EDS drops Xerox suit and signs up for five more years

The settlement last week of a protracted lawsuit between EDS and Xerox over a £2bn outsourcing contract has highlighted the legal...

The settlement last week of a protracted lawsuit between EDS and Xerox over a £2bn outsourcing contract has highlighted the legal quicksands users must navigate if they ignore basic rules when contracting out a service, experts have warned.

The case dates back to 1999 and revolved around a disputed payment within a 10-year, $3.2bn (£2bn) contract. Signed in 1994, the deal was one of the largest agreements of its kind at the time.

Under the terms of the deal EDS ran both Xerox's computer and telecoms networks. But in 1999, EDS filed a lawsuit in the US against Xerox and called for the document and printer company to pay for "certain EDS infrastructure services".

Last week the companies announced a settlement. In an unusual twist EDS dropped its claim and signed a five-year $1.5bn extension to the deal. Outsourcing experts said that the dispute highlighted the need for clarity and good communication between users and suppliers both before and after signing an agreement.

"The two sides in outsourcing have to understand what their responsibilities and expectations are," said Richard Holway, of analyst firm Ovum Holway. "Service level agreements are absolutely key."

Constant communication between the user and supplier - from the company board down - will also help to nip potential disputes in the bud, added Holway.

Users found it extremely difficult to replace a supplier once a contract had been signed. "More than 90% of outsourcing contracts are re-awarded to the same supplier," he said. "They are extremely hard to change."

The EDS-Xerox settlement also made Xerox the preferred supplier of document products to EDS and its customers. In a third initiative the companies signed a marketing alliance to promote one another's products, services and to develop new technologies.

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