Recently in legal actions Category

Microsoft could be barred from tenders

| No Comments
| More
Microsoft could be barred from taking part in public tenders, Computer Weekly can reveal.

But Microsoft's market position may be so strong that it prevents public bodies from deploying their blacklisting powers. EU competition law may be useless in the face of technical monopolies that draw their power from the control of interoperability standards.

The question of blacklisting Microsoft was first raised in 2008 when the European Commission signed a €49m Microsoft contract with Fujitsu. MEPs asked whether the contract should be barred under competition rules. As though to punctuate their point, the contract was enacted within days of the Commission fining Microsoft €899m for failing to co-operate with previous orders to address its market abuse. The same contract is up for renewal in February.

MEPs learned that Microsoft could not be blacklisted automatically. But the law allowed public bodies to bar Microsoft contracts on a case by case basis.

The Office Of Government Commerce confirmed that public purse holders have the same powers under the 2006 Public and Utilities Contracts Regulations. This gave them discretion to exclude suppliers that have "committed an act of grave professional misconduct in the course of his business or profession".

It gave UK bodies the same option to blacklist suppliers for a breach of competition law as was established in the original EU directive under which MEPs hoped to bar the Fujitsu contract.

The UK's Office of Government Commerce said: "It would fall upon the individual contracting authority to consider on a case by case basis whether it is reasonable and proportionate to exercise its discretion to exclude."

Blacklisting

Whether it would be reasonable and proportionate to blacklist Microsoft would depend on the seriousness of its offences, their relevance to a particular tender, and whether it had absolved itself with remedial steps and by paying its fines.

This is untested territory, and not the least because no-one has yet to try and bar Microsoft.

The closest example in UK law occurred last year when the Office of Fair Trading fined 103 construction companies for price fixing. The OFT advised that public procurers should resist the temptation to bar these 103 from tenders. The was because price fixing was endemic to the building industry. It wouldn't be fair to bar only those few who were caught.

This provided no direct parallels with Microsoft. Microsoft was not one for price fixing. And one cannot say Microsoft's crimes were endemic to the market. Microsoft is the market. It's crimes were for monopoly abuse.

Simon Taylor, antitrust lawyer at Wragge & co., says purse-holders should bear in mind that "it might be proportional to blacklist someone for a limited period", but that to do it for too long "would be disproportionate". 

Microsoft

Microsoft's case is still open. It was found in abuse of its dominant market position as long ago as 2004, and upheld against Microsoft's court appeals in 2007. And Microsoft also paid €777m of EC competition fines.

But on 9 May 2008, Microsoft appealed the final €899m fine in the General Court. 30 months later, the case has still not been brought before the court. It usually takes 18-24 months before a hearing.

The fine Microsoft is appealing was imposed ultimately because it tried to extend its "near monopoly" in desktop operating systems into servers and multimedia by exerting its powers over interoperability standards.

Microsoft took steps to stem these abuses in 2007. But the question of the power it exerts over interoperability standards is still pertinent today, as open source advocates at Bristol City Council found recently to their dismay.

Bristol was just the sort of Council that might blacklist Microsoft. But it learned the hard way that Microsoft's market power cannot be denied. It's power over standards is so strong that even a public body that like Bristol, which wanted to use open source software on the desktop, simply had to give up and buy Microsoft because everyone else used Microsoft software and Microsoft standards.

Similar problems stopped MEPs in their tracks when they raised a ruckus over the Fujitsu contract.

Powerless

"Microsoft was the first company in fifty years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision," said the Commission on 27 February 2008, two and a half weeks before it officially awarded the €49m Microsoft contract to Fujitsu. 

Might the EC have used its discretion to bar the Fujitsu/Microsoft contract? Might it even find reason to bar the contract's renewal when it comes up in February?

It's an amusing question. Because that tender used a get-out clause to specify "Microsoft" against the rules of competition. How on earth could anyone hope to bar Microsoft from a bid that specifies the supplier must be Microsoft? EU and UK competition law looks about as useful as a Tiger Moth in fight with Godzilla.

