Centrica v Accenture: implications for large IT contracts

The largest consulting company in the world, for 20 years Accenture has been signing some of the world's biggest IT contracts. So when the company came to the High Court in the summer over a dispute with its former customer Centrica, you might have expected Accenture to win every argument over what the contract said and meant.

Accenture has good reason to be surprised at recent rulings by a High Court judge.

Few companies have Accenture's experience of writing and understanding IT contracts.

The largest consulting company in the world, Accenture's global turnover to the end of August 2009 was £13bn. For 20 years it has been signing some of the world's biggest IT contracts.

So when the company came to the High Court in the summer over a dispute with its former customer Centrica, you might have expected Accenture to win every argument over what the contract said and meant.

Yet the High Court - in two separate judgments in recent weeks - rejected nearly every one of Accenture's interpretations of the key contract clauses, accepting Centrica's arguments instead.

The case shows that buyers of large systems should not assume their IT supplier's interpretation of the contract is sacrosanct, however big and knowledgeable the supplier.

It also highlights an important legal point for buyers of large systems: that faults which do not at first seem serious can later be aggregated to show a fundamental breach of the supplier's warranty.

Peter Clough, head of disputes at law firm Osborne Clarke, says, "One of the important points to note about this case is that IT suppliers can be liable for claims for fundamental breach arising from the cumulative effect of a series of faults, each of which could look relatively minor in isolation.

"The majority of systems will of course be inter-linked so that a defect in part of the process could affect another part, snowballing into a more serious issue."

Accenture was represented by a seemingly invincible team during five days of preliminary hearings in the High Court in June and July this year - two leading QCs and two senior executives: the director of operations in Accenture's Resources Operating Unit, with responsibility for Europe, Africa and Latin America, and the senior executive leading the company's UK technology architecture practice.

But the judge, Mr Justice Field issued two judgments against Accenture. He ruled against the supplier on nine of the ten contractual points in question. Even the tenth point was not in Accenture's favour: it was a fine legal point which didn't favour either side.

The two sides fell out over the Jupiter billing system, which Centrica ordered from Accenture in 2002. It was to be a "best-of-breed" replacement billing system for the entire British Gas business, administering the accounts of more than 16 million customers.

Centrica v Accenture - chronology 
2002: Centrica and Accenture sign a contract for a system which will produce bills for about 18 million gas and electricity customers. Accenture is to design, supply, install and maintain the "Jupiter" system, based on a pre-packaged SAP IS-U software for utilities. There are to be three releases. Release 3 is the billing system.
2004: The two sides settle disputes betweens over the functions and performance of Releases one and two. Centrica agrees to pay an extra £10m. Accenture supplies an extra 18,000 man days.
2006: Centrica takes the billing system - Release 3B - "in-house". By then 4.5 million customer accounts have been migrated to the system. In June 2006 big problems begin to emerge: customers are going unbilled and customer satisfaction is falling off. There are a "massive" number of "exceptions" in the SAP IS-U programme. Each exception requires manual intervention before bills can be produced.
2007: Centrica claims in a letter to Accenture that there are fundamental defects in the billing system, including exceptions, the design of the user inboxes, management information, Sap archiving, hardware capacity and excessive workflow. There are up to 18 million unnecessary "exceptions" in December 2007, claims Centrica. Accenture does not accept that there have been fundamental defects.
2008: Centrica's solicitors Linklaters issues a writ against Accenture claiming £182.3m. Accenture counters that the problems are of Centrica's own making. It says the Jupiter system it delivered in 2005 met all contractual requirements, and was on time and to budget. It maintains that Centrica signed off the design of the system and carried out extensive testing before formally accepting and using it.
2009: Accenture and Centrica hold five days of preliminary hearings over contractual points. The judge issued two judgments against Accenture, dated 6 November 2009 and 23 November. Centrica wins on nearly all the points. A trial is likely in early 2011.

Part of Centrica's case is that the system could not handle millions of bills automatically. Centrica claims that the system generated so many unnecessary exception reports - up to 18 million - that it had to hire thousands of staff to manually deal with the backlog.

The defects caused "enormous damage", it claims, as increasing numbers of customers complained about their bills and left Centrica for other suppliers. Centrica wrote off millions of pounds because it was unable to bill customers for gas or electricity; and it had to pay to fix the problems.

Centrica notified Accenture in a letter that there were fundamental defects in the Jupiter system.

But Accenture said did not consider it was under a legal duty to act on the letter because there were no fundamental defects to trigger its obligations.

It contends that the individual breaches of warranty in the contract could not be combined to establish a fundamental breach, or a fundamental defect.

And it maintains that any problems were of Centrica's own making - Centrica having made the decision to take the Jupiter system in-house in March 2006.

Accenture says that the Jupiter system met all contractual requirements and was delivered on time and to budget. It says Centrica signed off on the design of the system, tested it extensively before accepting it, and used it for two years before making its warranty claim.

Accenture is to appeal the two preliminary judgments. If it loses, some in the IT industry may begin to question whether Accenture always has an infallible understanding of the nuances of its own contracts. Which could give some customers an advantage in contractual negotiations that they may not realise they have.

A full hearing between Accenture and Centrica is expected to take place late in early 2011.

The ruling

Centrica issued a writ claiming more than £183m from Accenture in April 2008 . In June and July 2009, Mr Justice Field held preliminary hearings to decide the basis on which the case could progress.

The judge found that Centrica:

  • Can aggregate individual breaches of warranty into a single fundamental breach of warranty for the purposes of its claim. Accenture had argued that none of the individual breaches was serious enough to cause a fundamental breach. The judge said, "I can see nothing in the agreement that prevents Centrica from asserting that a breach is a fundamental defect when to begin with they thought that the effects of the breach did not justify such an assertion."
  • Did not have to prove that a fundamental breach of warranty had caused a severe adverse effect at the time it notified Accenture of the breach. Centrica had only to prove that the breach would have caused a severe adverse effect if left unremedied.
  • Can claim damages for the costs of fixing the problems, the direct losses of caused by any fundamental defect, and damages for the effects before Accenture was told of any defect.
  • Can claim other losses, such as compensation to customers.
  • Can claim for hardware. Centrica says it bought millions of pounds worth of extra hardware to remedy the slowness of the system.

 

 

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