Articles

This article originally appeared in Bristows' Monthly IT e-newsletter, 'The Cookie Jar'.

On 26 January 2010 the Technology and Construction Court finally handed down judgment in the epic battle between BSkyB and EDS.

Mr Justice Ramsey found that EDS had deceitfully induced BSkyB into a contract for the supply of a new customer relationship management (CRM) system.

Whilst damages have yet to be finally determined, it is reported that EDS has been ordered to pay £200 million in interim damages.  To put this in context, EDS's original bid priced the CRM system at £54 million.  BSkyB ended up spending £265 million overall on the project and its claim against EDS was for £709 million.

Key findings in the whopping 468 page judgement include:

• fraudulent misrepresentation - there was an implied representation by EDS that it believed it could deliver on time and had reasonable grounds for so believing.  In fact, rogue employee Joe Galloway did not believe this, had done no calculations supporting such a belief and had been told by colleagues that the timescales could not be met.  BSkyB's success in claiming fraudulent misrep meant that the contractual liability cap of £30 million did not apply;
• negligent misrepresentations - following delays EDS proposed a catch up plan to BSkyB which induced BSkyB to continue with an amended contract.  Again, EDS was held to impliedly represent that the plan was achievable and the product of proper analysis and re-planning.  In fact the plan involved parallel work streams and interdependencies which made it inevitable that delays would occur.  However, because EDS believed the plan was achievable it had been negligent, rather than fraudulent and the contractual limits on liability did apply in relation to losses flowing from this misrepresentation;
• breach of contract (but no right to terminate) - EDS were in breach of contract on the basis that they had failed to exercise reasonable skill and care or conform to good industry practice as there was no effective programme management, the design and development of the solution was not properly documented and EDS did not provide sufficient technical or managerial resources.  However, these breaches did not amount to a 'repudiatory' breach of the prime contract and, in any event, BSkyB had not accepted any such repudiation as it was clear that the parties had intended to agree to a change in the contract going forward;
• taking the project in-house was adequate mitigation - Ramsey J agreed that by taking the project in-house for completion, BSkyB had spent more money and taken more time to complete it than a competent third party integrator would have done.  However, EDS had failed to show that BSkyB's choice to complete in-house was unreasonable - BSkyB had adequately mitigated its losses; and
• entire agreement clause inadequate to exclude negligent misrep - the entire agreement clause lacked a 'non-reliance' on pre-contractual representations provision and accordingly did not exclude EDS's liability for negligent pre-contract misrepresentations.  A reference to pre-contractual representations being superseded was insufficient.

EDS has already indicated that it intends to appeal the judgment.  In the meantime, IT suppliers need to ensure that estimates and promises in their pitch and tender documents are properly prepared and supportable.  Suppliers should check their entire agreement clauses and customers should insist on inclusion in the contract of the key representations relied on.