EDS settles lawsuit over botched CRM project for $460M

Computerworld - EDS has agreed to pay a staggering $460 million to settle a long-standing lawsuit brought against it by U.K.-based British Sky Broadcasting Group PLC over a botched Customer Relationship Management project.

In a statement released yesterday, Sky said that the two companies had "full and finally" settled the litigation and all claims including those related to damages, litigation costs and interest.

Yesterday's settlement amount includes an interim payment of £270 million that EDS, which is now owned by Hewlett-Packard Co., paid Sky in February.

That payment came after a British court in January ruled that EDS had misrepresented facts about its CRM implementation abilities and about how long it would take to complete the job when pitching for the CRM project back in 2000.

A spokeswoman for HP today downplayed the settlement and said it had to do with a dispute that originated well before HP acquired EDS. "This matter is now closed, having been settled fully and finally on mutually agreed terms," she said by e-mail. "We will not be commenting further publicly on this legacy issue."

The size of the EDS settlement amount is more than four times the amount of the original $109 million CRM development contract that EDS signed with Sky Broadcasting in late 2000. Under the contract, EDS was supposed to have helped Sky implement a CRM system to support the broadcaster's call centers.

That contract was terminated barely two years later amid charges by Sky that EDS had been deceitful and negligent and that it had failed to fulfill its contract obligations. Sky later completed the project using its own in-house staff in 2004.

In its lawsuit, Sky claimed that though the original contract with EDS was worth $109 million, it had it fact spent close to $311 million on software, integration and infrastructure related costs. At the time of the lawsuit, the company had noted that it expected to spend close to another $90 million to finish the CRM rollout and maintain the system.

The EDS settlement comes just days after another major IT service provider, Deloitte Consulting LLP was hit with a lawsuit by one its customers over a disputed SAP ERP implementation.

The $30 million lawsuit was filed by California's Marin County, which like Sky, accused Deloitte of making fraudulent claims about its skills and capabilities when originally pitching for the ERP project in 2004.

Marin has claimed that Deloitte's inability to complete the project on time and to specifications resulted in considerable cost overruns and in an ERP system that was considerable worse than the legacy system it was meant to replace. Deloitte itself has challenged those assertions and insists that it had delivered on its promises.

The EDS settlement and the Deloitte lawsuit are troubling for major U.S. IT services firms, said Phil Fersht, an independent outsourcing analyst based in Boston who maintains a blog called Horses for Sources.

"This sets a dangerous precedent," that could inspire other lawsuits over similarly troubled implementation projects, Fersht, he said. Even one other major lawsuit in the U.S could trigger a domino-effect of lawsuits that would transform the way outsourcing deals are priced, negotiated and delivered, he said.

Over the past few years, major IT services firms in the U.S. have been under growing competitive pressure from Indian vendors, Fersht said. Vendors are finding it harder to differentiate themselves and have been promising ambitious business and process transformation benefits just to secure projects, he said.

"We have seen too many situations where the integrator had to put in the B team or even their C team on major integration projects," because of resource and margin constraints resulting from increased competition, he said. Many of those projects are now in trouble and vendors are desperately trying to get out of it, he said.

"Smart vendors are trying to shed their clients before they reach these situations," he said referring to the EDS and Deloitte lawsuits. Many are hiring consultancies that specialize in project 'rescues', Fersht said.

"They are supposed to come in and rescue a bad situation before it ends up in court," he said.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at  @jaivijayan or subscribe to Jaikumar's RSS feed . His e-mail address is jvijayan@computerworld.com.

Read more about CRM in Computerworld's CRM Topic Center.