BSkyB's legal victory 'will force outsourcers to be more honest'
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Will EDS ruling teach IT outsourcers a lesson?
Does the landmark ruling against the IT services supplier mean the days of overpromising in project pitches are over?
IT was by no means a foregone conclusion that BSkyB’s case against EDS would be victorious. Back in 2004, the satellite TV broadcaster accused the IT services supplier – now part of Hewlett-Packard – of giving misleading estimates for the cost and time required for a customer relationship management (CRM) project initiated in 2000.
At the time, many experts expected that contingency clauses in the contract between the two parties would protect the IT supplier from liability. In the end, the court upheld only one of BSkyB’s claims – that EDS had fraudulently misrepresented the time required for the project. For that, it awarded the broadcaster £200 million in compensation, four times the originally quoted cost of the project.
The judge ruled that Joe Galloway, then head of EDS’s CRM practice, knew that the estimated project time given to BSkyB was false. Galloway’s denial of this was undermined when he claimed in court to hold an MBA from ‘Concordia College, St John’. The substance of this qualification was demonstrated by the claimant’s QC, who managed to procure one for his dog Lulu over the Internet. Galloway has since been dismissed from HP/EDS. HP denies that EDS deceived its client and is appealing the ruling.
Some legal experts saw the ruling as a warning shot for IT outsourcers, pointing out that it was the statements of a salesman that got the company in trouble, not the actual content of its contracts. They argue that companies must rein in the silver tongues of overpromising salespeople in future.
But the EDS/BSkyB case relates to a project initiated in 2000, and a lot has changed since then. The burst of the dotcom bubble has made people more cynical of the IT industry as a whole, while a decade of failed government IT projects has demonstrated the folly of taking the claims of IT services suppliers at face value.
Nevertheless, the result of the BSkyB case serves as a timely reminder of just how important it is to get IT outsourcing engagements right from the outset, or to make them more flexible and amenable to change. And while this practice has evolved somewhat in the past ten years it is still by no means perfect.
Martyn Hart, chairman of the National Outsourcing Association (NOA), says the ruling shows the importance of the fine print in outsourcing engagements
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. 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.
Peter Brudenall, a partner in law firm Hunton & Williams’s global technology and outsourcing group, believes suppliers must take greater care in how they sell to clients
This is really the first time it has been clearly stated that vendors need to be on notice that whatever they say in terms of selling themselves, or overselling themselves, could potentially be held against them if things go wrong – and things often do go wrong in IT. The vendors are going to have to either review their pre-contract processes or potentially have a far more rigid, legally sound way of communicating with potential customers.
