UK officials tried to block Fujitsu from government contracts in 2010s

The UK government tried to block the Japanese software company implicated in the Post Office scandal from new public IT contracts in the early 2010s in a drive nicknamed “Project Sushi”, according to British officials.

The Cabinet Office pushed to formally exclude Fujitsu and other companies from bidding for government deals on the basis of their performance in previous contracts, according to three current and former Whitehall insiders. The push came during the coalition era of 2010 to 2015, when the Conservative and Liberal Democrat parties governed together.

In particular, Fujitsu’s “arrogant” attitude during attempts to renegotiate agreements to get better taxpayer value for money fostered a relationship of “low trust” with the government, according to the officials.

The Japanese company’s legal wrangling over a failed NHS IT system that was terminated in 2008 soured relations further, the insiders said. When the Tory-Lib Dem coalition came to power in 2010 the Cabinet Office tried to broker a deal with Fujitsu over the matter, but the parties ended up in litigation.

“It seemed to all of us absolutely extraordinary that the government was still giving work to a company that was suing it,” said one official.

Another Whitehall insider said the bid to blacklist a group of IT giants regarded as having performed poorly had focused heavily on Fujitsu, leading the efforts to be dubbed internally “Project Sushi” in a nod to the company’s Japanese heritage. 

The push was ultimately unsuccessful after government lawyers advised that it would not be legally possible to discriminate against companies based on their past performance, the officials said.

Although the project was aborted, the Cabinet Office’s plan to drastically reduce the government’s reliance on Fujitsu points to longstanding concerns about services provided by the communications equipment group. 

It has also raised further questions about why the company continued to win new government contracts even after the High Court ruled in 2019 that faults in its Horizon software may have led to the conviction of more than 900 sub-postmasters.

This week the company’s current and former executives will be hauled in front of a public inquiry into the sub-postmasters scandal and forced to give evidence to a committee of MPs, amid calls for Fujitsu to foot part of the estimated £1bn compensation bill.

The Financial Times revealed earlier this month that Fujitsu was involved in solo and joint public-sector contracts worth £4.9bn after the December 2019 judgment, of which £3.6bn were awarded during Rishi Sunak’s time as chancellor and prime minister.

In a sign of the symbiotic relationship between Fujitsu and the government at the time, a written ministerial answer from 2010 noted that the Treasury had outsourced 39 jobs formerly undertaken by the department to Fujitsu in 2009.

Two of the company’s former executives who held deep ties to the Conservatives went on to clinch government roles after leaving Fujitsu, despite having been in senior posts when the company’s actions regarding the Post Office convictions came to light in the courts.

Michael Keegan, former Fujitsu UK chief executive and husband of the current education secretary Gillian Keegan, was appointed to a role in the Cabinet Office in September 2019. The move came little more than a year after he left his role as European head of the Japanese IT company. 

Keegan joined Fujitsu in March 2006 as the director of a business unit responsible for working on the UK government’s national identity scheme. He rose through the organisation in roles primarily focused on public sector contracts.

The Cabinet Office is responsible for setting the government’s procurement strategy and assessing the quality of businesses awarded public sector contracts. Keegan’s posting primarily covers defence, an area where Fujitsu is listed as a strategic supplier by the department. 

Fujitsu has not been awarded a defence contract since Keegan’s appointment, but concluded a £5.6bn five-year deal in August 2020. 

The Cabinet Office said: “All crown representatives go through relevant proprietary checks.

“As with all strategic suppliers, we continue to keep Fujitsu’s conduct and commercial performance under review. It is not unusual for services to be outsourced under contracts,” it added.

Fujitsu UK’s former non-executive chair Simon Blagden was appointed in July 2022 to chair arm-length body Building Digital UK, part of the Department for Science, Innovation and Technology (DSIT), and has donated nearly £400,000 to individual Tory MPs and the Conservative party.

DSIT said: “In line with usual protocol, Simon Blagden declared previous engagements and political activity on his appointment.”

Earlier this week Lord Francis Maude, who was minister for the Cabinet Office and a Tory MP during the coalition government, said the government had tried to block Fujitsu from public contracts.

“In 2010, we found that it was deeply entrenched across the whole of central government,” Maude told the House of Lords. “Its performance in many of these contracts was woeful, and the procurement system regulations then in place made it impossible — although we tried — to prevent it getting further contracts.”

Fujitsu UK said the public inquiry was examining complex events stretching back more than two decades and it “apologised for its role in [the postmasters’] suffering”.

“Out of respect for the inquiry process, it would be inappropriate for Fujitsu to comment further at this time,” it added.

At its headquarters in Tokyo, the Japanese group has warned senior executives against publicly discussing the Post Office scandal, according to two people familiar with the matter.

For years, Fujitsu has tried to distance itself from the storm over its software, leaving its handling to its UK subsidiary. However, the fallout has started to be felt in Japan and comes as Fujitsu is trying to expand its business in Europe.

Fujitsu said its outlook on the European market had not been affected by the Post Office scandal, although it declined to comment on the potential financial impact of any possible compensation to the victims. 

The company also said it has not issued a “formal” gag order forbidding executives to speak publicly about the scandal. 

So far, analysts and investors expect the impact on the broader group to be limited. SMBC Nikko Securities estimated that Fujitsu’s UK sales were at most ¥200bn ($1.4bn), compared with the group’s annual revenue of ¥3.7tn for the 2022-23 fiscal year.

Kazutaka Yoshizumi, analyst at SMBC Nikko, said in a recent note that the cost to the UK government of switching to a different IT provider was likely to be “substantial”. 

Additional reporting by Anna Gross and Leo Lewis in London