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Outsourcing U-turn by Procter & Gamble hits EDS

Procter & Gamble have pulled out of talks with EDS on what could have been the world's biggest IT outsourcing contract.

After months of negotiation the household goods giant has decided against outsourcing to a sinhgle supplier and is now seeking deals with multiple vendors.

EDS was close to a deal with P&G in September, before the outsourcer issued a dramatic profits warning.

The profits warning and subsequent fall in EDS's share price "caused us to pause and look at the whole [business process outsourcing] market. The dynamics there are changing very rapidly," a P&G representative said.

P&G will consider EDS for future outsourcing projects but now believes that using multiple vendors will allow it to better monitor the marketplace and its own needs.

P&G said EDS would be considered for future outsourcing work. "We would fully expect, since they are an industry leader, that we would be talking with them about future programs."

EDS said it understood P&G's change of direction. "We're pleased that we're considered to be a leading candidate to support their needs," a spokesman said, adding, "Our foundation is strong. We have all the resources we need to serve our existing customers and new business."

Andrew Efstathiou, analyst at Yankee Group, said the kind of negotiations around the P&G contract are increasingly common. "Enterprises that want to outsource their business have been very aggressive," he said.

The P&G deal proved particularly difficult because of sheer scale of the ITY operations it wanted to outsource. "Now they want to break it up into smaller pieces so it's more easily digestible by multiple firms. That makes sense," Efstathiou said.

James Johnson, an analyst with Standish Group International, agreed. P&G's multiple-vendor move was a good business move. "I think it should be done more often," he said. "It's always good if you play one vendor off another."

Having only one vendor can be dangerous, he added, "because you are putting all your eggs in one basket and that's always risky. You don't have any flexibility."

When P&G's outsourcing plans first surfaced in June, EDS was one of the favourites to win the deal that would have seen P& outsource 5,700 of its 7,000 IT positions in its Global Business Services division.

A month later, EDS pulled out of the negotiations over what it said were price and related transaction details.

In September, Affiliated Computer Services, another outsourcing vendor that had sought the P&G deal, announced it was pulling out of its talks with P&G.

Days later, in a major turnaround, P&G confirmed that EDS was back in the running for the outsourcing deal.

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