Bank of Ireland deal - a worrying benchmark?

IT staff accept generous settlement.

The Bank of Ireland's recent deal with its IT staff to clear the way to a £380m outsourcing contract with Hewlett-Packard has raised eyebrows among IT users and suppliers.

Earlier this month IT workers voted overwhelmingly to accept a deal that offered significant job security and pension guarantees for staff transferring to HP.

The deal was thrashed out with an independent arbitrator after IT staff rejected initial proposals from the bank and launched a 24-hour strike during August.

The contract, which will be formally signed next month, will see 350 staff in Ireland and 145 UK-based staff transferred to the supplier.

Bank of Ireland IT staff have faced considerable disruption in recent years. In 1998 the bank outsourced its IT to a joint venture with Perrot Systems. In 2002 the joint venture ended with staff and systems being brought back in-house.

Earlier this year the bank's board prepared for another round of outsourcing. Initially, it explored the possibility of forming a joint venture company with its nearest rival, Allied Irish Bank, which would run both banks' IT and back-office operations. There was also speculation about much of the IT department's work moving offshore.

"All this uncertainty played into the hands of the bank workers' trade union," said Eamonn Kelly, senior analyst at research firm IDC, who called the settlement with staff "very generous".

Beyond the norm

Robert Morgan, chief executive of outsourcing consultancy Morgan Chambers, said, "Bank of Ireland has agreed terms and conditions considerably beyond what would normally be economically acceptable."

It is not just staff that have done well from the settlement. "HP has gained an excellent deal because the Bank of Ireland will be paying for the generous 'compulsory redundancy' terms," said Morgan.

While analysts and consultants continue to question the deal, both Bank of Ireland and HP expressed satisfaction that the dispute with staff had been resolved. It said the outsourcing programme will now move towards the latter stages of due diligence and contract signing.

The final deal could have an impact on outsourcing contracts in the UK. Ian Templeman, the banking trade union official negotiating for IT staff facing outsourcing at Royal & Sun Alliance, said he would examine the Bank of Ireland settlement. "It appears to set standards in the industry which other unions and companies will hopefully try and follow," he said.

Problems ahead

But others warned of problems ahead for service providers and organisations considering outsourcing if the Bank of Ireland deal was allowed to become a benchmark.

Outsourcing depends on economies of scale, and staffing accounts for 65% of the cost of running IT departments and datacentres. Once outsourcers have sufficient IT hardware and staff assets in a market, they inevitably look to consolidation and staff reductions to boost their bottom line, Morgan said.

Generous deals such as the Bank of Ireland's could raise unrealistic expectations, he said.

Jo Powell, EDS' acting human resources director in the UK, which boasts of 12-month retention rates for staff who transfer to the company of 95%, emphasised the importance of good communication with staff facing outsourcing.

"The IT director and the outsourcer have to explain clearly to staff what is going on and when. Honest communication and timeliness are key," said Powell.

You have got to tackle some of the myths around outsourcing head on, she said. "If there is not a lot of activity going on, explain why. If you remain silent, rumours start to fly."

That was certainly the strategy followed by Royal Mail this year when it outsourced more than 1,700 IT staff to CSC.

The company did not stint on staff consultation and negotiation. Chief information officer David Burden and his CSC counterpart Guy Haines spent months holding roadshows for staff, negotiating with the unions and talking face-to-face with IT staff.

"I am absolutely convinced you cannot outsource effectively in something as complex as IT unless the people who are affected think it is a good deal for them," Burden said. The lesson from the Bank of Ireland experience is that the earlier the IT director addresses that issue, the better the deal will be for the organisation, its IT staff and future relationships with suppliers.

The settlement       

Years one and two  Guarantee of no compulsory redundancies.   

Year three  All individuals selected for compulsory redundancy to have the option of transferring back to the Bank of Ireland or to receive guaranteed income for the balance of the third year, plus HP redundancy terms and statutory benefits.   

Years four and five   Former bank staff who had been transferred to Perrot systems joint venture to be offered the option of transferring back to the bank in the event of compulsory redundancy.   

Pensions  HP to match existing Bank of Ireland employer contributions.   

Goodwill    Minimum payment of £3,500.

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