C&W's £1.1bn IBM deal goes sour

Cable & Wireless' $1.8bn (£1.1bn), 10-year outsourcing contract with IBM was a "golf course deal" that was doomed to fail, a...

Cable & Wireless' $1.8bn (£1.1bn), 10-year outsourcing contract with IBM was a "golf course deal" that was doomed to fail, a consultant who worked with the companies has told Computer Weekly.

The outsourcing deal, which was cancelled last week, was poorly negotiated and, because the two companies failed to invest adequately in managing the relationship, disputes that arose from a lack of clarity escalated and caused it to break down five years early, the consultant said.

C&W told IBM in June that it would cancel the supplier's contract to provide support for the telco's IT infrastructure and customer and billing systems at the end of 2003. The deal, signed in 1998, was due to last 10 years.

The consultant, who worked on the relationship with IBM for C&W, said, "It was a golf course deal - it looked like a good idea at the time. C&W perceived its IT to be out of control and too expensive so it did a Pontius Pilate - it washed its hands of it.

"The detail was not worked out and it is difficult to see how IBM could do anything other than just take the infrastructure and people and start running things.

"There was no investment in the relationship. C&W soon realised this and started to build a team to replace the one that had transferred to IBM."

The two companies are in dispute, with C&W suing IBM for £128m which it claims it was overcharged for IT provision in the US and the UK. A hearing is scheduled for later this year.

Disputes arose from alleged contraventions of a global framework agreement. The agreement contained benchmarking provisions to enable C&W to monitor the services provided by IBM. In February 2002, benchmarking for a period of 14 months prior to that date revealed overcharging by IBM, according to C&W.

About 1,000 C&W staff transferred to IBM under the deal. No decision has yet been taken by C&W about whether the workers will be re-employed by the company or whether it will outsource to another supplier.

Philip Morris, director at outsourcing advisory firm Morgan Chambers, said businesses that outsource IT need to give the highest attention to managing the relationship.

"A secure team and a sponsor from the top of the company is needed. When negotiating outsourcing you need to understand your environment in detail and what an outsourcer must do in both the short and long term.

"The team to manage the outsourcing relationship needs to be multidisciplined, very capable and mature. It must understand the difference between outsourcing and purchasing, be commercially, legally and technically capable and enjoy the interfacing activity."

C&W said the decision to end the deal was based on "commercial reasons". IBM declined to comment.

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