HP hands over £200m to Sky

HP has paid broadcaster BSkyB a £200 million court damages payment, over a failed customer system built by EDS.

The interim payment was made last week, ahead of the deadline set by the judge of 4pm today. HP acquired EDS in 2008, during the court case, and has inherited the problem.

The £200 million payment was seen as a large amount by industry observers, who noted it was more than four times the cost of the original £48 million contract value. BSkyB alleged fraud in EDS’ sales pitches, circumventing the £30 million liability cap in the deal.

The figure paid so far, equivalent to $314 million, is approximately a quarter of HP's entire global services profits for the three months to 31 January and represents nearly double its software income for the period.

HP may have to pay significantly more to BSkyB over the coming months. This Friday, HP and BSkyB will meet, accompanied by quantum experts, to assess precisely what the total damages should be, as well as legal costs, applicable interest rates and tax.

Total damages will include lost benefits from delays to the system, as well as some of the costs spent by BSkyB after it took the system in house in 2002. Both parties have racked up what is thought to be legal bills of over £40 million.

In late January, judge Mr Justice Ramsey found that EDS, now owned by HP, had fraudulently misrepresented the timescales needed for building the system ten years ago, in order to win the deal ahead of rival PricewaterhouseCoopers.

He singled out 'deceitful' statements made by EDS’ former customer relationship management head, during a sales pitch in 2000.

After the judgement, BSkyB, owned by Rupert Murdoch's News Corporation, immediately told shareholders it was expecting damages upwards of £200 million. HP has said it will appeal the judgement.

Commenting on the ruling, HP said: "While we accept that the contract was problematic, HP strongly maintains EDS did nothing to deceive BSkyB." HP has consistently said BSkyB did not know what it wanted from the system, allegedly changing the scope as it went along.

Copyright © 2010 IDG Communications, Inc.

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