The multi-billion pound scheme to computerise every patient in England’s medical records suffered a major blow today after the NHS said a contract with a key supplier had been terminated.

The £12.7bn project has already come in for repeated criticism over delays and fears over the security of patient information.

Fujitsu’s £896 million, 10-year contract for installing the programme in the south of England has been terminated after months of negotiations, both the company and the NHS confirmed.

Connecting for Health, the NHS IT programme, said it would now issue a termination notice to Fujitsu in a move that could cost the Japanese-owned services company an estimated £300m.

Reports suggest that the dispute centred on the NHS’s demand for more flexibility in delivery of the services - a request that would cost more.

Fujitsu wanted either more money or a return to the original contract specifications.

A spokeswoman for the NHS’s Connecting for Health said: “Regrettably and despite best efforts by all parties, it has not been possible to reach an agreement on the core Fujitsu contract that is acceptable to all parties. The NHS will therefore end the contract early by issuing a termination notice.

“Work has started immediately on planning the necessary arrangements.

“NHS CFH has to continue to protect the interests of the taxpayer and preserve the basis of contracts which ensure payment on delivery.

“We acknowledge the work that Fujitsu has done providing key information services to trusts in the South of England and recognise their commitment to providing a smooth transition to new arrangements.”

Fujitsu is the second IT firm to leave the project. Accenture, which was responsible for delivering the system to the north and north east of England, quit key parts of the project in 2006.

A Fujitsu official told the Financial Times that talks had broken down and the company had wanted to revert to the original contract, which provided less flexibility than the NHS is now seeking.

Failure to agree a price for that lay behind the breakdown, the official said.

Stephen O’Brien, the Shadow Health Minister, said the Government’s attempts to “ram through a top-down, centralised, one-size-fits-all central NHS computer system” had come “crashing down around their ears”.

Earlier this month public spending watchdog the National Audit Office said the system would not be introduced to every NHS trust in England until 2014-15 - four years later than planned.

The NAO pointed to “serious delays” in applying new software for the National Programme for IT in the NHS and said the Government had underestimated the challenges involved.

The IT programme involves four main projects: a centralised electronic medical record system for 50 million patients; an online “choose and book” system for booking hospital appointments; electronic prescriptions; and fast network links between NHS organisations.

It is expected to link more than 30,000 GPs in England to nearly 300 hospitals.

Due to contractual agreements meaning money would not be paid to suppliers until the systems are in place, the delays have not pushed up the estimated cost of £12.7 billion, a report by the National Audit Office said earlier this month.

In March this year, the Government defended the system, insisting it could produce more than a billion pounds in savings by 2014.

It calculated that the National Programme for IT could save the NHS £1.14 billion by 2014 based solely on the data from one in five trusts who had implemented parts of the system by March last year.

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