BT has reacted angrily to reports that its £150m contract to bring e-government services to Edinburgh is "close to collapse".

The Herald reported that the Smart City scheme - which is designed to provide a single point of contact for all local government services - is behind schedule.

The technical glitches and delays are so bad, reports the paper, that BT has agreed to cough up £2m in compensation

However, a spokeswoman for BT rejected the accusations insisting that the project has "never been close to collapse".

And she denied that BT was stumping up £2m in compensation. Instead, it's handing over £550,000 in cash and £800,000 in credit, which will used to offset some other parts of the project.

The monster telco admitted that there had been delays with some of the projects that make up the Smart City scheme but insisted that it was addressing them.

Yesterday, Abbey National appointed BT to install and manage a company-wide integrated voice and data telecoms system for the UK high street bank. The five year contract is valued at £125m. ®