The £12.7bn National Programme for IT (NPfIT) was hit by another setback yesterday as one of the three key suppliers to the project was fired.

Fujitsu – which was responsible for the southern area of the scheme – has been fired by the NHS after 10 months of contract re-negotiations broke down.

NHS Connecting for Health (CFH), which runs the NPfIT, insisted the move was in the best interests of the taxpayer.

"Regrettably and despite best efforts by all parties, it has not been possible to reach an agreement on the core Fujitsu contract that is acceptable to all parties," said a spokesman.

"NHS CFH has to continue to protect the interests of the taxpayer and preserve the basis of contracts which ensure payment on delivery."

The NHS CFH supplier contracts work on a strict "payment by delivery" basis.

It is understood that the NHS were demanding more flexibility in Fujitsu's services – Fujitsu wanted more money to provide this flexibility.

Fujitsu is the second major supplier to drop out of the programme after Accenture exited in 2006 citing profitability issues.

CFH says work has started immediately on planning the necessary arrangements to replace Fujitsu.

It is thought BT is the most likely candidate to take over the area as the patient record software being used in London – the area BT supplies – is the same as in the southern region that Fujitsu was supplying.

The other likely option is CSC.

But CSC already runs two of the five areas of the Programme, and has also recently been selected as a preferred supplier for the ID cards programme.

And a switch to CSC would probably mean installing iSoft's Lorenzo software in the Southern region, rather than the Cerner Millenium software BT is familiar with.