The judge, Sir Vivian Ramsey, found that EDS had misrepresented its abilities when bidding for, and selling, a CRM system to BSkyB.
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.
Joe Galloway was EDS’s main witness in its defence of a £700m writ issued by BSkyB over the failure of a £48m CRM project. Galloway had led the supplier’s bid team for the CRM contract.
EDS sacked Galloway during the court hearing, as soon as it discovered he had lied in evidence.
“Judgment may be less significant than expected”
“It was widely anticipated that a finding in favour of BSkyB would trigger a large-scale review of sales processes. However, given the emphasis in the judgment on the dishonest conduct of one man, and that only one of the five allegations of fraud against EDS succeeded [see below], the ramifications for the IT industry may be less significant than expected.
“Importantly there were no findings in Mr Justice Ramsay’s judgment of more systemic or widespread internal failures or recklessness in relation to EDS’s sale processes.”
McIiwaine added that suppliers must still take great care when choosing sales staff.
“Suppliers can do little other than tighten recruitment processes to protect themselves against rogue employees. Provided that suppliers have confidence in their employees, i.e., that they will be honest, the judgment should not be cause for wholesale review of sales processes.”
No proper attempt to assess whether go-live could be achieved in 9 months
The judge said of Galloway that he gave BSkyB the timescales he thought were those BSkyB desired, “without having a reasonable basis for doing so”.
The judge said:
“His [Galloway’s] evidence as to what had been done in relation to the time estimate shows that he was aware that no proper attempt had been made to assess whether go-live could be achieved in nine months and complete delivery in 18 months.
“His approach was to ignore the need for analysis. I am driven to the conclusion that he proffered timescales which he thought were those which Sky desired, without having a reasonable basis for doing so and knowing that to be the position.
“He knew that no proper analysis of time had been carried out and he knew that he had no basis for saying that go-live could be achieved in nine months and complete delivery in 18 months.
“Indeed, he said that he did not consider the timescales to be sufficient…In my judgment his conduct went beyond carelessness or gross carelessness and was dishonest.
“I consider that he acted deliberately in putting forward the timescales knowing that he had no proper basis for those timescales. At the very least he was reckless, not caring whether what he said was right or wrong…
“Joe Galloway was quite clearly anxious to further his career. He was ambitious and to achieve a successful bid with Sky for the CRM Project would provide him with an
opportunity to demonstrate his abilities to those in EDS.
“It was that motive which led him to say that he could achieve the Sky CRM Project in the required timescale when he knew that he had no proper basis for doing so.
“EDS say that there can be no motive in obtaining a project on the basis of times which cannot be met. I do not think he took that type of long term view. His wish was to be
awarded the CRM Project and use that for advancement.”
BSkyB claimed five grounds of misrepresentation:
Another lawyer at Pinsent Masons, Raini Zambelli, said there were five key grounds of misrepresentation that BSkyB alleged against EDS.
1) Resources: that there were enough EDS employees with sufficient skills to deliver the project.
2) Technology: that the technical solution EDS had proposed was proven and would work for BSkyB.
3) Methodology: that EDS’ approach to designing and building the CRM system would adopt suitable processes to ensure it met the milestones and timeframes initially agreed to between the parties.
4) Time: the length of time the project would take, which was critical to BSkyB, given the business benefit its directors hoped to obtain from the system
5) Cost: EDS would deliver the project within the budget, which was about £48m.
Mr Justice Ramsey agreed with only one of those claims – that BSkyB had suffered fraudulent misrepresentation over the timing of the project.
Will HP try to negotiate a settlement of the total damages?
Pinsent Masons says that HP may try to settle the amount of damages by offering not to appeal the judge’s decision, which would give BSkyB the certainty that the ruling would not be overturned.
In return HP’s lawyers may try to reduce the amount of damages, but they are unlikely to reduce it much below £200m, says Pinsent Masons. The judge had ordered HP to make an interim payment to BSkyB of £200m by 17 February 2010.
HP has announced that it is seeking permission to appeal. It says that EDS did nothing to deceive BSkyB.
Computer Weekly and Burnt-Oak Partners, which is a consultancy focused on delivering outsourcing contract results, are jointly holding a seminar on 5 March that will discuss the effect of BSkyB’s victory on the outsourcing industry.
The BSkyB/EDS/HP ruling – Bailii website
BSkyB ruling will not transform IT procurement, says expert – Out-law.com from Pinsent Masons
What the BSkyB/EDS judgment will mean for outsourcing contracts – Inside Outsourcing
EDS main witness in BSkyB case had a “propensity to be dishonest” says judge – IT Projects Blog