EDS dumped from £3bn Revenue IT contract

EDS has been ditched by the Inland Revenue in the bidding for its prestigious 10-year £3bn IT outsourcing contract.

Cap Gemini Ernst & Young (CGEY) and its partner Fujitsu Services have been chosen as the preferred suppliers for the Aspire contract.

The announcement comes at the end of an intensive procurement competition lasting almost two years and will be a devastating blow to EDS and its partner Accenture, who currently run the Revenue's IT systems.

But the government has said it is looking to increase competition for public sector IT contracts following a track record of high-profile failures. EDS in particular has come under intense scrutiny from MPs and politicians for its record on government contracts, most recently with the botched rollout of the new tax credit system for the Revenue.

The Revenue said the transition to the new supplier will begin on 5 January next year, with the contract valued at £300m per year formally starting on 1 July. The deal involves developing the future technology platform for the department in addition to the support and maintenance of over 70,000 desktops, 177 IBM and Hewlett Packard Unix servers and 200 ICL mainframes.

Sir Nicholas Montagu, chairman of the Inland Revenue, said in a statement that all the bids had been "extremely strong" and thanked EDS and Accenture for contributing "significantly to our success".

"CGEY have demonstrated through the competition that they have the skills that they need to make a reality of these changes and others that the future may bring, while still supporting our daily business," he said.

Around 2,500 employees are expected to join CGEY from EDS, with 900 of those joining Fujitsu Services under TUPE employment regulations. Accenture's National Insurance NIRS2 contract will actually run until the end of April 2005 following a contract extension agreed earlier this year and the company said it is too early to say whether any of those staff will then transfer to CGEY.

Martin Cook, UK VP and CEO in charge of Aspire for CGEY said the staff moving over "are central to the Inland Revenue's ability" to deliver its service.

Fujitsu will provide data centre, application, file and print services as well as disaster recovery support.

Although there were rumours circulating in the past week that EDS had been dropped Phil Codling, analyst at Ovum Holway said the news was still "stunning".

"The government has become a lot more aware of the need to foster competition in procurement and incumbency is no longer a guarantee," he said. "This has to be bad news for EDS and Accenture but very good news for what has been a troubled company in CGEY and it is a big boost in the UK for a couple of companies that really needed it."