GERMAN engineering giant Siemens has suffered the ignominy of being booted off an IT contract by the Department for Work and Pensions.

Officials at the department last week axed Siemens’ contract to develop a new central payment system that would oversee the £110 billion in payments made to 17m people each year.

The deal, signed in 2006 and expected to run until 2010, was worth £59m. At the time Siemens said the “system will provide improved customer service through faster, more accurate payments and greater accounting controls”.

Termination of an IT contract by a department is rare. With previous IT hiccups, such as at the Child Support Agency and parts of the NHS IT revamp, contractors have either withdrawn their services or had the work put out to tender.

Neither side would give the reason for the contract coming to an end. The DWP said in a statement that it had “terminated its contract in relation to the Central Payment System programme with Siemens IT Solutions and Services”.

Siemens said: “The contract is at an end and for contractual reasons Siemens is unable to comment further.”

IT industry insiders said it was thought that Siemens executives had fallen out with department officials over whether their work fulfilled the specifications of the contract.

“There was a lot of toing and froing and in the end the department had just had enough,” said one source.

While the value of the contract was fairly small, its cancellation may count against Siemens if it ever considers bidding for other British government IT work.

Jacqui Smith, the home secretary, last week committed Britain to moving ahead with ID cards. Industry analysts say the total cost of IT spending required to upgrade the government’s “identity management” infrastructure would total some £5 billion, regardless of whether Britain made ID cards universal.

Siemens has had a difficult 12 months, with German prosecutors investigating an alleged bribery programme in connection with overseas contracts. The company has identified some €1.3 billion (£990m) in suspicious transactions between 2000 and 2006, which would make it one of the largest corporate bribery scandals ever.

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