Atos is quitting its contract to assess whether benefit claimants in Britain are fit to work, ministers have said.
It follows government criticism over “significant quality failures”.
Disabilities Minister Mike Penning said a new company would be appointed in early 2015, and Atos would not receive “a single penny of compensation”.
The firm, whose contract had been due to end in August 2015, said it had “reached a settlement that is in the best interests of all parties”.
It said it would “work hard to support transition to a new provider”, adding: “We will be transferring our infrastructure and employees to ensure consistency of service to those going through the process.
“There will be no change for those applying for Employment and Support Allowance.”
Atos will continue to carry out the assessments in Northern Ireland under a separate contract.
It will also continue with assessments for Personal Independence Payment (PIP) – another welfare change introduced by the government – in Scotland, the north of England, London and the south of England.
Another company, Capita, provide PIP assessments in central England, Wales and Northern Ireland.
Claimants applying for Employment and Support Allowance must undergo a Work Capability Assessment to see how their illness or disability affects their ability to work.
Atos has been criticised over the number of these assessments it has made as well as for lengthy waiting times.
Disability campaigners have described the work tests as “ridiculously harsh and extremely unfair”.
Last summer, the Department for Work and Pensions (DWP) identified “significant quality failures” in the written reports Atos produced after tests and put a plan for improvement in place.
But in February, the DWP said standards had declined unacceptably.
Mr Penning said the government was looking for a provider to replace Atos “with the view to increasing the number of assessments and reducing waiting times”.
He said: “I am pleased to confirm that Atos will not receive a single penny of compensation from the taxpayer for the early termination of their contract.
“Quite the contrary, Atos has made a substantial financial settlement to the department.”
The DWP said “one national provider” would be appointed to take over the contract early next year.
In the longer term, it said, it planned to take on “multiple providers to increase competition”.
‘Badly let down’
Atos chief executive Ursula Morgenstern said: “We are pleased to have reached an agreement with the government to allow us to exit this contract early and we remain committed to delivering essential services to the UK government as a strategic supplier.”
She said the company would “work hard to support transition to a new provider”.
Kate Green, shadow work and pensions minister, said: “People have been badly let down by Atos which is why Labour has repeatedly called on the government to sack them with immediate effect.”
But she added “changing the contract isn’t enough” and urged the government to “reform fundamentally” the assessment system so that disabled people who could work were “given support they need to find a job”.
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