Neither could another software supplier have a hope of winning the business. A public body wouldn't have a hope of barring a monopolist. Elected MEPs have found they have no hope of doing anything about it.

If EC competition rules can't prevent public money from being used to sustain a market-stagnating monopoly, then what will?

Microsoft was unavailable to comment. The EC has asked Computer Weekly to stop asking questions about its multi-million-Euro public contracts.

EC slapped over open source contract

| No Comments
| More
The European Commission has been scolded for wrongdoing over a quasi-open source software system.

The European Ombudsman reprimanded the Commission after buying the system without holding a public competition.

The reprimand raises important questions about the open source business model. But the complex investigation into the contract has not provided answers because the Commission failed to explain what had really happened.

The Commission can now implement system, provided by UK-based Alfresco, despite the doubts raised by its procurement.

The Ombudsman said the European Commission was guilty of "maladministration" because it failed to explain why it had bought the software system without holding a public competition.

The Ombudsman did not name the parties involved but Computer Weekly can confirm the contentious deal was for an Alfresco system, and involved a Belgian middle-man called PC-Ware.

Investigators had been trying to find out whether there had been a much more serious case of maladministration over the Commission's Alfresco deal, which involved the choice of a collaboration system to be implemented across all agencies of the European Union, and in the offices of every member state that may have cause to use the EC's document exchange tools.

Investigation

The question was whether the Commission arranged to pay millions of Euros to build its CICRABC collaboration system on Alfresco's quasi-open source content management system, but bought Alfresco's software as though it was truly open source and therefore fell outside normal competition rules.

Alfresco's licensing model was at the heart of the problem, according to the Ombudsman's report. The Commission's technical requirements had been for an open source system. It chose Alfresco's system, which in its Community version is open source.

The Commission told the Ombudsman that it did this without going to tender because it was an open source solution. It simply chose Alfresco after a technical evaluation.

But the Commission chose to use Alfresco's Enterprise version, which is not open source. Alfresco's Enterprise licence required the Commission to pay an annual subscription. That payment covered the provision of support services from Alfresco. The Commission went to competitive tender for someone to provide support services. But the support services were for an Alfresco system it had already chosen without a competition. Alfresco won the business through a partner.

"If [Alfresco] was the only company which could win the tender for the supporting services for its own platform, the Ombudsman does not see why the Commission did not comply with the [law] from the outset and organise a procurement procedure to select software for its new platform, which would have included support services," said the Ombudsman in its decision.

Open source business model

John Powell, CEO of Alfresco, told Computer Weekly that the open source business model allowed customers to cut cost from the procurement process by cutting out sales people. They chose the technology they wanted and then went to tender for services to support the open source system. 

"Other people can support Alfresco," said Powell. "We just tend to be the best."

Powell said Alfresco's software was open source and that his company was the second largest open source company in the world after Red Hat. But when pressed further, he confirmed that only the community version of Alfresco is issued under a certified open source licence. The Enterprise version required the purchase of a support subscription and though customers could carry on using the software and even modify its code after the subscription had finished, they were forbidden from redistributing the software.

Reprimand

Raluca Trasca, the EU lawyer who conducted the investigation, said the Ombudsman could not determine whether the Commission had been wrongful in not tendering for the software system because it supplied insufficient answers to her official questions.

"It...failed to justify its decision for having selected the supplier of this software without conducting an appropriate call for tenders," concluded the Ombudsman's decision.

"When the Commission acquires products and services against payment, it should do so only through procurement procedures.

"The Commission failed to put forward sufficiently convincing reasons why the contract with [Alfresco] was not a public contract...This constitutes an instance of maladministration," it said.

The Commission had established a technical requirement for an open source upgrade to its collaboration system because there were so many external agencies that used it. It did not did not want to force them to buy expensive software licences just so they could collaborate on EU work.

Special licence

Powell said Alfresco struck an agreement to let the EC redistribute its Enterprise software under a European Union Public Licence in 2007. The Commission chose the software in 2006. EUPL was certified as an open source licence in 2009.

