The multibillion-pound national programme to overhaul the NHS’s computer systems is likely to suffer further delays and turmoil after a contract with a key supplier was terminated.

The National Programme for IT, parts of which are running four years late, aims to create a single electronic records system for 50 million patients in England, as well as to enable electronic prescriptions and other electronic services.

But negotiations have broken down with Fujitsu, which had been due to implement the plan in the South of England from Kent to Cornwall.

The company, one of three regional contractors in control of the project, is the second big “local service provider” to withdraw from the project in three years, after the departure of the consultancy firm Accenture in 2006.

Negotiations to “reset” the company’s £896 million, ten-year contract have been under way since last July, and although the cost of the contract had escalated to more than £1 billion, a deal had seemed likely as recently as last week. But NHS officials believe that the Japanese board of Fujitsu intervened, fearing that its potential losses could be much greater than its directors had forecast.

Connecting for Health, the agency that oversees the programme, said that it would issue a termination notice to Fujitsu, a move that could cost the Japanese-owned services company an estimated £340 million.

The project, now in its sixth year, has come in for repeated criticism over delays and fears for the security of patient information. But tough contracts have so far kept it broadly within its estimated budget of £12.7 billion. However, contractors will be paid only when services are delivered and working.

Fujitsu earned £256 million in 2006-07 for its work on the project, but it was the provider with the most outstanding payments due to it, and in some cases had not been paid more than 12 months after systems had been delivered.

The company is understood to have wanted either more money to provide additional local services or a return to the original, more limited, contract obligations. The Department of Health said yesterday that it terminated Fujitsu’s involvement “with regret” because it had not been possible to reach an agreement over this.

In a statement, Fujitsu said that it had withdrawn from negotiations as it did not feel that there was any prospect of an acceptable conclusion.

Stephen O’Brien, the Conservative health spokesman, said that the Government’s attempts to “ram through a top-down, centralised, one-size-fits-all NHS computer system” had come “crashing down around its ears”.

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