CSC and NHS finally reach agreement

At last! After months of negotiations CSC and the Department of Health have finally reached an agreement that should draw a line under the dispute between the two over the future of CSC’s £3bn contracts to deliver the Lorenzo healthcare IT system to the NHS. The agreement was published yesterday but dated 31 August, the day the ‘standstill’ agreement between the two parties officially expired. It had been widely expected in recent weeks helping to boost CSC’s share price by more than 30% in August (see here).

It’s not easy to tell from the relatively scant detail that’s been provided by both the company and the DH which party has come off best. The key points include:

• The threat of legal action from either side is removed: ‘the agreement includes full mutual releases of all claims between the parties through the date of the agreement’. Surely good news for both CSC and the NHS.
• CSC will receive a payment of £68m to cover ‘value delivered to date’ and the net settlement of mutual claims (this has to be better than nothing, or a fine, from CSC’s point of view).
• CSC has lost its exclusive rights to provide clinical systems in the North, East and Midlands of England (something that had long been clear both in government policy and in practice anyway).
• The NHS is no longer subject to ‘trust volume commitments’ – in other words there is no guarantee CSC will get any business, it’s up to individual Trusts to choose Lorenzo. We think some Trusts will still opt for Lorenzo, but by no means as many as would have been expected under the original contract.
• Trusts wishing to take Lorenzo can get centralised funding if they can develop a robust business case – this could be good news for CSC since as far as we know other systems would have to be funded by local budgets. But we still expect a large number of Trusts to opt for other systems, something many have already been doing.
• The contract has been extended to July 2016, with 5 years of managed services also available for Trusts taking Lorenzo before that date. This is welcome news for CSC too.

All things considered, this seems like a reasonable deal for both parties. It could certainly have been an awful lot worse for CSC.

Of course according to the Department of Health, the real headline is that the agreement ‘saves the taxpayer over £1 billion’ that will be reinvested in frontline healthcare, but it’s difficult to take this statement at face value. The commitment to CSC is certainly that much lower, so central budgets will likely be £1bn better off and CSC correspondingly worse off than originally expected under the megadeal. However, NHS Trusts will still need and want to invest in desperately needed IT systems, and increasingly the cost of those will have to come from already squeezed local budgets rather than the central pot.  Fortunately for SITS suppliers, the evidence suggests that many Trusts understand the benefits that IT can bring and are already procuring systems independently (see IT: just what the doctor ordered? and our latest Healthcare Market Trends and Forecasts report for more if you’re a PublicSectorViews subscriber).