The race to defuse the so-called millennium computer bomb has been sidetracked with companies wasting resources on lawyers instead of tackling the problem directly, a British government agency warned this week.

Mr Don Cruickshank, chairman of Action 2000, the agency set up last year to advise the private sector in Britain, said up to 500,000 small to medium-sized enterprises had not moved as quickly on the issue as they should have. He said they were caught in a legal "paper chase", with customers and suppliers seeking premature guarantees that such measures had already been taken.

"Frankly, progress with SMEs is not going as well as I'd hoped," he said. "Business should call off the lawyers because it is hindering rather than helping. Running a business is about levels of confidence. . . there are no guarantees or certainties about it."