Fears of Price Hike For IT Contracts After EDS Ruling

There are concerns that IT managers could face higher costs for their IT services contracts, or even no bidders for tricky contracts, after EDS was hit with record damages over its botched CRM (customer relationship management) project for British Sky Broadcasting (BSkyB).

Last month BSkyB was awarded a minimum of £200 million in damages from EDS, after the IT services giant was found guilty by the British High Court of misleading its former client, in order to win the CRM contract worth £48 million.

BSkyB had selected EDS back in the summer of 2000 in order to provide day-to-day management of a customer relationship management project on its behalf. The contract was to design, build and implement an advanced customer service system at BSkyB’s customer contact centres. However BSkyB terminated the deal in March 2002, claiming that EDS had failed to meet its contractual obligations. Sky assumed direct responsibility for systems integration from EDS, and in August 2004 it began legal action against the IT services company.

BSkyB successfully completed the CRM project in March 2006, and the EDS trial began in October 2007 at the High Court, which concluded in July 2008. In January 2010, the judgement was handed down.

The High Court ruled that BSkyB had been misled by the contractor over its set of skills, and it also ruled that a clause designed to limit any potential damages to be paid by EDS to £30 million, was invalid.

Alan Owens, a litigation partner at London-based Morrison & Foerster LLP, told The Wall Street Journal that “It is probably the decision that service providers have been dreading, We can expect a drastic change in behaviour among sales teams bidding for major contracts.”

However one IT Services expert believes that the sector is now a lot more mature and experienced, and is in a much better position to ensure failures like this do not happen again.

“You have to remember that the orignal deal was signed in way back 2000,” said Nick Mayes, senior analyst at PAC Consulting, speaking to eWEEK Europe. “The outsourcing industry has matured a lot since then, particularly in terms of experience within the client organisations that are constructing and procuring these deals. The clients are a lot sharper than they were at start of last decade.”

“But this case does highlight the benefits of taking a rigorous approach to doing due diligence on your potential supplier, of going out and speaking to the references they give, and hearing it from the horse’s mouth. It also highlights the benefits of using a third party advisory company in benchmarking the sort of work you are trying to do, so you can avoid getting caught out by overly ambitious predictions or project costs,” said Mayes. “An extra set of eyes to look at what you are doing would help avoid some of the pitfalls that BSkyB had fallen into.”