A source close to the investigation provided Computer Weekly with EC publicity material that said in 2007 the full system would cost €3.3m.

Powell said he did not know how much money the European Commission had paid Alfresco. He admitted that the deal had made the Commission one of Alfresco's biggest customers. He thought it might be paying roughly €100,000 a year.

European Dynamics (Eurodyn), a Greek company whose complaint had caused the Ombudsman's investigation, had tried and failed to get the Commission to stop installing Alfresco's software on the basis that it had been chosen without a competition. Eurodyn had developed the previous version of the EC's collaboration system, called CIRCA. It's complaint did not include enough evidence to justify an order to cancel the Alfresco procurement, said the Ombudsman.

Aftermath

The Ombudsman's decision allows the Commission to proceed with implementation of the Alfresco system, and its distribution across the EU. This was said in 2007 to involve 70 offices in 20 member states.

The Commission has until 31 May to explain what it has done to ensure it does not get pulled up over other quasi-open source procurements. It's office did not reply to our request for comment.

Gerry Gavigan, chairman of the Open Source Consortium, said the Commission was free to ignore the Ombudsman's decision. He asked why Eurodyn had not taken its complaint to the EU's competition office, who had bigger teeth. 

Mark Henley, a lawyer with Wragge & Co., said the decision did not help clarify unanswered questions in open source procurement because it hinged on Alfresco's enterprise licence. It did, however, provide assurances where that had been doubts that it was legitimate to opt truly open source software purely on the basis of technical requirements.

HP reaches good settlement over BSkyB v EDS case

| No Comments
| More

BSkyB and HP-owned EDS have settled the litigation between them which has lasted for much of the past decade.

HP, on behalf of EDS, has agreed to pay Sky a total - including legal fees - of £318m, which is only about £50m more than the interim payments awarded by the High Court earlier this year.

Sky had originally claimed £700m from EDS and HP after a CRM system that Sky ordered from EDS in 2000 failed to meet expectations.

The High Court found that EDS had misrepresented its abilities and the time it would take to complete the CRM installation. 

Since the verdict, the two companies have been negotiating a final agreement. For HP the settlement is a good one because, on top of the interim damages of £270m, it could have faced paying Sky hundreds of millions pounds more had the judge ruled that Sky's claim of £700m was reasonable in the circumstances.

As it is, HP and BSKyB have settled for the interim sum HP has already paid of £270m plus only about £5m more than Sky's legal costs of about £45m.

Ex-iSoft employee barred for misleading auditors

| No Comments
| More

The Accountancy and Actuarial Discipline Board [AADB] has barred a former iSoft employee Ian Storey from being a member of the Institute of Chartered Accountants for England and Wales for eight years. It also ordered him to pay £20,000 costs.  

An announcement about the outcome of its disciplinary hearing against Storey is on the AADB website. It says that Storey, who was iSoft's Financial Controller, "accepted that he had, on a number of occasions between November 2003 and November 2005, provided false and misleading information to iSoft's former auditors in relation to a purported iSoft contract".

The auditors were Robson Rhodes, which became a part of Grant Thornton on July 1, 2007.

New seminar on impact of BSkyB v EDS judgment

| No Comments
| More
             
Reading-based Clarkslegal is hosting a breakfast seminar on 31 March on  the impact of the judgment in the case of BSkyB versus EDS.

It says the judgment is of "relevance way beyond the IT sector and has lessons for all businesses taking part in procurements, whether as supplier or customer as a result of the finding of fraudulent misrepresentation by EDS and the devastating effect on its limitation clause".

It adds: "The decision also demonstrates the consequences of failing to vet and monitor your employees closely."

With my colleagues Bryan Glick and Karl Flinders, I attended last week an excellent seminar on the case at Berwin, Leighton Paisner.   It was organised by outsourcing advisers Burnt Oak Partners. Karl sums up here

These were some of the points that struck me:

EDS on the BSkyB case "the people involved were exited"

| No Comments
| More

Craig Wilson, who's managing director and vice managing director and vice president of HP Enterprise Services, says that the BSkyB case against EDS is a "bit like yesterday's chip paper".

