EDS faces £200m bill for IT project failure

Service companies in the IT sector that exaggerate their experience and capabilities when bidding for work were yesterday laid open to fresh claims valued at five times the contract's value.



Ruling in the largest commercial case seen in London's Technology court, Mr Justice Ramsey paved the way for end-users to receive hefty payouts from contractors who lie to get hired.



He accepted the claim of the client – BSkyB – that the contractor – EDS – made false representations in order to secure a £48million contract to build a customer management system.



Awarded in 2000 to EDS, now part of HP - the world's biggest IT company, the contract was to design, build and implement an IT system at the broadcaster's customer service centres in Scotland.



But in March 2002, having seen the project hit by delays and cost overruns, BSkyB terminated the agreement, and accused EDS of failing to perform its contractual obligations.



With an unfinished project and no contractor to complete it, BSkyB appointed its own IT team at Sky Subscribers Services Limited to finish the system, at a reported cost of £265million.



Such a quick but expensive fix would not have been necessary, BSkyB claimed in court, had it not been for the false representations by EDS which saw it selected over rival contractor PwC.



As a result, Mr Justice Ramsey ruled that, for the first time, a cap on damages (of £30million) specified in the contract in the event the project failed should be disregarded.



"This is a major decision that's going to have a huge impact across a broad range of businesses," said Jeremy Drew, head of technology, IP and outsourcing at Reynolds Porter Chamberlain, a law firm.



"Any service company that bids for customers will have to be much more careful about avoiding loose sales talk and exaggerating its past experience and capabilities, otherwise it could find itself on the receiving end of a similar claim."



In court, Mr Justice Ramsey did not set an amount for damages but BSkyB said it believed EDS would be liable for at least £200m – down from the £709m it had sought.



"IT and other service providers will now have to be more careful that they can back up any sales claims with hard evidence," Drew reflected.



"In the past it's always been the case that the customer has had to make a judgment call on the sales pitch of a bidding company to assess whether they are competent and capable, but this decision means the burden will now be shifted to the bidding company to rein in any exaggerated claims."



HP last night said it planned to appeal the ruling, indicating that the five-year legal dispute may still have some way to go before it is resolved.



A company spokesman said: "While we accept that the contract was problematic, HP strongly maintains EDS did nothing todeceive BSkyB. HP will be seeking permission to appeal."



However, relations between the two appear strained already. In court, BSkyB accused EDS of "woeful" performance, while the latter argued that Sky had been an unrealistic client.