It was shortly after 8.30am on 11 December 2003 that the balance of power in the UK government IT sector shifted. That was the moment when Sir Nicholas Montagu, chairman of the UK Inland Revenue, phoned the Paris office of Paul Hermelin, CEO of Cap Gemini Ernst &Young (CGEY), to tell him the IT services company had just won its biggest ever outsourcing contract. The victory came at the expense of Electronic Data Systems (EDS) – the once mighty incumbent and, at least until recently, the dominant technology supplier to the UK public sector.
Buoyed by the news, Hermelin got straight on the phone to the man who led CGEY’s bid for the 10-year, £3 billion contract, Martin Cook. Colleagues say Cook, on replacing the handset, did what looked suspiciously like a rain dance round his office. An hour later, the Inland Revenue made the official announcement. Cook even received a congratulatory call from EDS.
Later that day, inevitably, the champagne corks started popping. But perhaps the bubbly should have stayed on ice. As the new management team at EDS can testify, winning ‘megadeals’ can make or break a company. If the supplier gets its sums wrong, or fails to anticipate project overruns and other setbacks, such contracts can easily hit profitability and damage investor confidence. Not that CGEY needs to be reminded how things can go wrong in the often-risky IT services sector. Only days after its Inland Revenue triumph, soaring morale at the French company was brought back down to Earth as it was forced to make its third profits warning of the year.
CGEY executives insist publicly that their bid for the Inland Revenue contract was not overly aggressive and that the company hopes – expects even – to be making money on the deal by the end of year one (although privately, sources are less bullish).
In the meantime, the huge task of transferring thousands of people and highly complex IT systems from EDS to CGEY got underway on 5 January. Such processes rarely seem to go as smoothly – or as cheaply – as the new incumbent envisages. And CGEY will not have long to come up with a solution to a particularly testy problem: how to roll out new tax credit software in 2004 that is likely to be far more complex than the EDS-run system that went so spectacularly wrong in April 2003, and which contributed to EDS losing the Revenue contract.