Aerospace company faces conflict over contract

Computer Sciences and United Technologies are discussing a possible re-negotiation of their 15-year, $3.7bn (£2.4bn) IT...

Computer Sciences and United Technologies are discussing a possible re-negotiation of their 15-year, $3.7bn (£2.4bn) IT outsourcing contract.

The friction surrounding the talks is causing concerns over the possibility of layoffs for some of the 1,600 CSC employees assigned to UTC.

Both companies declined to comment and said the concerns were no more than rumour and speculation.

The contract was initially signed in May 1999 as a 10-year, $1.2bn (£0.8bn) deal between CSC and UTC's Pratt & Whitney aircraft engines subsidiary. The agreement was expanded to cover all of UTC's North American IT infrastructure and was extended by another five years last November.

As part of the contract, CSC is standardising about 45,000 PCs throughout UTC's operations, adding new IT management software and consolidating the company's data centres, servers and help desk operations.

However, a CSC technician said the two companies appear to be engaged in a game of financial brinkmanship. "They cannot agree on the money, and neither side is willing to back down," he said. "It's like [CSC officials] wanted the contract so bad, and now they may not be able to live up to it."

It has also been speculated that CSC has not fully achieved expected savings in operating costs by consolidating UTC's IT facilities and automating functions such as data backup and remote PC management.

Peter Bendor-Samuel, president and chief executive officer of Everest Group, an outsourcing consulting company, said such disagreements are common on deals that result from highly competitive bidding processes.

"The investment banking term for this is the winner's curse," he said. "It was a fiercely competitive deal. [For UTC] it was go at it and drive down the price through bidding. That then put them in this death spiral when CSC made some bad assumptions."

Bendor-Samuel said one or two outsourcing megadeals end up in similar situations each year because it is nearly impossible to predict the long-term costs of technology and IT services. But the vast majority of conflicts are resolved before deals fall apart, he added.

"The cost of failure here is too great for both companies," Bendor-Samuel said. "What often has to happen is they have to play out the emotion before [a resolution] can happen."

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