On 27th January 2010, the English High Court delivered its judgment in one of the costliest, longest running and most notable IT disputes in recent years. Significant IT disputes have been few and far between in Ireland, largely explained by cost and reputational concerns. Mark Rasdale of the Matheson Ormsby Prentice Information Technology Law Group reviews this decision which, if an IT supplier or customer found itself before the Irish commercial court in similar circumstances, is likely to have a persuasive effect on the Irish court and identifies a number of lessons that can be learnt.
In 2000, BSkyB went to tender in relation to a multimillion pound “Customer Relationship Management” system to support a number of its UK call centres. BSkyB hoped to cut costs and improve service by rolling out this new system.
EDS (now HP Enterprise Services) was successful in the bid. Delivery commenced in July 2000 under what was known as the ‘Prime Contract’.
The project was ultimately unsuccessful. In particular the time critical delivery points were not met and the fixed budget was exceeded. The anticipated budget was £47.6 million, of which approximately £7 million comprised profit. The original implementation date was 1 March 2002. BSkyB claimed that the work wasn’t completed until four years later and that the cost was some five times the original budget. Notably, BSkyB claimed damages of some £709 million. BSkyB has been awarded in excess of £200 million. Hewlett Packard is reportedly planning to appeal the decision.
In general terms, the core of the BSkyB case was:
- EDS made various misrepresentations in relation to resources, time, costs, technology and methodology which were either fraudulent or negligent;
- To the extent that EDS was fraudulent, it should not be entitled to rely on the £30 million cap on liability under the contract. It is generally not possible to limit liability for fraud hence the high level of damages claimed;
- EDS breached the Prime Contract because it failed to deliver, to properly resource the project and to exercise reasonable skill and care or conform to Good Industry Practice.
While BSkyB was not successful in relation to a number of its specific claims under the above general headings, it was substantively successful. In particular, the Court found that EDS was liable for fraud in relation to some of the representations it made leading up to being awarded the Prime Contract. If EDS had not made those representations, BSkyB would not have continued with EDS as a supplier.
Some Lessons to Learn
De-Risk Communications With Customers
It is essential that engagement with customers, particularly in critical negotiations or in troubled projects, is conducted in a controlled and substantiated manner. There is an interesting, and well reported passage in the judgment regarding the credibility of one of the EDS key witnesses. It was submitted in evidence that at ‘The 12 October Meeting’ a revised project plan was produced to the customer and the managing director of the EDS CRM business was reported to have said to the customer “ This is the plan, you can either agree with it or we will take you out into the car park and…”. While there was much dispute about this evidence, the point to note is that, chance remarks and comments made in the heat of the moment, under pressure to win or save deals or in a seemingly joking or informal manner, can ultimately be given a very public hearing and analysis in court where there is a dispute.
It is possible that a corporation can be liable for the fraud of its employees. One of the key witnesses here was found to have been dishonest during the pre-contract sales process. It was confirmed by the court that it is the “directing mind and will” of the corporation that must be considered when determining whether the corporation has knowledge of the fraud. All personnel involved in the bidding, sales and negotiation process should be properly vetted and should be properly and regularly trained in relation to mitigation and managing risk.
The Importance of a True Representation
Customers like to be assured. Assurances can help win deals. Here much of the judgment focussed on the nature of the representations made by EDS. In legal terms, misrepresentations can be made innocently, negligently or, in the worst case, fraudulently.
Where a supplier is giving assurances to a customer, it is essential that they can be substantiated by a proper process. The judge in this case specifically commented on the fact that there was surprisingly little documentation relating to the process by which EDS prepared its response to the BSkyB tender.
Track Bid Activity, Stress Test Bid Statements
A few practical tips on de-risking bids can be taken from the judgment:
- avoid making definitive statements in correspondence to customers regarding commitment to timelines and resourcing requirements without having first carried out a proper exercise to identify available resource and actual cost;
- do not make unqualified commitments to provide appropriately experienced resource where that is contingent on a recruitment drive in the open market to bring in the relevant skill sets. Evidence was submitted to the court in the form of email from EDS management stating that there would be a serious resourcing shortage (this was during the “dot com boom”) if the company was successful in the BSkyB bid. While the court found that EDS had reasonable grounds for believing it could resource the project with appropriately qualified and experienced personnel, and so there was no misrepresentation on the issue, it is a notable point because there will always be a natural tension, particularly in the current market, between the need to maintain recruitment freezes and operate on reduced resources but to aggressively go out to win business;
- have a good paper trail documenting all behind the scenes bid activity to demonstrate that representations being made to customers are being supported by demonstrable activity on the ground;
- have a centralised document control process for drafting and approving critical bid and contractual documentation;
- when assessing the amount of elapsed time required to meet a delivery date, do not rely on a ‘feel from experience’ as to what is achievable. Always follow-up with a demonstrable planning, sequencing and resourcing exercise;
- ensure that risk registers and issues arising from review checkpoints during the bid process are actually addressed.