Transaction Network Services is considering legal action to reverse the Government decision not to put the An Post social welfare payments contracted out to tender.

TNS, which specialises in electronic transaction processing, would have been one of the bidders for the contract.

Despite an announcement on the Official Journal of the European Community in February, the Government reversed the decision to put the contract to tender following vocal objections from rural post offices.

TNS has also made a formal compliant to the European Commission. The company is a leader in the US in electronic benefits transfers and operates it in 31 out of the 32 states which use the system.

Mr Pat Kirby, managing director of TNS in Ireland, said the company's advice is that the Government decision is illegal under EU public procurement law.

"The Government decision flies in the face of its admirable policy of projecting Ireland as an e-commerce centre and knowledge-based economy," Mr Kirby said.

He added that the company fully accepts the importance of the Post Office in local communities and that they can participate fully using electronic transfer.

According to TNS, the benefits transfer can even boost trade in local communities. Shopkeepers who accept laser or credit cards will have the option of paying benefits to their customers maximising the chances of keeping the funds in the local town or village.

It also pointed out that the new system reduces the dangers in transporting large amounts of cash around the country.