McKesson Seeks to Revise Contract With Britain

McKesson Corp., the third-biggest U.S. drug wholesaler, said Friday that it was trying to renegotiate a 10-year, $500-million contract with Britain’s National Health Service, and warned that profit might be reduced if the talks failed.

Customizing payroll and employee-records systems that McKesson is designing and installing in 600 government hospitals may take more time than the company anticipated when McKesson won the contract in December 2001, company spokesman Larry Kurtz said.

Failure to renegotiate the contract “may result in losses that could be material,” the San Francisco-based company said in a filing with the Securities and Exchange Commission, without specifying figures.

McKesson has invested about $76 million in the project, the company’s largest information-technology contract.

“We didn’t fully appreciate the decentralized nature of the National Health Service organization and the level of customization that might be required for some individual hospitals,” Kurtz said.

McKesson has not lost any money on the contract and didn’t make revenue or earnings forecasts for the contract for its current fiscal year, Kurtz said. Discussions probably will be completed in the second half of this year, according to the filing.

Revenue from the company’s information-solutions unit was modest in the quarter ended March 31 as demand slowed for software and installation times increased, the company said when it reported financial results in April.

McKesson has tested the British computer systems in three hospitals and received positive reviews from users, Kurtz said.

Delays have increased costs and shortened the amount of time during which McKesson can get revenue, reducing the project’s profitability, the company said in the filing.

McKesson is asking the National Health Service to extend the life of the contract and delay some of the goals the company must meet, Kurtz said.

“We want to make the contract fit our new vision of the schedule from an economic standpoint,” Kurtz said.

Shares of McKesson rose 11 cents to $34.95 on Thursday on the New York Stock Exchange.