BSkyB’s legal tussle with EDS has concluded and it’s now timely to reflect on the allegations made by claimant, the judgement reached by Justice Vivian Ramsey and the case’s consequences for IT outsourcers and their clients.
The bare bones of the matter are these.
In 2000, BSkyB, the UK’s largest satellite broadcaster, called for tenders to design, build, manage, implement and integrate processes and technology for a new CRM system for Sky’s Scottish contact centres. EDS won the bid in the face of keen competition from PwC, but then failed to deliver the project. Sky eventually sacked EDS and, in 2002, brought the project in-house.
Instead of the intended CRM project going live in July 2001 and being completed by March 2002 at a baseline budget of £47.6 million, Sky contended that the functionality for the CRM System was only completed in March 2006 at a cost of about £265 million.
Sky alleged that EDS made fraudulent and negligent misrepresentations as to resources, cost and time which led to EDS being selected in preference to PwC.
In the Particulars of Claim as they stood at the commencement of the hearing Sky claimed damages of £709 million. Apart from the extra costs that were incurred to develop the system, a significant part of the Sky claim for damages was lost business benefits, of two major types – churn reduction and call volume reduction.
Had the CRM system been implemented on time by EDS, Sky claimed they would have experienced reductions in customer churn and call volumes, due in part to enhanced customer service by Call Centre agents and through self-service.
Justice Ramsey, in his 468-page judgement, notes that “on any view this was a case which involved complex issues ranging over a wide variety of topics. The case involved hundreds of bundles and thousands of documents. Over a period of 10 months there were 109 hearing days, including submissions, witness and expert evidence.”
Justice Ramsey ruled on the three matters of claim I mention above – that there were misrepresentations by EDS as to resources, cost and time.
Justice Ramsey found that “Sky have not established that EDS made a misrepresentation” in relation to resources and “(a)ccordingly, EDS are not liable to Sky for misrepresentation as to resources.”
Justice Ramsey also found that EDS had not misrepresented the cost of the project. He writes: “EDS carried out a proper estimate of the cost of completing the project and had reasonable grounds for holding the opinion that they could and would deliver the project within that budget… Accordingly, EDS are not liable to Sky for misrepresentation in relation to cost.”
In their evidence, EDS asserted that they had carried out a proper analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the project, and that they could and would deliver the project within the specified timescales.
Justice Ramsey disagreed. He reported: “That representation was false as there was no “proper analysis” nor were there “reasonable grounds”. It was made dishonestly by Joe Galloway [at that time Managing Director of CRM at EDS] who knew it to be false. In making the misrepresentation, EDS intended Sky to rely on it and to select EDS for the Sky CRM Project and Sky did so. Accordingly, EDS are liable to Sky in deceit for that misrepresentation.”
So, in terms of the three core claims of misrepresentation as to resources, cost and time, Sky’s claim is supported by Justice Ramsey in only one particular, that of time.
Did EDS’s misrepresentation lead to their selection as system integrator?
Having found that Sky did misrepresent the time that it would take to deliver the project, Justice Ramsey also ruled on whether the misrepresentation materially affected Sky’s preference for EDS over PwC. He writes: “If EDS had not made the misrepresentations to Sky prior to the selection of EDS …. Sky would not have continued with EDS but would have engaged PwC to implement the PwC CRM System using Siebel …. PwC would have implemented the PwC CRM System with a total effort of 2794 man-months and would have achieved go-live on 1 February 2003.”
In sum, but for Joe Galloway’s lies, PwC would have been selected and go-live would have been achieved by February 2003, some 11 months after EDS said they were able to complete the project.
The consequences for IT outsourcers
Some consequences are self-evident. EDS has paid interim damages of £200 million to Sky for proven misrepresentation. Joe Galloway has been dismissed from EDS. PwC feels cheated.
But what does this mean for IT outsourcers more generally? Will it, or should it change the way that IT outsourcers behave when responding to invitations to tender?
I’ll be writing more about that in my next blog.