SWift's assets and to provide future discounts to the agency's customers - primarily the health authority - worth pounds 2.3m to pounds 4.3m.

SWift was not properly valued by the health authority. As a result, EDS got a bargain. Under health service rules, the authority was not required to estimate the possible financial return to EDS from the information technology agency.

The sale was supposed to be competitive, but only four early bids were received and of these, only two submitted an offer.

When EDS emerged as the final bidder, the company was able to negotiate its price down by almost pounds 1m. This was because EDS agreed to take on SWift's pension arrangements, which brought the offer down by pounds 450,000, and because of problems with the agency's software, which knocked a further pounds 500,000 off the price.

In future, the NAO said, such sales should be conducted on a more realistic, commercial footing. Instead of selling off the individual component parts, the public-sector seller should pay closer attention to the likely financial return.

When drawing up short-lists, the government vendor should try and keep as many potential purchasers in the frame as possible and for as long as possible, the NAO recommended.

To avoid problems emerging at the final stage and the last remaining bidder being able to talk down the price, the seller should make all information available to all the bidders, said the report.