Analysts have described the influence of NHS contractor CSC on the fate of troubled software supplier iSoft as “extraordinary” after the IT services firm blocked the software company’s planned sale.
CSC stepped in to prevent the £140m sale of iSoft to Australian software company IBA, saying the move would not support successful delivery of the NHS’s £12.4bn National Programme for IT (NPfIT).
Instead, CSC – the lead NPfIT contractor in three out of five regions - is to increase the number of its own staff working inside iSoft, which is contracted to supply its Lorenzo care records system – a crucial part of NPfIT.
Analyst firm Ovum suggested that CSC could yet exercise its right to take direct control to ensure work on Lorenzo is completed.
Crisis-hit iSoft was put up for sale after revealing continuing financial losses. It is also under investigation by the Financial Services Authority after irregularities were found in its 2004 and 2005 accounts. In August last year, when its delayed full-year accounts revealed a £382m loss, iSoft signed an agreement with CSC confirming details of how Lorenzo would be delivered and giving CSC the right to take over management of the development team if iSoft was unable to fulfil its obligations.
In a statement explaining why it blocked the iSoft sale, CSC said it was “committed to the successful delivery” of NPfIT. “CSC's decision not to consent to the proposed change in control of iSoft has been governed solely by what it considers is in the best interests of achieving this goal,” it said.
CSC added: “We currently have around 100 of our own staff fully engaged with iSoft in this programme and are planning for this number to increase. In parallel, CSC has engaged with iSoft and its banks to explore ways to underpin the long term financial stability of iSoft."
Ovum analyst Phil Codling said: “It seems nothing can go smoothly for iSoft. Having found a buyer, the beleaguered firm may now see the rescue takeover blocked because its most significant partner and channel to market, CSC, is raising objections.
“It's not unusual for partners and even customers to raise concerns over proposed mergers, but the degree of CSC's influence on iSoft's future is extraordinary, thanks to its prime contractor role.”
CSC’s “primary concern” would be the prospects for effective delivery of Lorenzo – already running years behind schedule, Codling said.
“CSC is paid when it hits milestones on delivering within NPfIT - software delays can mean it doesn't get paid or even faces penalties. So perhaps CSC is concerned that the amount of debt IBA would need to take on to finance the purchase would impact development budgets.
“Perhaps it is also worried about the Australian firm's lack of experience in the UK market and the labyrinthine NHS specifically.”
If iSoft failed to find a workable takeover and faced “final collapse” when its agreed banking facilities ran out in November, CSC “could always step in and take over the development of the NPfIT applications itself (without formally acquiring iSoft as a whole, something it is unlikely to want to do)”, Codling said.
“CSC already has around 100 staff working with the iSoft development team, and may conclude that exercising this option of direct control is the best way of finally getting Lorenzo finished and working at the NHS.
“Alternatively, the door may now be open to other parties (including McKesson and General Atlantic) that were previously interested in acquiring iSoft.”
NHS Connecting for Health, which runs NPfIT, said the matter was one for CSC. A spokesperson added: “NHS Connecting for Health has bought services from prime suppliers whose responsibility it is to choose their technology solution. We have had no approach from CSC in connection with this matter.
"If a supplier wishes to change the contract, they will need to negotiate and agree that change with us. When this has happened previously - as with BT and Fujitsu changing their subcontractor - we have protected the taxpayer by maintaining the original terms and conditions of the contract."
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