THE £400million privatisation of IT services at Scotland's biggest council has been thrown into turmoil after the controversial move stalled amid legal threats.

Glasgow City Council has announced that it has brought to a halt all work with Canadian firm CGI, which had been expected to take control of the seven-year IT contract next March.

It follows a legal challenge by global services giant Serco which currently provides the council's IT in a joint venture with the authority and is contesting the deal.

There has been speculation that Serco fears the nature of the deal with CGI could see it cut out of public sector IT contracts across Scotland for the best part of a decade.

But Serco, whose arrangement with the city council ceases next March when the authority was set to agree terms with CGI, said the legal move was due to the contract not being put out to tender.

Faye Shaw, managing director of Serco’s citizens services business, said: "We were concerned by Glasgow City Council's decision to negotiate directly with CGI rather than hold a competitive tender process to find the best value solution, like the process carried out by Edinburgh.

"We therefore wrote to the council in December seeking clarification on the legal basis for the procurement process they followed. We are proud to have been the council's trusted partner and of all that has been achieved through the Access joint venture and would very much welcome the opportunity to continue to serve the people of Glasgow."   

CGI already runs IT services at Edinburgh and Borders councils with the expectation other authorities would follow Glasgow's lead and outsource to the Montreal-based firm due to how the contract has been structured.

In a statement the council said it had "temporarily paused work with CGI on the potential future delivery of IT services, after Serco plc informed the authority it would seek to take legal action to prevent it from pursuing a contract with CGI".

Serco's threat throws the council's plans into chaos and would have major financial consequences if it were successful at the courts. Glasgow's plan had been to begin the transition to CGI from this April but that timetable has been thrown into disarray.

Ironically the move comes after the council and unions resolved a bruising dispute over the implications of outsourcing to CGI on staff.

The council said it had "expert advice that it is following a legal and appropriate procurement route" and that Serco had informed the council that "it has contrary legal advice and will seek to prevent the award of any contract, should officers recommend the council work with CGI". It added that Serco had not challenged the contract established by Edinburgh City Council, for which it was an unsuccessful bidder or the decision by Borders Council to go down to same route.

A spokesman said: “The council is surprised by Serco’s approach, given that it has not challenged this contract in the past – despite being closely involved in the initial bidding process in Edinburgh.

"However, it would be remiss of the council not to treat this matter seriously and take the appropriate time to explore the legal challenge threatened by Serco.

“The current project will be paused in order to protect the integrity of the procurement process.”

One inside source said: "If Glasgow are joining the original CGI framework, which includes Edinburgh and Borders, then there shouldn't be an issue.

"If however, CGI were creating a new deal for Glasgow, then they are open to scrutiny."

In a note to councillors the authority's chief executive Annmarie O'Donnell said: "The Council needs time to assess and clarify the legal position and, in the meantime, it is imperative that we do not do anything that might prejudice the Council’s ability to secure the best IT services for the city. To that end we are taking the following steps.

"We have instructed CGI not to submit any documentation to us that would advise of their proposals and costs etc.

"All contact between the Council and CGIs’ project teams has been suspended.

"I appreciate that this is unexpected news but it is important you hear this from me first.

I will keep you advised."