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The Department of Work and Pensions (DWP) has suffered what has been described as the biggest computer crash in government history after a software upgrade.

The government department lost 80 per cent of its 100,000 PCs following a "routine software upgrade", a DWP spokeswoman confirmed today. The problem lasted all of yesterday but the "majority of our system is up and running now", she said.

Microsoft and EDS run the DWP's network as part of a £2 billion IT contract.

Microsoft issued a short statement on Friday saying that it worked closely with its partners to help rectify the situation and support the DWP, but declined any further comment. Representatives from EDS have so far failed to comment.

The head of the DWP, the government secretary Alan Johnson has promised an internal inquiry into the systems failure and the role both Microsoft and EDS played in the disaster.

The DWP, which is responsible for providing a variety of state benefits to about 24 million people, attempted to downplay the effect the computer problems will have on its customers, saying that the department's mainframe computers were not affected. "There will be delays with new and amended benefit claims, but we have been dealing with the problems though our contingency plans and the disruptions will be minimal," a spokeswoman said.

It is believed that the crash was caused when an incompatible system was downloaded on to the entire network. It meant that employees were forced to send faxes because they couldn't access their e-mail accounts. Some payment checks were filled in by hand.

The failure is only the latest in a string of serious computer system problems experienced by the department. The DWP's Child Support Agency (CSA) has been struggling with a £456 million system from EDS that has made payments to only one in eight single parents awaiting them. Last week, Johnson told a House of Commons Parliamentary Select Committee that he is considering shutting down the child-support case management and telephony system, and Doug Smith, the chief executive of the CSA, resigned from his job.

On Friday, the general secretary of the Public and Commercial Services Union, Mark Serwotka, called on the government to hold off on its plans to cut 30,000 jobs in the DWP on the basis of IT improvements, in light of the computer crisis. Earlier this year, the government announced it plans to eliminate 104,000 civil servant jobs across the government based in part on increased efficiencies gained though new IT systems.

Since 2001, the DWP has spent around £4.25 billion on various IT projects, including the CSA system. According to a report it submitted to a Parliament Select Committee, the department has spent £306.7 million on management and IT consultancy, £51.5 million on staff substitutions and contractors and £54.3 million on professional services.

The UK's public sector IT projects in 2003/4 are expected to cost more than £12.4 billion, but U.K. government IT projects have often been accused of being over-ambitious and prone to disastrous delays and cost overruns.

Beyond the DWP, further examples include the benefit-payment card program from the Post Office, the Department of Social Security and ICL, which fell apart after three years and £300 million; software problems that delayed the Swanwick air traffic control center and have since been blamed for a near collision between two airplanes; the disruption wrought on thousands of people with travel plans in 1999 by the Passport Office's new computer system, and the National Probation Service's case-record and management system which was abandoned in 2001 after it was revealed the project was expected to be two years late and 70 percent over budget.

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