EDS court case wiped up to £7m from Sky balance sheet in last quarter

TV and broadband firm British Sky Broadcasting saw up to £7m wiped from its balance sheet in the three months to 30 September, thanks to an ongoing lawsuit against EDS.

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TV and broadband firm British Sky Broadcasting saw up to £7m wiped from its balance sheet in the three months to 30 September, thanks to an ongoing lawsuit against EDS.

In its 2007 financial year, Sky took a £16m hit for the legal costs relating to EDS, and is expecting to spend another £16m this year, an estimate revised upwards from £12m in last year's statement. This means that if costs remain within estimates, Sky will have spent £32m in two years on the case.

In its own financial statement, EDS boldly promised shareholders that whatever the outcome of the case, it did not believe there would be “an adverse material impact” on its results or general finances.

Sky is suing EDS for allegedly misrepresenting its abilities and resources when bidding in 1999 for the £48m deal to build a CRM system, and is claiming £709m for lost benefits after late delivery. EDS denies the claim and says it could not promise exact resource as Sky “did not know what it wanted” from the project.

Procedures originally began in 2003 when Sky served a draft pleading to EDS, seeking compensation for the extra costs it said it had incurred. But the case did not begin in court until last month after extensive legal wrangling and pre-trial disclosure of documents between the two sides.

In 2004, EDS served a counter claim on Sky, denying the charges and seeking £4.7m in damages. It is understood this will be taken into account during this case.

Estimates suggest that the case will run until spring next year, unless the two parties settle first.

This week, EDS continued to cross examine Sky witness Mike Hughes in London’s Technology and Construction Court. Hughes came under pressure as he was forced to recount the details of conversations he had had seven years ago.

In an increasingly tense exchange with EDS barrister Mark Barnes QC, the former managing director at Sky Services was asked why he was needing to refer back to his witness statement on the subject of renegotiations of the project timescale between Sky and EDS.

“We’re talking about [the year] 2000,” replied an exasperated Hughes. “It was seven years ago so I had to refer back to the statement. I’m sorry if that’s inappropriate.”

It emerged in court that such conversations led to EDS and Sky negotiating to revise the timescale to deliver the project by November 2001, well into the key Christmas customer sales period for which Sky hoped to have had the system complete.

Hughes maintained that it had been clear Sky had wanted the project in time for this period. “There was a clear understanding in the Sky programme team of the criticality of hitting the peak selling period,” he said.

But he had omitted to mention this revised timetable in his witness statement, a point the EDS barrister quickly swooped on. “I think you can confirm this is important information. Why was it not in your witness statement?”

After a lengthy pause, Hughes replied: “Perhaps it should be.”

The case continues.

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