The Department of Health has refused to sign a new contract agreement for one of the most significant elements of the troubled national IT programme.

The decision triggers a process which could kill the plan to have a standard IT system for hospital trusts in much of England.

We have a contractual arrangement with CSC and we need to give them the space that contract allows, to offer them the opportunity to remedy the situation

DH director general for informatics Christine Connolly told HSJ yesterday she would not sign a memorandum of understanding with CSC, which is contracted to install the Lorenzo system in trusts in the North, Midlands and East, because it had missed its deadline to do so in at least one trust by 31 March.

Instead, CSC has been told it must submit a convincing plan for how it will now successfully install the product – the Lorenzo 1.9 electronic health record – at a first hospital trust (University Hospitals of Morecambe Bay Trust) and elsewhere.

If that proposal is rejected it could lead to CSC and Lorenzo being abandoned as the single solution for the region’s hospitals. Single regional providers have been a central element of the national NHS IT programme, begun in 2002, and and CSC’s contracts are worth about £3bn of the £12.6bn total.

The backup plan is to invite other companies to tender to provide hospital systems under a process already being used in the south, where Fujitsu’s provider contract has already been terminated.

Ms Connolly said: “We have a contractual arrangement with CSC and we need to give them the space that contract allows, to offer them the opportunity to remedy the situation…

“We are working hard with them to do that. However, given they have not delivered, that obviously affects our confidence and we need to work through the stages of the contract.

“This is a significant step. It would be fair to say from our perspective we’ve worked very hard at our end to be as flexible as possible to get to a stage when Lorenzo 1.9 can be implemented at Morecambe Bay. We now need to stand back from that position and call on CSC to deliver the product.”

The DH has been criticised for allowing the hospitals element of the programme despite very slow progress. A further wait of an unspecified period for a new plan from CSC may add to frustration.

Ms Connolly said: “What we don’t want to do is say that [CSC] have to do something by a very particular time and them feel that they have not had sufficient time to evaluate the position.”

The failure to sign a memorandum of understanding will have financial consequences for CSC and iSoft, which makes the Lorenzo product. Just weeks ago iSoft told its investors the Morecambe Bay deadline would be met and that would “trigger a cash payment to the company”.

Ms Connolly said a memorandum of understanding relating to the London national programme contract, held by BT, was signed yesterday. It agrees a new approach to roll out – likely to mean fewer trusts receiving the product – and a £112m cost reduction on the £1bn contract.

She said she was happy with the progress shown and changes agreed for London.