BSkyB has won a substantial part of its £709 million lawsuit against EDS, over a failed £48 million customer services system implementation. The lawsuit, filed in 2007, alleged that EDS had fraudulently misrepresented itself in a sales pitch in 2000 for the system, leaving Sky complete the project itself at great expense. EDS complained that Sky did not know what it wanted and changed requirements too frequently.
Though EDS may appeal again, it looks likely this case won’t go much further. The dispute has been raging since 2004 and it appears HP/EDS will finally have to bite the bullet and cough up almost £200m for misrepresenting its talents. This is a painful result for the company, especially after the copious legal fees it has no-doubt incurred through years of legal wrangling.
However, although the cost may be easily absorbed by HP’s sizeable coffers, the ruling actually sets an important precedent for outsourcing. People have been talking about what this would mean for the industry for some time. Now the ruling has occurred, changes in the way companies go about tendering, due diligence, selection and contracting should become more apparent.
Some of the most important changes will of course be in the way an end-user assesses a supplier’s ability to do the job. This is where things went so significantly wrong in this case – promising the earth and delivering something rather different. Suppliers can expect an increased interest in things like outcome-based pricing, gain-sharing and more stringent contractual practice around what happens if things go wrong. End users will also be increasingly reticent to sign contracts that unrealistically limit supplier liability.
Also it is important to understand the pressure (and targets) that sales forces are under to secure a sale, just as bonus’s have become passé, perhaps it is beholden upon the industry to consider the issue of commissions and targets for such large and complex projects?
Overall the ramifications of this case should be broadly positive. Those engaging in outsourcing need to be completely sure exactly what they are signing up for and what happens if things don’t work out. Institutional investors in major outsourcing suppliers might want to understand how targeting and compensation schemes are run and the consequences on management for deals that are shown to be falsely represented?
End-users should look at this case and follow best practice to give them the best chance of success in the future. Above all, it should teach them that the devil, really is in the detail.