Sky is seeking £709 million in damages from IT services company EDS after it allegedly acted “dishonestly” when pitching for a £48 million contract to build a new CRM system back in 2000.

A history of the BSkyB and EDS court case

Work on the £48 million CRM system began in 2000.

In 2002, BSkyB made a claim of £49m after the project allegedly slipped and contract discussions failed. This claim was raised to £709m by last year as the dispute heated.

BSkyB accuses EDS of fraudulently exaggerating its abilities when pitching in 2000 for the contract.

EDS says BSkyB did not know what it wanted from the system, and kept introducing new requirements.

BSkyB's £709 million claim is based on allegedly lost benefits as a result of delays, and costs it says it incurred to put it back on track. EDS calls the size of the claim “absurd and extravagant”.

Several outcomes are possible: BSkyB could be awarded all, a portion, or none of its claim.

EDS denies the claim, and said in court that it fairly represented its abilities. EDS's defence is that BSkyB did not know what it wanted from the system, and that the extent and complexity of Sky's requirements "kept on emerging like handkerchiefs from a magician's sleeve" during the roll-out.

A verdict from the year long case is expected at the end of this month or in early January. BSkyB and EDS declined to comment on the case for this article.

Whatever the verdict, the case will have wide-reaching implications for the outsourcing industry as a whole, according to industry observers.

Conflicts between outsourcers and clients are not unusual, according to Nigel Roxburgh, research director at the National Outsourcing Association. Businesses often claim that IT suppliers fail to deliver what they promised, and suppliers say in return that clients change requirements as they go along, making it difficult to bid for, plan, and roll out projects. However, few disputes reach court, he noted.

The case is an unusual one which could set a legal precedent.

“There’s a lot of interest from outsourcers to see which way the BSkyB-EDS verdict goes,” Roxburgh told Computerworld UK. “If the case is upheld [in favour of BSkyB], it could lead to a real scratching of heads, particularly among lawyers,” Roxburgh said.

A win by BSkyB could mean that conversations and emails between parties before a contract is signed and during rollout, are legally-binding statements. Such communication has come up extensively in witness questioning in court. This could have potentially serious consequences for outsourcing firms, making them reluctant to speak about project strategy apart.

This would be a dangerous situation for outsourcers, Roxburgh warned. “If other representations become more important than contracts themselves, it could indicate that contracts effectively have no value,” he said.

If the court rules in EDS's favour, Roxburgh said, suppliers would have a court precedent to support the argument that contract terms are the only legally binding statements. Entire Agreement Clauses, which exist in most supplier contracts and insist that only terms in the contract are legally binding, would stand.

Lawyers have said that BSkyB's claim of ‘fraudulent misrepresentation’ may have allowed it to circumvent the Entire Agreement Clause, by claiming that EDS intended to mislead it in order to win the deal. Nevertheless, lawyers agreed this would be hard to prove.

Whichever side wins, it is “a disaster for both parties” that this dispute landed up in court, according to Roxburgh, as mediation could have helped the parties reach a resolution faster and at less expense. A mediation process, led by an impartial individual, would have involved the representatives from both firms reassessing the contract when signs of trouble emerged and working out a new strategy and fair payment terms from that point.

Roxburgh advised firms to include clauses in their contracts that insist on thorough mediation as the first step to solving a dispute, rather than court.

Amanda Bucklow at mediation firm In Place Of Strife, said: “Look at the massive legal fees being paid to get this through court. Even a long and extraordinary mediation process would have taken only a few days and cost a lot less.”

IT contracts were particularly vulnerable to disputes, she said, because “people do not scope IT projects properly”. Too often, clients and suppliers do not understand the scope of a project, and the people that are expected to use the resulting systems have little input in the design, she said. To make matters worse, suppliers that bid for projects are under pressure to outdo their rivals in terms of costs and deliverables.

The costs of the current case between Sky and EDS are still not known. In April, BSkyB said it expected to spend £21 million on the case, which is nearly half the originally planned costs for the CRM system.

Bucklow claimed four in five mediation processes result in an agreement on the day of discussions or shortly afterwards. “It gets the job done instead of fighting through the legal system to prove who’s at fault,” she added.

“It’s not a fancy name for getting down and talking, it’s about a constructive discussion that is managed by someone who is experienced at focusing on a solution, and can involve people at all levels from the users to engineers to the chief executive,” she said. “Also, it preserves confidentiality, which a courtroom doesn’t because it is public.”