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The spat between Isoft and Computer Sciences Corporation has been resolved, allowing the bid for the UK software house from IBA of Australia to go ahead.

CSC, the US group, and Isoft are partners in a contract to provide the £12.4bn IT programme for the National Health Service but had fallen out after IBA bid for Isoft. The two groups said on Monday that they had now agreed changes in the terms of their contract for the programme.

Isoft said it would now drop legal proceedings it had instituted against CSC, while CSC said it would no longer seek to block the bid for Isoft.

Under the changes to the contract, Isoft will keep the intellectual property rights to the Lorenzo software it has developed and will accept a 5 per cent reduction in licence revenue, largely after 2010. CSC will take greater management control for the delivery of the NHS programme.

John Weston, chairman and acting chief executive of Isoft, said: “Our relationship with CSC has clearly been tested in recent weeks, however, this agreement underpins our good working relationship which we look forward to continuing”.

IBA said it approved the changes and would now continue with its bid, which is still subject to approval by Isoft shareholders at a meeting set for July 6. With IBA shares closing on Monday in Australia at A$1.12½, the bid is worth 52.7p per Isoft share and values the company at £122.5m.

In morning trading Isoft shares rose 3p to 49½p.

The agreement was foreshadowed last week by Richard Granger, outgoing head of the NHS’s IT programme, while giving evidence to the House of Commons health select committee. Mr Granger, who on Friday said he would be stepping down, is understood to have played an important role in bringing the two sides to an agreement.

Isoft had been struggling, and issued a series of profit warnings, before installing a new management team last summer. Isoft was put up for sale last October and IBA approached it in January. In April, Isoft said its trading had improved and it expected revenues for the year to end April to be at the top end of expectations.

Initially CSC had approved IBA’s bid, but then decided to invoke a change of control clause to stop the bid, while it considered making a counter-bid for Isoft. Isoft in turn began legal proceedings asking CSC to explain what its grounds were for blocking the change of control.

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