The Business

Contract Disputes

EDS-Sky dispute is a warning to all.

The recent court wrangles between one of the world’s leading broadcasters, Sky, and the world’s largest IT vendor, HP, might seem to have little relevance to IT consultants providing services to SMEs.

In fact, the dispute should be a wake up call to everyone in this industry.

The court case involved a disputed CRM (customer relationship management) system for BSkyB. The broadcaster had budgeted ?48m for the system, supplied by EDS (now part of HP). It cost BSkyB ?270m to implement.

After a legal case lasting a year, and a further 18 months waiting for a judgement, BSkyB was awarded ?200m of inte-rim damages. The company had claimed ?709m. The case centred around the accusation that EDS had “fraudulently and negligently” induced BSkyB into signing the contract.

The judge in the case held that EDS had made false and fraudulent representations about the time it would take to install the system, although not all the broadcaster’s claims were upheld. However, lawyers point out that the case very much turned on its own merits, and does not create new law.

“The high profile nature of the case is likely to put at the forefront of customers' minds the possibility of seeking damages by claiming fraudulent misrepresentation if an IT project starts to go wrong,” says Mark Davenport, a partner at Eversheds. “The hurdles though that need to be overcome in seeking to do this remain high.”

None the less, contractors may well need to be more cautious in their claims about contract delivery and pricing, if they are to avoid the risk of clients turning to the courts if something goes wrong. Companies might also need to tighten up their processes for quoting for work, so that sales staff are not promising services the firm cannot deliver.

Consultants will also need to ensure they have effective dispute resolution processes in place, even for small deals, so that matters can be addressed before turning to the law.

“Lying in order to win business has always carried serious consequences,” says David Barker, a partner at law firm Pinsent Masons and an expert on outsourcing. “What's interesting about this case is that this is the first time these issues have been explored in detail in the context of a major IT contract.”

Insurance could offer some protection to IT suppliers but not if, as Barker points out, lying to win deals is systemic within an organisation. Insurance is no panacea, and needs to go hand in hand with good practice.

“For those suppliers which have been diligently undertaking estimating on timescales then there is no real need to build in a contingency just because a supplier whose processes were found wholly lacking faces a major damages payment,” says Barker. “Any supplier which has adopted a cavalier attitude in the past will need to change, but that change is really just falling in line with good practice.”


 
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