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IT implementers & outsourcers beware: telling porkies could cost you millions – UPDATED

We don't usually cover technology-related legal issues but anyone in the IT outsourcing, system development and implementation market should take on board yesterday's decision by Mr Justice Ramsey (sitting in the London Technology& Construction Court) in the case of satellite TV broadcaster BSkyB -v- EDS (now part of Hewlett-Packard & known as HP Enterprise Services).

The case arose out of an upgrade project at Sky's customer services centre in Scotland. Begun in 2000 with a budget to cost £48million, after delays, cost overruns and 'woeful performance', EDS were dumped from the project and ultimately the project cost £265m. EDS's contract capped its liabilities at £30m however Sky successfully argued that because EDS made false representations to win the contract, the limitation clause was invalid. BSkyB said that if it were not for the misrepresentations by EDS, it would have awarded the contract to rival bidder PricewaterhouseCoopers.

It now appears that HP/EDS could be liable for £200m in damages plus £70m in legal costs. All of which is a very expensive lesson in showing that if you tell porkies to win a contract, they could come back to bite you on the bum.

Law firms seem to have been remarkably slow off the PR mark in issuing any comments on this case (perhaps they are all too busy watching Goldsmith squirm at the Iraq inquiry) however Stephen Wares, a technology underwriter at Hiscox, had this to say “The judgment catapults sales misrepresentation to the top of the list of risks facing IT professionals today. A mis-match between what your business can deliver versus what was promised in a sales pitch can have – as this case shows – expensive legal implications. This landmark decision could lead to a heightened level of litigation against technology suppliers and almost certainly increases the expectations of aggrieved clients for the amount of compensation that can be claimed for sales misrepresentation.” (Our italics.)

And here's a comment from Michael Arnold, a partner at Eversheds: “The case has considerable importance for IT system suppliers who attempt to sell systems which are untested or in the course of development. Suppliers will have to be extremely careful about the pre-contract representations that they make regarding the state of the system which is to be provided. Further, in view of the judge's comment on the credibility of witnesses, IT suppliers will need to pay particular attention to the qualifications of their sales personnel.
“The case is also of interest to those customers who have recently taken delivery of systems which have failed to perform. It is anticipated that the damages awarded to BSkyB will be more than £200 million as the limitation cap on liability in the contract, which was £30 million, was ineffective as it did not cover liability for deceit. The decision regarding the limitation of liability cap not being applicable to deceit is unsurprising and reflects practitioners' view of the law. Nonetheless, this possible consequence is well worth noting by suppliers.”