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Although it is a straight IT outsourcing contract, the deal could be extended to include business process outsourcing (BPO) in future.
Eric Connor, president and CEO of Northern Electric, said the deal was part of a drive towards improving its business processes and Steve Burnett, Logica's director of energy and utilities, also hinted at a move into the business process field.
"There is no BPO in this deal but we expect to work with Northern to identify business processes for improvement," said Burnett. "There's a lot of duplication at the moment," he added.
Leveraging its existing customer base to win new BPO deals looks set to become a good moneyspinner for Logica. Last week the company announced a £16m BPO deal with residential conveyancing firm Countrywide Property Lawyers, following on from a £10m IT outsourcing deal signed in August.
"Although this contract is relatively small, Logica has got itself into the pole position to win some bigger deals down the line," said outsourcing expert Robert Morgan.
All utilities are looking to cut their costs, said Morgan, and outsourcing functions like billing and HR was one way of doing this.
"It's not that difficult to turn an application management deal like this into a BPO and that's an area I'd expect Logica to go into with Northern Electric," added Jamie Snowdon, a research director at analyst firm IDC. If Logica does a good job it will be "highly likely" to win any contracts for HR and payroll, he said.
Logica will manage Northern Electric's IT infrastructure from its service centres in Nottingham and Bridgend, providing an integrated IT service, including helpdesk, technical and applications support and desktop maintenance for over 2,000 users.
The chief aim of the deal is to provide a common IT platform across the two companies, set up a single helpdesk and drive application consolidation.
Fifty people from Northern will move to Logica under Tupe regulations in the first quarter of 2003.
Northern Electric is the second largest electricity distribution business in the UK and is a subsidiary of MidAmerican Energy Holdings.