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Another public sector IT contract comes to a costly end

Regrettably, yet another Public Sector IT implementation has ended in a costly failure being shouldered by the tax payer.

In 2003 the Labour Government launched the e-Borders Programme.  Four years later the Home Office awarded a nine-year contract to Raytheon Systems Limited.

The aim of the programme was to provide “intelligence-led border controls” and to record all passengers entering and leaving the UK.

In 2010, shortly after the coalition came into power, the Home Office terminated Raytheon’s contract, alleging delays and a loss of confidence in its ability to deliver the system.

Experienced IT dispute practitioners will know that a customer terminating a major IT programme is akin to pressing the nuclear button and is a decision that should only be taken after very careful analysis, including by specialist IT lawyers.

This is because, if not entitled to terminate, the consequences for the customer, as in this case, are likely to be severe.

Experienced IT dispute lawyers know that a successful IT implementation imposes significant duties on both the supplier and customer and that any large scale programme will inevitably face problems that both parties have to work together to resolve.

This is particularly so where changes in scope occur, with the resulting knock on effect on both time and cost.

Suffice it to say, Raytheon disputed the Home Office termination and, highlighting breaches by the UK Border Agency, including a failure to agree on scope, commenced arbitration proceedings to recover damages.

As arbitration is private, the full facts are unclear, but the arbitration tribunal found that the Home Office had unlawfully terminated the contract.

As a result, Raytheon was awarded damages of over £220m, including £126m for work it had delivered before termination; £9.6m for changes; £50m in damages, and £38m in interest.

The political fall-out will no doubt be interesting to watch, including calls being made for Theresa May to explain what legal advice she took before terminating the contract.

This case, however, highlights the cautious approach that needs to be taken by customers when problems arise with IT contracts.

Issues are rarely black and white and a contentious termination will inevitably lead to a veritable “dripping roast” of legal issues for lawyers to pick over at considerable cost.

This case also highlights better than ever the need to treat the court room, or arbitration, as a last resort.

Tim Toomey
Partner, Commercial Litigation
27 August 2014

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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