THE multibillion-pound modernisation of the National Health Service, Britain’s largest IT outsourcing scheme, suffered a setback yesterday as a software provider was dumped from a contract to provide electronic patient records in southern England.

IDX, an American firm, was sacked by Fujitsu Services, the lead contractor on a £900 million ten-year deal to modernise hospitals and GP surgeries in counties including Kent, Surrey and Hampshire.

The company’s removal came after it failed to meet key deadlines set down by the NHS in the South and in London, where it was working on a separate £1 billion ten-year contract with BT. In March it emerged that IDX’s delivery of software in the South was running nine months late.

Tola Sargeant, a senior analyst at Ovum, said: “It is an alarm bell for the National programme but not one that was wholly unexpected. It has been widely known that there were delays with the delivery of IDX’s system in London and the South.”

IDX will be replaced by Cerner, another US company that has not been involved in any of the five regional contracts to modernise the patient records system. Cerner’s inexperience on the scheme fuelled fears that completion of the contract in the South would be delayed.

The NHS Connecting for Health, the agency that is managing the outsourcing project, said it had been assured by Fujitsu that there would be no delays in the rollout. “We are not anticipating any setback from this at all,” a spokeswoman said.

She added that IDX would continue to work with BT on the London contract. “This change in the South provides the opportunity for BT and IDX to redouble their focus on the delivery of services to the NHS in London,” she said.

Some analysts said that further delays were inevitable. “I find that very difficult to believe that this isn’t a setback,” said Milan Radia, an analyst at Bridgewell Securities, which acts as broker to iSoft, a rival to IDX and the provider of health software to three NHS regions.

Ms Sargeant added: “Cerner is likely to find, as IDX has, that there is a lot of work to be done in anglicising its products and getting them to integrate with other elements of the national (NHS) programme.”

IDX was expected to receive as much as 20 per cent of the value of the two contracts, which are part of a £5 billion national programme to introduce improvements such as digital prescriptions, electronic patient records and automated appointment booking systems.

The company cut its sales outlook for 2006 from between $700 million (£386 million) and $720 million to between $670 million and $690 million. It also expected to take a charge of $2 million to $4 million as a result of losing the contract.

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