EDS has been criticised over problems with two major government IT projects just weeks before the Inland Revenue decides whether to narrow the field for its key £4bn outsourcing contract.

At a Treasury Sub-committee hearing last week the paymaster general, Dawn Primarolo, admitted that the newly introduced working tax credit system had performed so poorly that the Inland Revenue was seeking to recover "additional business costs which are attributable to the failings of the IT services".

Primarolo said that applications for working tax credits had been delayed because the IT system, introduced by EDS, did not run "as fast as it should have done and was predicted to do".

She told the Treasury Sub-committee that the lessons learned would be shared with the Department for Work and Pensions (DWP), which has awarded EDS the contract for its pensions credit computer systems.

The computer system developed by EDS for the Child Support Agency (CSA) has been also been criticised by the Public and Commercial Services Union.

The union said the system "effectively prevented CSA staff from performing their job properly".

A spokesman for the DWP, which is responsible for the CSA, told vnunet.com that there had been some "initial teething problems", but said figures on the delays caused would not be released ahead of a report to parliament.

The criticism comes at an unwelcome time for EDS, which is leading one of three consortia bidding for the Inland Revenue's £4bn, 10-year, outsourcing contract.

The Inland Revenue is expected to state its preferred bidder - or, more likely, bidders - later this month, before awarding the final contract in December.

Under European Union procurement rules, past performance cannot be considered when awarding public sector contracts.

Industry watchers predict that the government will choose one consortium as prime contractor, while at the same time making sure the others are also given work.

If EDS loses overall responsibility it will continue to be involved, said Robert Morgan, chief executive of outsourcing consultants Morgan Chambers.

He added that the government likes having a prime contractor because it provides "one throat to choke if things go wrong".

EDS declined to comment.