To sue or not to sue? EDS, the Murdochs and the British government

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What an extraordinary time for IT and EDS, once the doyen of outsourcers in the UK.

We are witnessing the extraordinary sight of BSkyB launching legal action against EDS for £709m on a contract with an original value of just £48m.

At the same time HM Revenue and Customs has renewed its threats to take legal action against EDS over the very troubled implementation of the Tax Credit systems.

If I were EDS’s legal team I would be far more worried about taking on the Murdoch clan – Rupert Murdoch’s son James is CEO of the broadcaster - in court than I would about the ability of the government to take effective legal action.

BSkyB is alleging that EDS made a “deliberate, cynical and dishonest” sales pitch to build a customer service system back in 2,000.

The broadcaster is justifying its claim for £709m compensation – almost fifteen times the contract value and almost 25 times the agreed liability cap - because of the alleged dishonesty and the resulting loss of sales.

Now many CIOs and IT directors have muttered under their breath about the fancy promises made by their outsourcers. Some have even consulted their lawyers and prepared for a battle royal in the courts after a disastrous project, but very few have taken it all the way.

There is a whole industry based around conciliation and arbitration in these sorts of disputes, and with good reason. In any IT disaster blame can very rarely be heaped solely on one party.

One reason the Inland Revenue pulled out of legal action against EDS back in 2005 and 2006 was that for every mistake made by the outsourcer there was an even worse blunder by the civil servants responsible for commissioning the contract in the first place.

The settlement with EDS, which the government is now threatening to rip up because it contained feeble damages clauses, did so precisely because the flaws in the government’s procurement and contract management of tax credits were so obvious. You don't have to have performed anywhere near as badly as the Inland Revenue over Tax Credits, to make legal action unwise.

Rupert Murdoch may have the resources and the self confidence to take on EDS in the courts. The proceedings are certainly going to be fascinating to witness.

But even if the Murdochs win, most organisations will not be following in BSkyB’s footsteps – no matter how severely vexed and no matter what precedents this case sets.

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