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UK E-Health System Could Cost CSC $1.5B Writeoff

Computer Sciences Corp. might have to write off the US$1.5 billion investment it has made in developing and deploying a failed e-patient records system in the U.K., which the government canceled in September, the company warned in a filing Tuesday with the U.S. Securities and Exchange Commission.

CSC and the U.K. National Health Service had "substantially completed" negotiating a memorandum of understanding in May regarding a reduction in the scope of the project and its contract value. However, since mid-November, they have been negotiating over a proposed amendment that modifies the company's existing contract with the NHS. CSC was recently informed that the memorandum of understanding and the proposed amendment will not be approved by the U.K. government, it said in the filing.

The company expects that it will continue discussions in January over proposals from both sides that would modify the scope and decrease the value of the contract, which "differ materially" from those in the memorandum of understanding, the filing said.

Until negotiations conclude, CSC cannot estimate the amount it will have to write down in the third quarter of its 2012 fiscal year, but said in the filing that depending on terms reached in the amendment under discussion or if no agreement is reached, the total could be equal to its net investment in the project, which was $1.5 billion as of Nov. 30. It is possible that the company will take on additional costs as well.

CSC will provide updated 2012 financial guidance related to the situation with the NHS project when it announces those third-quarter earnings in February, it said in the filing.

The company has faced withering criticism from the U.K. government over its handling of the project

Besides the ongoing issues with the NHS project, CSC has been beset by other problems this year, including a continuing SEC investigation related to possible fraudulent stock manipulation in the Nordic region and Australia.

The company announced in October that Chairman and CEO Michael W. Laphen would retire within a year.

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