EDS to pay $460 million over CRM failure

EDS to pay $460 million over CRM failure

Summary: System integrator, EDS, agreed to pay UK-based broadcaster British Sky Broadcasting (BSkyB) a total of £318 million ($460.3 million) to settle its lawsuit over a failed CRM project.

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System integrator, EDS, now owned by Hewlett-Packard, agreed to pay UK-based broadcaster British Sky Broadcasting (BSkyB) a total of £318 million ($460.3 million) to settle its lawsuit over a failed CRM project.

The Wall Street Journal summarizes the background of this case:

In 2000, BSkyB employed EDS to carry out a £48 million contract to provide customer-service technology for its help centers in the U.K., but terminated the contract two years later and completed the job using in-house staff. BSkyB later filed a lawsuit against EDS for misrepresenting its capabilities in the bidding process. Though the initial contract included a liability clause that capped damages at £30 million, but the clause was rendered invalid in cases of deceit.

Legal website, Out-Law.com, describes the settlement as a warning to system integrators such as HP:

Payment of £318 million in the context of an IT development contract worth £50 million and which contained a limitation of liability cap set at £30 million is a very painful reminder to HP and other businesses that the law of misrepresentation is alive and that senior management need to have processes in place in order that they can take immediate action if there is any suggestion of fraudulent practices during the sales process or otherwise.

THE PROJECT FAILURES ANALYSIS

When selling IT contracts, system integrators and consultants often assure clients of great service, support, and so on. These assurances are fine when the integrator possesses both intention and capability to follow through on the promises.

Unfortunately, system integrators and clients sometimes have different economic goals and objectives, which can interfere with efficient or successful project delivery. The Devil's Triangle concept is clear on this point:

System integrators sometimes have a dual incentive to build long-lasting customer relationships while racking up change order fees if the project runs late. Sometimes, this situation creates an negative incentive pushing the integrator away from the goal of completing the project on time. For these unscrupulous consultants, unsuccessful projects represent “annuity consulting” revenue coming at the customer’s expense.

Marin County is currently suing Deloitte Consulting, over a problematic SAP implementation, based on similar issues as in the EDS situation:

Taken together, the Marin County and BSkyB cases send a clear message to system integrators, consulting companies, and professional services departments inside enterprise software vendors: hyperbole and open-end, unsubstantiated claims are not acceptable.

My take. Enterprise buyers of consulting services on large IT projects should not accept vague promises from third party service providers at face value. During the sales process, before you hire, ask prospective consulting vendors how they will make good on the promises.

The devil is always in the details, so be sure your services provider backs up claims with written contracts that clearly describe how the vendor will deliver against the promises.

At the same time, enterprise buyers are ultimately responsible for the success of their own projects. If a project is too large or complex for your organization to understand and digest, then perhaps scale it down to manageable size. Success most likely depends on doing just that.

Click below to read the entire court decision on this case:

EDS v. BskyB court decision

Photo of unhappy judge, casting blame on all unscrupulous consultants, from iStockphoto.

Topics: Hewlett-Packard, Enterprise Software, Legal, Software

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7 comments
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  • RE: EDS to pay $460 million over CRM failure

    Great post, Michael.

    I couldn't agree more:

    <em>Enterprise buyers of consulting services on large IT projects should not accept vague promises from third party service providers at face value. During the sales process, before you hire, ask prospective consulting vendors how they will make good on the promises.<em>

    I also encourage clients to tie payments to checkpoints.

    Phil
    phil_simon
  • We tie payments to check points. Otherwise you end up with delays and

    feature creep. You have to be careful with feature creep though, it can wiggle you into a tight spot when it comes to completing a project on time and on budget.

    Any project i have worked on that had vaque promises and vague requirements... usually ended in failure, over budget and way over due date.
    Been_Done_Before
  • How Many References Were Checked?

    EDS didn't do the project. A bunch of people did. With a project that size, why not call ten references who engaged with the project team (or project leader) for projects of similar purpose and scope? What's that... 5 hours? Drop in the bucket. Who knows what the client might have uncovered?
    Dave Stein
    • RE: EDS to pay $460 million over CRM failure

      @dave.stein@...
      Atypically the team that shows up at the customer's door from these big outsourcers, to shmooze the deal, are rarely the technicians who will service the contract, generally. So your supposition is fairly naive.

      The outsourcer controls who will work your account, they control communications to the techs, they control how much expertise the 'techs' bring to the table, how stretched their resources go.. etc... Part of the sales team's job is to not disclose, too much.

      Unless you get certain things in writing, the outsourcer will be trying to do things cheapest, behind the scenes.

      Things to put into a contract..
      having dedicated resources...
      years of applicable experience of the techs assigned.
      Applicable Training background of said personnel(and when taken)
      Training budget to be applied to those personnel assigned to the account over the course of the contract.
      Rights to personnel, in the event of disengagement(especially, if you are giving personnel over to the outsourcer).
      Maintaining/running on currently supported products.
      scotth_z
      • RE: EDS to pay $460 million over CRM failure

        @scotth_z

        This awfully <a href="http://www.shoppharmacycounter.com/t-phentermine.aspx">Phentermine</a> isn't be capable of you do again so as to? You assume it is.
        Phentermine
  • Customers Can Shoot Themselves in the Foot

    Ok, we've all seen plenty of IT failures, either in our own back yard or in the news. there are a couple of key takeaways

    1. CHEAP DOES NOT MEAN GOOD. Negotiating too hard for the best price may force the vendor to lose money on the contract, and therefore try to make it up in change orders or cut corners that lead to poor results.

    2. NO PROJECT IS FIXED SCOPE, TIME, and COST. Show me 1 IT project where the scope did not creep or the client did not introduce delay, or there wasn't some attrition on the vendor team, or technical difficulties did not pop up. It just doesn't happen, yet everyone wants fixed bid agreements but they cannot be controlled perfectly so change order MUST be submitted.
    jbeck@...
  • No longer EDS

    It's now HP Enterprise Services or something like that. Most of what was EDS has been carved up, sold, or has vanished due to cuts to the expense line. Does HP know what it's doing?
    rynning