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The UK Department for Work and Pensions has renegotiated its contract with EDS, the IT provider behind the troubled Child Support Agency – the government department that oversees child maintenance payments – in a deal intended to save the government some £1bn over five years.

The department has consolidated separate contracts with the US computer giant into one lasting to 2010 and shifted to simpler IT systems in a bid to cut the average annual cost of services supplied by EDS from some £700m ($1,260m) to £520m.

The deal confirms EDS’s return to favour in Whitehall despite its poor record in public sector contracts.

The change means that that the CSA, which has faced intense criticism for poor service exacerbated by serious computers failings, will continue to rely on EDS for its IT system.

The government had threatened to scrap the EDS system, but is now satisfied that the company has plans in place to rectify the problems.

The single contract brings together deals struck separately in the past with EDS by different parts of the department. The move to simpler, shared computer services was prompted by the government’s Whitehall efficiency drive and a shift in favour of “off-the-shelf” systems in the public sector.

The revised contract gives EDS more greater clarity over future revenues, allowing it to state an additional £800m by 2010.

The Conservative s party criticised the new contract, with EDS, saying EDS the company had “wrought havoc with the CSA”.

“I am deeply concerned that another two and a half billion pounds of taxpayers' money has been promised to EDS with no public guarantee that they will safeguard the vital services that vulnerable people rely on,” said Sir Malcolm Rifkind, the opposition party’s work and pensions secretary.

EDS has been involved in a number of troubled public sector IT projects.

A disastrous £456m computer system designed for the CSA has caused havoc with its the CSA's efforts to track down and extract maintenance payments for from absent parents. Alan Johnson, the former work and pensions secretary, had threatened to pull the plug on the EDS system altogether if the problems were not resolved. However, the government was also blamed for ordering 2,000 changes to the IT system during its development.

EDS lost its contract with the Inland Revenue following the bungled introduction of new tax credits in 2003. Some £100m of £1.9bn that was overpaid to claimants in the first year of the system was due to computer error and up to half cannot be clawed back by the taxman. The Treasury is still trying to get compensation from EDS and has threatened to take the company to court.

In March 2004 the National Health Service cancelled a contract with EDS to provide e-mail and directory services after “unacceptable delivery delays”.

In November 2004, 80 per cent of the DWP's 100,000 computers crashed during a routine software upgrade in what is believed to have been one of the largest IT failures to hit the public sector, although pensioners and benefit claimants were not affected.

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