Government faces legal action over IT contract termination

Wednesday, 30 June 2004 12:00 AM

The Government is facing legal action after it terminated a private IT contract.

ITNET had been awarded an £83 million contract in July 2003 to build a data housing centre for the Office of the e-Envoy, designed to host government websites.

However the Cabinet Office announced on Tuesday that it had terminated the contract, accusing ITNET of breaching its contract.

A spokesman said: "This termination demonstrates the Government taking a pro-active approach to avoid non-delivery of this IT project and to prevent unacceptable and unplanned over-expenditure against contractually agreed costs.

"None of the services under the remit of ITNET's Data Centre Hosting Contract have either been delivered or accepted and the project is several months behind schedule and was forecast to be considerably over budget if continued.

"The decision to terminate has not been taken lightly. Prior to our decision to terminate this contract every effort had been made, over several months, to resolve the issues, without success."

E-Envoy Andrew Pinder said that the termination is necessary to "protect vital public services."

ITNET however said it was "extremely disappointed" at the Government's decision, and said it would be taking legal action to recoup its costs.

It claims it was making good progress in delivering the contract and said: "To date, ITNET has spent £15.2 million on the fixed assets of the Datacentre (for which it has received a pre-payment of £5 million), approximately £10 million on the implementation of the Datacentre, and has made further commitments in relation to software maintenance and other contracts."

Its chairman, Oliver Whitehead said: "Although this development is clearly very disappointing I and my board colleagues are committed to making full recovery of the costs we have incurred on this contract."

Shares in the company plunged by 40 per cent this morning.

This is the second major contract lost by the company. Hackney Council cancelled a £70 million contract in 2000 claiming that the computer systems produced were inadequate.

The Government will now be left facing questions about why they went ahead with the project. Computing magazine revealed at the signing of the contract that ITNET was the only bidder left after two other companies dropped out believing that the contract was unworkable.

At least £5 million of public money has already been ploughed into the deal.

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