20 September 2006


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Business Today



Frail iSoft depended upon NHS cash injections

Matthew Vella

The events leading to the collapse of iSoft, the British software firm tendering for the provision of the multi-million IT system at Mater Dei hospital, show that the firm was plunged further into chaos back in April after the UK’s National Health Service refused to prop it up with upfront payments on its older health software, leading newspaper the Guardian has revealed.
The British newspaper revealed last week how iSoft’s delays with Lorenzo, the next generation software it was expected to install for the NHS IT upgrade, forced the firm into a last ditch attempt at asking the NHS for a multi-million payment to extend contracts on the older software it was licensing to the NHS.
The refusal to extend the contract meant that iSoft’s precarious financial situation had been compromised by the NHS’s refusal to prop it up with a short-term windfall.
Malta’s IT ministry is still committing itself not to make any public disclosures on any bidder pending the adjudication of the Mater Dei contract.
“Our point has consistently been that we are in the process of evaluating a very complex request for proposals and no part of this process can be disclosed to the press. We have legislation which stipulates how these processes are led and what’s certain is that public disclosures are not contemplated as an option in this regard,” Claudio Grech said.
Grech is the chairman of the steering committee for the evaluation of the EUR30 million IT system at Mater Dei, which is set to open on the Prime Minister’s birthday in July 2007.
Since January, iSoft’s share value has fallen by 90 per cent over delays with Lorenzo for the UK’s National Programme for IT (NPfiT), the NHS project that will put millions of patients’ records on computer.
iSoft’s main contractors said in February there was “no believable date for (Lorenzo) releases”, which pours more doubt over what software iSoft can be expected to install at Mater Dei, if it is awarded the contract.
iSoft already provides St Luke’s Hospital with its older Clinicom system.
Elsewhere in Ireland, main opposition party Fine Gael has raised concerns over iSoft’s financial difficulties and the EUR56m contract it was awarded by the Irish government in April 2005 to upgrade the country’s healthcare IT.
And Australian shadow health minister Helen Shardey has also attacked government over the award of a multi-million contract to iSoft when its UK parent has serious financial problems “and which may not be able to deliver its product”.
Asked whether as chairman he was giving any consideration to British media reports over iSoft, Claudio Grech said: “What I think or consider is only partially relevant… the adjudication and evaluation process involves 29 senior officials, apart from the expert advise sought from technical, legal and financial advisers. Again, I draw your attention to the previous replies, wherein we clearly stated that government is using the best practice methodologies in its evaluations. I think that this should satisfy in full the substance of the question you make.”
The fact that the NHS fronted GBP82 million in early payments to iSoft, confirms that the firm was hoping for multi-million injections to keep up with expectations of high profit earnings which were linked to the implementation of Lorenzo.
The NHS had already paid iSoft two upfront payments of GBP82m related to a contract for the maintenance of older iSoft software, in return for a GBP20m cut off the NHS’s total bill for the new software.
That was back in April, when delays in Lorenzo implementation forced iSoft to ask the Department of Health to extend ongoing contracts for its ageing software.
But iSoft assumed wrongly that the contract would be extended. When it was clear that the NHS’s procurement arm, Connecting for Health (CfH), was not ready to prop up iSoft any longer, the firm issued a profit warning on April 28, announcing its profits would be lower than expected earlier on in the year.
The move blocked a vital cash injection that forced iSoft further into a financial black hole as shares started a downward plunge.
In June it changed its aggressive accounts policy – iSoft had been booking future revenues from software licences, which usually span over a number of years, upfront.
Restating its profits and revenues, iSoft emerged battered and bruised when it revised operating profits of GBP72m down to zero, and a GBP344m pre-tax loss.
Its banks gave it vital breathing space by extending its borrowing facilities but at high rates of interest. Auditors Deloitte even refused to sign off the final accounts, an unusual move signalling the lack of confidence in the business.
To top it all up, the firm is now under a serious investigation by the Financial Services Authority.

mvella@mediatoday.com.mt



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