Analysts: Users beware of BearingPoint's problems

Clients of BearingPoint (formerly KPMG Consulting) should monitor the struggling IT services provider to make sure its financial...

Clients of BearingPoint (formerly KPMG Consulting) should monitor the struggling IT services provider to make sure its financial problems do not affect the quality of its work, analysts have cautioned.

Chief information officers (CIOs) and IT managers should review the terms and conditions of their contracts with BearingPoint and keep a close eye on how the company performs. They should immediately bring to BearingPoint's attention any problems and demand prompt corrections, analysts said.

"Whenever they are engaged with a provider that is in financial difficulties, CIOs and IT managers need to take an extra measure of caution and risk management to make sure they don't get the short end of the provider's problems," said Lorrie Scardino, a Gartner analyst.

This goes even for a company like BearingPoint, a provider which has a very good reputation for the quality of its work and its project management methodologies, Scardino said.

"Don't take a wait-and-see attitude," she said. "If there's something that seems unusual or a couple of things that together seem unusual that may affect the services you get, don't let it fester."

For companies considering hiring BearingPoint, the word is caution. "You need to be very careful about making the decision to go with them," said Andrew Efstathiou, a Yankee Group analyst.

Last week BearingPoint announced lay-offs and a significant earnings restatement when it issued its fourth quarter financial report, in which it also missed expectations. The earnings report shocked Wall Street, and the stock at one point lost more than 30% of its value, but has since recovered some ground.

The consultancy and systems integrator adjusted its accounting and erased from the books almost 25% of the net income it had reported in the fiscal year's first three quarters, from $44m (£28m) to $33.2m (£21m). The company also announced lay-offs of between 250 and 275 employees, from a total of about 16,000.

On top of that, the company badly missed fourth-quarter expectations, reporting gross revenue of $774.8m (£489.6m), way below consensus expectations from analysts polled by Thomson First Call of $829.6m (£524m). BearingPoint blamed the shortfall on lower-than-expected sales in Europe, the Middle East and Africa.

The BearingPoint situation should receive special attention from CIOs and IT managers because it involves lay-offs, Scardino said. This is the third lay-off announcement the company has made in the past nine months. BearingPoint had about 17,000 employees at the beginning of December.

BearingPoint chief executives have kept the company's focus on the difficult consulting and systems integration segment of the services market, instead of diversifying into better-performing areas such as outsourcing, Efstathiou said.

The company has been slow to build up its offshore outsourcing business and its offerings in this space are too limited, he said.

At least one client is not too worried about BearingPoint's troubles. The US Agency for International Development is sticking with BearingPoint after awarding it a $9m (£5.7m) contract in July  to do relief and reconstruction work in Iraq. "The company can execute its contract and that's all we're concerned about," a USAID spokesman said.

One satisfied client who recently finished working with BearingPoint on a large project said he would consider hiring the services provider again. "We were very happy with them," said Carl Whitman, American University's executive director of e-operations.

BearingPoint declined to comment.

Juan Carlos Perez writes for IDG News Service

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