BSkyB v EDS

"Shockwaves through the outsourcing and technology services sector?"

Judgment was given in the High Court on 26 January 2010 in the long running case between BSkyB and EDS. The Times reported some commentators as saying that the case would "send shockwaves through the outsourcing and technology services sector". Clearly the battle was hard fought and the costs and damages are high but what are the practical implications for the sector likely to be?

Sky claimed over £700m in damages from EDS for alleged misrepresentations by EDS in relation to its tender for and post-commencement renegotiation of a contract for the design, implementation and management of a customer services system. The High Court found in BSkyB's favour on two of the misrepresentation claims, namely:

• that at the tender stage an EDS employee knowingly misrepresented that they had carried out a proper analysis of the amount of time needed to complete the project; and
• that EDS's representations at the renegotiation of the contract as to resources, costs and the stage of work then completed, amounted to a negligent misrepresentation that they had developed an achievable plan for taking the then flagging project forward.

The first misrepresentation amounted to a fraudulent misrepresentation and as such rendered inapplicable the £30m liability cap provisions in the contract on which EDS would have relied.

The case was immensely complicated, taking several years to come to Court and a year to be heard in trial. The judgment is over 460 pages long and a further hearing on quantum of damages is required. There were clearly issues with the bid process and execution of the project in this case which are too complex to address in this alert, but the following important messages for the IT industry come out. Many of these will seem obvious but it is surprising in our experience how often they are overlooked:

1. If you have a detailed bidding process with checklist procedures then you must ensure that it is followed. To what extent are your tenders being peer-reviewed?
2. Do you have a different team negotiating your tenders from the team that executes the project? If so, ideally have a common link between the two.
3. Make sure that the team executing the project actually receive, review and plan to adhere to the bid document.
4. Liability caps will typically be avoided by fraud. This does not require “fraud” in the dramatic Madoff sense – it can include fraudulent misrepresentation. Has a statement been made without an honest belief in its truth or recklessly or carelessly as to whether it is true?
5. Time estimates in a bid document can be extremely difficult and just because they turn out to be wrong does not mean that they are actionable for misrepresentation (leaving aside issues of breach of contract). They must, however, be prepared carefully and with appropriate time and effort. Can you demonstrate that you undertook a reasonable process for producing a time estimate, i.e. paper (or electronic) trail?
6. Remember that the bid process is a two-way street. In the BSkyB/EDS case it was the contractor that got it wrong but a company outsourcing can itself mislead in the tender process.

If you would like more information about the case then please contact us. We can also offer risk assessment reviews of tender and contract execution processes to identify potential red flags bringing to bear our extensive experience of advising on the setting up of such projects and from undertaking the resolution of disputes.

Lawyers David de Ferrars, Graham Hann, Glyn Morgan