UK defence and aerospace group BAe Systems has signed a £1.5bn extension to its 10-year outsourcing contract with Computer Sciences Corporation (CSC).
The original contract, signed in April 1994, was to run until May 2004, and covered the UK operations of BAe, formerly known as British Aerospace.
BAe Systems was formed last year after British Aerospace bought the defence division of Marconi Electronic Systems for £6bn.
The new contract, which supersedes the original agreement, is to cover both BAe's UK and US operations, and is set to run until November 2006.
Under the deal, CSC will take over management of all of the defence group's IT systems across the UK and the US, including mainframe and mid-range computers, servers and desktops, wide and local area networking, Internet services, helpdesk, applications support and procurement.
BAe refused to comment on the level of cost savings it envisaged over the six-year contract.
As part of the agreement, 600 IT staff will be transferred from BAe to CSC, 430 in the UK and 170 in the US. The transfer will mean the majority of former Marconi IT staff will now be working at CSC, leaving only a few IT management staff at BAe.
BAe said the decision to rework the contract with CSC was the logical conclusion of the merger with Marconi at the end of November 1999.
"We had two businesses operating differently so we thought it would be sensible to take a hard look at our systems," said Maria Harwood, IT director at BAe.
"It is important that we have a coherent IT infrastructure across the business and have an IT service provider we can work with. We were looking to reduce some of our IT costs and to improve service levels," she added.
Lem Lasher, CSC's global account executive for the BAe Systems contract, said CSC planned to deliver some of the savings by focusing on the rationalisation of applications, maintenance, and datacentres.
"There will be some off-shore development activities, possibly in India or South Africa, but the specific locations have not been determined yet," Lasher said
BAe said it would benchmark the quality of service at industry best. "We used benchmarking during the negotiations and will continue to use it extensively throughout the contract," Harwood said. "What matters is that we are getting value from IT as a business."