BSkyB-EDS £318m judgement one year on

Suppliers and customers are still nervous about signing large deals, one year on from HP-EDS’ calamitous loss in a fraud case brought by BSkyB.

That is the verdict of a number of industry experts. But they said that in spite of the scale of the settlement that HP made for deliberately misrepresenting the time needed to roll out a customer system at the broadcaster – some £318 million – there was still room for improvement in deal-making.

The experts repeated their initial belief that the judgement had not set any legal precedent, but that it drew close attention to the way outsourcers pitch deals, and the way clients plan work and choose providers.

Julian Copeman, a partner for Herbert Smith, the firm that won the case for BSkyB, said the case had had an impact on outsourcing. “I’ve talked to people in the Asia-Pacific region and America who are wondering what this case means for them. It’s had reverberations around the common law world, and although no new law was involved, it certainly shook people that fraud had been proved in this sort of case.”

He added: “I think it’s been a wake up call for companies to look at their procedures. There’s definitely a focus on preparation and submission of bids and the processes in place such as having a good audit trail, as well as on the disclaimers used in contracts.”

Martyn Hart, chairman at the National Outsourcing Association and a blogger for Computerworld UK, said that while there had not been a drastic change in practices over the year since the judgement, the impact was still being felt.

“It is encouraging many companies, both suppliers and customers, to make sure they do proper evaluation during the procurement phase,” he said. “They’re also taking a closer look at governance.”

The judgement, some 468 pages long, focused on what was promised by EDS during its sales pitches, what the intentions behind the statements were, and what was delivered to BSkyB.

As businesses tried to improve the safeguards in their outsourcing, through customers conducting proper checks on pitches and providers attempting to more clearly demonstrate their exact abilities, Hart said, there remained a human element that would always introduce risk.

“I think there’s always a risk, no matter what you do, that there remain two equally strong incentives that can cause problems,” he said. “Firstly, the incentive for team leaders at client companies to prove themselves by signing a big deal to save money or transform operations, when it is not thought out; and secondly for account managers at outsourcers to clinch the deal and be tempted to exaggerate abilities.

“Let’s not forget, a lot of people are thinking, in any deal or new strategy, about advancing their career, it’s normal, but it can encourage misjudgements.”

The NOA provides certification to outsourcers that are able to clearly prove their expertise and abilities, and is also working on documents to help customers “ask the right questions” and choose more wisely, especially when they may be less experienced.

Copeman said the incentives given to sales staff would likely be an area of change. “It’s a bit like with bankers’ bonuses: a fine line. Are you encouraging ambition in business or are you just rewarding risk taking?”

Many in the industry have sought to downplay EDS’ problems as being part of the common outsourcing style that prevailed in the early 2000s, when the BSkyB-EDS deal was drawn up.

Craig Wilson, UK managing director at HP Enterprise Services, last year told Computerworld UK in an interview that there is now an “immeasurable difference” in buying and selling habits with a “greater degree of professionalism” throughout the industry. HP itself conducts strict gated reviews, he said, throughout its outsourcing.

Picture: World Economic Forum on Flickr

Copyright © 2011 IDG Communications, Inc.

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