Customs & Excise IT costs spiral to nearly £1bn

Customs & Excise has been hit by a massive £250m rise in the cost of its 10-year IT outsourcing deal with Fujitsu that means the deal is now worth almost £1bn.

The deal, signed in 1999 with the then ICL, was initially worth £680m and was to upgrade the department's IT infrastructure to provide a platform for electronic services.

But "change provision" clauses in the contract have been activated that will lead to costs rising to £929m in response to Customs & Excise's need to develop its ebusiness programme and meet modernisation targets that run up to 2007.

The department was criticised last year over the disastrous take-up of its electronic VAT returns service, which was being used by just 2,300 out of 1.7m VAT payers.

A spokesman for Customs & Excise denied that costs are spiralling out of control and said provision for change was built into the original contract and that it will allow the department to improve service efficiency and develop its ebusiness strategy.

"We believe that represents good value. You have to balance that rise with what is needed for delivering the department's current and projected business needs," he said.