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The verdict has finally arrived in the long-running IT dispute between EDS and BSkyB, for which the trial ended over a year ago.

With legal fees of around £70m and an anticipated damages award of £200m (against a contract reportedly worth only £48m), the case will change the landscape of supplying IT products and services forever. 

EDS supplied a customer relationship management system to BSkyB.  When the project ran into difficulties, BSkyB brought a claim against EDS, alleging that EDS had misrepresented both the system capabilities and EDS’s ability to implement it within budget and on time.

EDS countered that problems arose because of BSkyB’s failure to know what it wanted, which resulted in multiple (costly) changes to the project. 

On the face of it, the claim sounded like a standard contractual dispute. What made it novel was that BSkyB brought a claim in deceit, a tort which is often difficult to evidence but which carries with it the potential for unlimited damages. Ultimately, BSkyB sought to circumvent the limits of liability set out in the contract with EDS. 

The court found that EDS was dishonest in its sales pitch (which included a claim that the system was proven leading-edge technology, even though EDS had not tested the component parts together in the format supplied to BSkyB).

The court did not stop there; EDS had been in breach of contract during the whole contract period, and had tried to induce BSkyB to settle the dispute which followed the project’s failure on the basis of a misrepresentation. 

What does this mean?

For IT suppliers, procedures in three key areas of the business – marketing, legal and IT – will need to be reviewed.

Marketing and sales teams will need to review and, where necessary, change how they sell their products and services. 

The ‘sales talk’ that was once routine should be vetted and verified, and ‘sales due diligence guidelines’ may be helpful. The maxim ‘if it cannot be independently verified, it should not form part of the sales pitch’ may become the new mantra of IT marketing and sales teams. 

Legal teams, whether internal or external, will need to be involved much earlier than at the contract negotiation stage. Marketing briefs, sales documents, bids, pitches and even the ‘sales due diligence guidelines’ themselves are likely to need to be reviewed by legal advisers. 

Legal teams will also need to pay even closer attention to drafting of change management procedures, project specifications, timetables and payment triggers. 

It will be even more important for legal advisers to look back at what the business has told the buyer about the products or services before it is possible to even start drafting the contract, in order to identify any potential misrepresentations before the contract is entered into. 

IT technical teams, including project and account managers, developers and testers, will need to discuss timetables, budgets and likely areas of overrun with their sales and marketing colleagues in much more detail ahead of sales pitches and bids than may have happened previously.

In particular, project and account managers will need to set out very clearly what work will be done and to what timetable, how overruns will be dealt with, and how changes to what is required will be dealt with. 

One thing is clear for IT suppliers - providing IT products and services is likely to require more thought, time and internal communication between teams in light of this case. 

What should you do?

• Review all ‘sales talk’ relating to your products and services, including marketing materials, sales documentation, bids, pitches and guidelines, to ensure that all statements are true and can be verified.
• Ensure that your contract is robust, and accurately reflects what has been promised in the ‘sales talk’.  It should include a detailed project specification and adequate provisions dealing with such things as change management procedures, timetables, payment triggers and liability.
• Staff in all relevant areas of the procurement process should be trained so that they are fully aware of the pitfalls highlighted by this case. This should make them better able to deal with such issues as pre-contractual representations, and agreeing clear projects specifications and timetables, and provisions dealing with overruns, project changes and liability.

 

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