French outsourcing firm Atos has walked away from a contract to assess whether benefit claimants are fit to work.
The deal with the Department for Work and Pensions (DWP) was not due to end until next year but the firm had previously announced that it wanted to pull out early.
Senior industry sources warned that the Government would not find anyone prepared to take on the £100-million-a-year contract.
They suggested the Government would be forced to pay a “substantial premium” to any new contractor.
Officials in the DWP are believed to be talking to two other companies, Capita and the American outsourcing firm Maximus, about taking over.
It is understood that they want to split the contract up with the possibility of two or more companies sharing the assessments.
However, sources with knowledge of the assessment programme predicted the department would “struggle to get anyone to do it on anywhere near the same terms”.
The pointed to the reputational damage done to Atos as a result of its involvement in the contract and changes to the complexity of the assessments – which meant any new entrant would charge much more to take on the work.
Maximus hinted that it would be unlikely to bid for the contract on the existing terms.
The Government also became embroiled in a dispute with Atos after Mike Penning, Minister for Disabled People, suggested that ministers had been responsible for the early end of the contract.
“They haven’t pulled out actually, we’ve removed them from the contract,” he said. “This is not them walking away.”
However, sources close to the company dismissed this. “People don’t usually pay a fine if they’ve been sacked,” they said.
“Atos went to the Government to negotiate its way out of the contract, not the other way around.”
Atos is understood to have become increasingly unhappy with the terms of the work capability assessment contract and the public anger associated with it.
The company said that last year there were on average 163 instances per month of staff being abused or assaulted, culminating in a week of protests in February. Jenny Gulliford, of The Work Foundation, said another problem facing any new provider would be the costs associated with taking over the contract.
“I can imagine it would be more expensive because of the administrative costs of having to set it up for such a short period of time,” she said.
“The speed at which it’s likely to be set up is something I do worry about. We’ve had previous contracts which have been set up very quickly, like the work programme, which did take a long time to settle down and for outcomes to improve.”
Gillian Guy, of Citizens Advice, added: “The work capability assessment is broken and innocent people are caught in the middle. Atos terminating its contract is not going to result in an overnight improvement in support for sick and disabled people. We need urgent root-and-branch reform of this whole system.”
A spokesman for the Department for Work and Pensions said it would never comment on the value of contracts.