HP, EDS clients advised to review contracts

Outsourcing consultants have advised HP and EDS clients that they may be able to push for a better deal following the companies' recent merger

HP and EDS customers should look at renegotiating existing contracts to push for price reductions and improved services following the $13.9bn (£7bn) deal between the two outsourcing giants.

Outsourcing consultants and advisers have said HP's agreement to buy EDS presents an opportunity for both companies' customers to push for better terms on their deals.

Compass Management Consulting, which helps broker outsourcing deals between companies and providers, said the merged company's desire to hold onto existing clients in the wake of the deal will leave it open to demands to improve service contracts.

In many cases, the buyout could trigger clauses in EDS outsourcing contracts that will entitle its customers to new rights.

EDS is responsible for and has delivered some of the biggest projects in the UK public sector, including the much-criticised £5bn MoD Defence Information Infrastructure project, which will rationalise 300 databases.

A spokesman for Compass said: "If you are an HP or EDS client and there are aspects of the relationship that need to be improved, this could be a good time to voice your concerns."

Compass is advising its clients on the outsourcing buy-side that they now have more power.

The spokesman said: "Are there any major service problems that need to be fixed? Anything you've asked for that isn't getting the proper attention? Bring it up; escalate it; tell them you aren't happy about the change in control and may exercise your rights. Then you'll get some quick results."

Companies that are happy with their EDS contracts should use their leverage to instead secure guarantees to maintain service levels or retain key staff.

Outsourcing customers could also benefit from the two companies' complementary skill bases and better global coverage, with EDS strong in mainframe capabilities and HP strong in desktop, helpdesk and consulting skills, Compass added.

Barry Matthews, of Alsbridge consultancy, is in the process of helping to set up a deal involving EDS and has previously been involved in setting up deals with a number of clients who outsource services to EDS.

He said: "Some clients will see it as a positive thing because of the increased scale, but there may be negative implications for others, who see it removing focus from the day-to-day services they receive."

"The deal will certainly invoke clauses in existing contracts. There will be an opportunity for better services and reduced pricing," Matthews said.

EDS and HP's collective services businesses, as of the end of each company's 2007 fiscal year, had annual revenues of more than $38bn and 210,000 employees, doing business in more than 80 countries.

A spokeswoman for EDS stressed the deal was still subject to regulatory and stockholder approval ahead of completion later this year.

But the spokeswoman added: "The combined strengths, assets and R&D capabilities of our two companies will create customer benefits."