Compaq paid £5m for scrapped government contract

The government is being accused of wasting millions of pounds of taxpayers' money by paying Compaq £5m to bid for a contract it subsequently decided it couldn't fulfil.

The office of the e-envoy asked Compaq to bid for the Government Gateway contract, and the IT giant did some preliminary research into the project before tendering a full bid.

The government consequently gave Compaq preferred bidder status - but then the negotiations came off the rails, according to a National Audit Office report.

Compaq pulled out of the negotiations, claiming that the government changed the scope of the project to such an extent that it became "unrealistic".

A spokeswoman for Compaq said: "The goal for completion of the project changed during the exploratory period and it just became unrealistic. We decided not to proceed with the project any further."

But that didn't stop the company charging £5m for the preliminary work it had already done, which was actually within government budgets: £6.7m had been ear-marked for this planning stage.

The office of the e-envoy said: "Detailed investigations conducted by Compaq and the government during this initial exploratory phase of the project led to changes in the original proposed approach to the design and development."

The government subequently bought the project back in-house and placed contracts with other suppliers.

The office of the e-envoy added: "Using Compaq's work as a foundation, the new team developed the Gateway in the three months between October 2000 and January 2001. The cost of this new project was £15.6m - considerably less than the original £36m bid by Compaq."

The cost of creating the system is to be recovered through royalties paid by a non-exclusive intellectual property rights deal for the Gateway with Microsoft.