IBM has been named preferred bidder for the ESR deal and is due to take over from current provider McKesson next summer, subject to contract signature.
The US multinational beat Steria and CSC to win the contract. Current supplier McKesson withdrew from the bidding process in June after it was bought by private equity firm Symphony and sold its UK workforce business, which is responsible for the NHS ESR.
The ESR's main functions are payroll, pensions, core HR, recruitment, finance, e-learning, management reporting, integrated identity management and manager and employee service.
The ESR has 1.4 million users and it is the largest implementation of Oracle's Human Resources Management System (HRMS) in the world, according to McKesson, which first won the £325 million deal to run it in 2001.
This new contract is worth between £250 million and £420 million and will run for five years and nine months, with options to extend it for a further two years.
IBM will be responsible for maintaining the system but also improving it. For example it will be required to enhance ESR's user interface, improve data validation, integrate it with NHS Mail, record employee photographs and provide online payslips.
The NHS also expects IBM to provide a central business intelligence reporting solution for the ESR, including dashboards and trigger alerts.
TechMarketView director Tola Sargeant described the deal as a "significant win for IBM" likely to push it into the top 10 of UK healthcare software and IT suppliers.
She added that the firm has "been quietly building up its UK healthcare business again since 2009 and had success at the local level in 2012, signing an IM&T deal with University Hospitals of Leicester NHS Trust."
However Sargeant warned "transitioning such a critical system to a new supplier is not without risk", noting the Department of Health felt the need to reassure users it will be 'carefully planned' to 'ensure a seamless transition'.
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