Clients in limbo as Andersen awaits federal court action

The fate of embattled accountancy giant Andersen could have serious implications for its IT consultancy clients.

The fate of embattled accountancy giant Andersen could have serious implications for its IT consultancy clients.

Andersen was indicted last week by the US federal government on obstruction of justice charges in connection with the destruction of documents when it was auditor of Enron, the collapsed energy giant. The future of the company, which has been haemorrhaging audit clients, looks bleak, with takeover rumours reaching fever pitch earlier this week.

Andersen said last week that it intended to fight the indictment, which it said was only an allegation. A spokeswoman added that it was exploring several opportunities in the market and was not ruling anything out.

Andersen, like its rivals in the top five accountancy firms, offers outsourcing and e-business consultancy services. Whether or not it retains its independence, the crisis raises some important questions for customers of consultancies.

What happens if your IT consultancy runs into financial problems and is taken over after you have signed a multimillion dollar contract? Will your project be put on hold while the consultancy's buyer imposes its own culture? What are your rights?

Outsourcing experts warn that users are left relatively powerless in these situations, particularly if they are in the middle of an intricate, long-term IT project.

The consultancy work could be delayed if the new consultancy decides to change the platform of the ongoing projects, and meddles with the technical specifications.

"The impact of your consultancy merging could be quite severe," said Robert Morgan, chief executive of outsourcing advisory consultancy Morgan Chambers. "The key people involved in the original project with your consultancy could decide to leave because they don't like the new culture. You could be dead in the water."

If consultancy staff jump ship from the project the customer could try to poach them, to retain their knowledge of the project. However, clauses in contracts with consultancies often rule-out poaching, further limiting the user's room for manoeuvre, Morgan added.

Often, though, the new consultancy will want to avoid negative publicity and unnecessary rows with new customers, and compromises can be reached.

Meanwhile, there was some welcome news last week for the management consultancy market. According to a survey from the Management Consultancies Association (MCA) the IT consultancy market reported revenues up about 10% for the fourth quarter of last year. Outsourcing income grew by a more modest 2%.

"All the indicators are that the worst of the economic slowdown could be over for the outsourcing industry," the MCA claimed last week.

Consultancy work to help clients to cut costs is a major growth area, which suggests that companies are still holding back from investing in major new IT projects.

Management consultancy, including strategy, HR and marketing, accounted for £590m in revenues for the quarter (up 2.6%), followed by outsourcing consultancy, £287m (2.1%) and IT consultancy and systems development £230m (10.6%).

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