23 June 2003 Systems giant IBM is facing a £128 million ($212m) lawsuit from outsourcing client Cable &Wireless for alleged overcharging.
C&W signed a ten-year outsourcing deal with IBM in 2000, which included implementations of Siebel Systems’ sales force automation software and billing systems from Lucent Technology’s Keenan software subsidiary.
C&W accuses IBM of “significant levels of overcharging” for IT services supplied over a period of 14 months, starting in January 1 2001, when the transfer of staff and assets from C&W to IBM was made.
At the same time IBM is counter-suing C&W, “in respect of work C&W should have given it”, under the terms of the same outsourcing deal. A C&W spokesman said that the company had “meritorious defences” against IBM’s counter-claims and would fight them vigorously.
Separately, IBM is also facing renewed allegations over its accounting practices in the 1990s under former CEO Lou Gerstner.
The claims are being made by Gerard Churchhouse, a former IBM UK marketing manager, who will appear before the UK House of Commons’ Public Accounts Committee this week and give evidence in its investigation into the Inland Revenue’s fight against tax fraud. The claims made by Churchhouse, who also sued IBM for unfair dismissal, have not been verified.
Churchhouse will detail his claims that IBM charged its UK subsidiary artificially high royalties in the early 1990s, so that it could balance profits made in the UK with losses in the US and thereby reduce its UK tax bill.
Churchhouse claims that UK taxpayers lost out to the tune of some £330 ($549m) million as a result.
Those claims first surfaced in 1999 when IBM admitted that it was being investigated by the Inland Revenue. The outcome was never disclosed, but Churchhouse claims that IBM paid some £700 million ($1.1 billion) in settlement — considerably more than originally estimated.
In the current climate of tightened corporate governance, the question that many in the industry will be asking is, if Churchhouse’s figure is correct, how did IBM manage to slip a some $1.1 billion through its accounts without questions being asked?