EDS, BSKyB, £200M in damages and a dog called Lulu

Once in a while something happens that might actually change our procurement world quite significantly...

On Tuesday, Mr Justice Ramsey in the High Court in London decided that EDS had given 'fraudulent representations' to BSKyB, the UK's largest satellite broadcaster, and held it liable for damages.  EDS were engaged by BSKyB way back in 2002 to provide a new customer services system.  The project was supposed to run for 2 years but there were delays and cost overruns. The relationship between the companies broke down and BSkyB finished the project itself in 2006, spending £265 million rather than the £50 million contract value.

Hewlett-Packard,who now own EDS, are now facing a bill of more than £200 million. The judge was particularly critical of the EDS sales guy, Joe Galloway, who led the pitch for the  contract.  He 'misrepresented' how quickly the solution could be implemented, and the system capabilities.

In his 468-page judgment, the judge said that Mr Galloway, who led EDS’s pitch for BSkyB’s business, had been "cavalier" in providing estimates of timing for the project which he knew were not backed by sufficient analysis.

"I am driven to the conclusion that he proffered timescales which he thought were those which Sky desired, without having a reasonable basis for doing so," Mr Justice Ramsey said. "He knew that no proper analysis of time had been carried out and he knew that he had no basis for saying that go-live could be achieved in nine months and complete delivery in 18 months."

But here is the best bit, and something that certainly didn't go down well with the judge.

"Mr Galloway claimed that he had obtained an MBA from a college in the British Virgin Islands in 1996 but it emerged during the trial that it had been obtained from the Internet, the judge said.

Mark Howard, QC, BSkyB’s barrister, illustrated the point by presenting the court with an MBA from the same college awarded to his dog, Lulu. "Without any difficulty the dog was able to obtain a degree certificate and transcripts which were in identical form to those later produced by Joe Galloway," the judge noted, "but with marks which, in fact, were better than those given to him." (The Times, January 27th)

Top marks to BSkyB's barrister there for creative demolition of a witness!

What is interesting from a contract law point of view is the parties had agreed a cap on liability of £30 million.  But because BSkyB claimed that fraud - rather than mere incompetence - was to blame, that cap was ignored. As Shoosmiths, a leading law firm (see link below), put it,

"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."

So, what does this mean? Basically, sales people have to stop fibbing!  Here is more advice from Shoosmiths to suppliers; in summary, all marketing material, sales pitches and bids MUST be true and BE ABLE TO BE VERIFIED!  So if I say, for instance, that "I am the UK's leading authority on public sector procurement", then I have to have some independent evidence to back that up.  Well, there goes 90% of my marketing material....

All very interesting.  EDS / HP are considering an appeal, and I suspect the ramifications of this will take a while to fully emerge.

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