This continues a series of columns from practitioners I respect. The category "Real Deal" describes them well.
This time it is Peter Brudenall, who is a partner in the London office of Hunton & Williams LLP. He is a member of the firm's Global Technology and Outsourcing Practice, which is ranked as the #1 outsourcing law firm in the world by the Black Book of Outsourcing and the #1 privacy law firm in the world by Computerworld. He serves as counsel to many Global 2000 companies, including both information technology vendors and their corporate customers.
‘A recent, major legal decision in England may force vendors to review their pre-contract sales techniques, with promises around timing for delivery and quality of technology likely to come under increasing scrutiny. In July 2000, UK broadcaster BSkyB chose global IT vendor EDS (now owned by HP) to run a new Customer Relationship Management (CRM) project, designed to create an advanced customer service system for its Scottish call centres.
Less than two years later, BSkyB ended the contract after EDS failed to deliver. In August 2004, BSkyB commenced legal proceedings and the project was eventually completed by BSkyB in 2006, some five years late and at a cost of over £200 million, nearly six times the cost quoted by EDS.
BSkyB claimed in Court that EDS was deceptive in overselling the CRM system by describing the system as “proven" when it was not, by overstating its capabilities in relation to resources and implementation methodologies, and by understating the amount of time and cost required to implement the system. BSkyB claimed that these statements led to EDS being selected ahead of other bidders.
Given that BSkysB’s losses were so large, they wanted to try to claim damages far in excess of the contractually agreed limitation of liability provision (set at £30 million). Under English law, in order to do this, BSkyB needed to successfully establish that EDS made fraudulent misrepresentations that induced BSkyB to choose it over other bidders for the project.
In its defence, EDS argued that BSkyB had no definite idea of what it wanted from the project and continually altered its requirements, resulting in delays and other problems. These are typical issues that arise in IT contract disputes, with many failed technology procurements relating to issues around the quality of the systems or services being provided by the vendor and to the changing requirements given by the customer.
The Court found generally in favour of BSkyB and, so far, has awarded damages in excess of £200 million with further awards to be made. It said that EDS had been deceitful, firstly, when it claimed that it had carried out a proper analysis of the time needed to complete the initial delivery and go-live and, secondly, when it claimed that it held (on reasonable grounds) the opinion that it could and would deliver the project within the promised timescales.
What does this decision mean for vendors and customers of IT services? While it is unlikely that there will now be a flood of claims based on misrepresentations made by vendors - it is both complex and expensive to bring claims for IT disputes and few ever get to Court - it may lead to a re-think of pre-contract processes, particularly by vendors. Vendors will need to be more cautious as to what they say to their customers in order to “win the business”. Bid teams are likely to be more closely monitored and all aspects of their bids may first be subjected to internal legal scrutiny.
Vendors may also need to be realistic with customers about the potential for a complex IT project to go wrong rather than provide an overly optimistic view of the deal succeeding. Similarly, customers may start to exercise more diligence when running tenders (during the RFP process), including by asking their service providers to provide firm evidence to support statements made in tender responses, including particularly dates for delivery. As such, service providers may need to work harder to justify their sales claims. All of this could lead to higher costs for running an outsourcing tender - we’ll need to wait and see. However there is little doubt that a few vendors might be keeping their sales teams on a tighter leash from now on.”
Peter can be emailed at pbrudenall AT hunton DOT com