Wilson manages EDS which was taken over by HP in August 2008. He was interviewed by CIO UK which asked him what he made of the BSkyB case.

"It's a bit like yesterday's chip paper at EDS," he said. "The whole IT industry was in the middle of year 2000 [when the disputed agreement was made]. It was 'go, go' and it was crackers, the end of the dot-coms period. The people involved were exited even before EDS was a glint in HP's eye. We're obviously pleased that of the five matters raised, the judge rejected four of them."

BSkyB v EDS - HP restates profits 3 weeks after announcing them

| No Comments
| More

A chronology:

3 February 2010: The High Court orders HP to pay £200m in damages to BSkyB which has won its claim for fraudulent misrepresentation. A judge found that EDS, which was acquired by HP in 2008, had overstated its abilities when selling a CRM system to BSkyB. The £200m must be paid within 14 days.

17 February 2010: HP announces its first-quarter results.

1 March 2010: The judge in the case orders HP to pay a further £70m to BSkyB in interim damages and interest. There's to be a further hearing in April over the amount of damages and interest.  

5 March 2010: HP restates its first-quarter results in the light of the judge's 1 March ruling. HP increases its contingency reserve in connection with the litigation, which hits its previously-announced first-quarter net profits by $73m [£48.3m]

As the amount of damages and interest have yet to be finalised, HP has told the US Securities and Exchange Commission that it will "continue to evaluate the reserve pending final resolution of the litigation".

**

Court awards BSkyB £70m and defers decision on HP's appeal

| No Comments
| More

The High Court yesterday ordered HP to pay BSkyB a further £70m in damages and interest, on top of £200m interim damages already awarded.

It means that Sir Vivian Ramsey, the judge in the case of BSkyB versus EDS has ordered HP, EDS's owner, to pay a total of £270m to BSkyB. But the judge gave no immediate decision on HP's request for permission to appeal. He'll give his decision in writing.

Nobody will be surprised if the judge rejects HP's request for an appeal.

After spending nearly 18 months working on his 468-page judgment, the judge may see the document as having left no legal gaps through which HP could appeal. If the court rejects HP's appeal request, lawyers for the supplier would probably appeal directly to the Court of Appeal.

The next hearing is on 23 April.

EDS "misrepresentation" in BSkyB case - some comments by the judge - IT Projects Blog

Lessons from BSkyB case - CIO

Find out what the BskyB/EDS court case means to outsourcing contracts - Inside Outsourcing

BSkyB v EDS judgment not as significant as first thought?

| No Comments
| More

Last month's 468-page judgment in the case of BSky versus EDS, (now HP) may have less of an impact on suppliers than first thought, say lawyers at Pinsent Masons.

The judge, Sir Vivian Ramsey, found that EDS had misrepresented its abilities when bidding for, and selling, a CRM system to BSkyB.

He ordered HP to make an interim payment to BSkyB of £200m by 4.30pm yesterday. In fact the payment was made last week.

David McIlwaine, an IT lawyer at Pinsent Masons, says in the law firm's "Out-law.com" newsletter that the focus in the judgment on one individual, Joe Galloway, whom the judge described as "dishonest",  lessens the significance of the ruling for the broader industry, though he adds that it will make salutary reading for all involved in IT procurement.

HP must pay £200m interim damages to BSkyB over failed CRM

| No Comments
| More

A High Court judge, Sir Vivian Ramsey, this afternoon ordered HP to pay BSkyB interim damages of £200m within 14 days.

No decision has been taken yet on the final amount of damages.

The payment order comes after a judgment last month which found that EDS, before it was acquired by HP, misrepresented its capabilities when bidding for, and selling, a CRM system to BSkyB.

Sir Vivian had questioned the honesty of EDS's main witness in the court case, Joe Galloway.

The judge said that Galloway had been the  "mastermind for EDS' Response to the ITT [invitation to tender] which was presented to Sky on 1 June 2000 and was closely involved in all subsequent developments".

Subscribe to blog feed

Archives

-- Advertisement --