EDS settles with U.K. tax agency for failed system

Electronic Data Systems has agreed to pay £71.25 million ($122.7 million) to the British government’s tax agency after trouble with an IT system that tracked tax credits, the two entities announced Tuesday.

The agreement terminates a claim from HM Revenue and Customs (HMRC), formerly known as Inland Revenue and HM Customs and Excise. The specific terms of the agreement were not announced, but the settlement includes an upfront payment from EDS and additional payments over time, according to a news release.

EDS is pleased to settle the dispute without incurring the costs of what may have been a lengthy and complex legal case, it said.

HMRC had sought compensation related to IT problems with the Child Tax Credit and Working Tax Credits system implemented in April 2003. Through 2004, some £16 billion in tax credits were awarded to 5.7 million families, but as many as one third of those recipients were overpaid that year, according to a U.K. government report published in September.

It was estimated that the typical level of overpayment was between 10% and 14%, caused by both fraud and error, the report said.

EDS, based in Plano, Texas, provided IT services for HMRC under an outsourcing contract from 1994 through 2004. However, EDS still does other government work in the U.K.

The company leads a consortium that was selected as a bidder in March for a £10 billion project to renew IT systems for the U.K. Ministry of Defence, one of the largest outsourcing projects the ministry has undertaken.