Hewlett Packard is liable to BSkyB over a troubled data package, writes John Collins

PICTURE THE scenario. You are in charge of technology at a major quoted company. Your business involves selling a service to consumers and you are establishing a major new contact centre to improve customer support.

A key part of this will be the customer relationship management (CRM) system that will allow your staff to look up customer accounts and record their interactions with them.

The board has given you a budget of €50 million to buy and install the software so you launch a competitive tender process.

You choose a supplier, based in part on the commitments made by its senior salesperson about its ability to deliver on time and within budget, and embark on the project. After two years of delays and excuses from your supplier, you cancel the project. It's yet another case of an IT implementation running over time and over cost. Do you simply cut your losses and run?

If you are satellite broadcaster BSkyB you hire the most expensive legal team available and spend five years pursuing your supplier, the Hewlett Packard-owned Electronic Data Systems (EDS), through the courts.

Last month the English high court found in BSkyB's favour that EDS had engaged in fraudulent misrepresentation in order to win the business. The broadcaster is now seeking £700 million (€803 million) in damages.

In his 468-page judgment, Justice Vivian Ramsey found that EDS's Joe Galloway had promised the timescale that he believed BskyB had wanted, but this had no basis in fact.

"The simple fact is that Richard Freudenstein [ then BSkyB's chief operating officer] would not have chosen EDS and recommended their selection to Tony Ball [ then BSkyB's chief executive] had EDS not falsely represented their capability to deliver the system in the stated time and at the stated cost," BSkyB's barrister, Mark Howard, said in his opening address.

EDS maintained that the fault lay with BskyB, which had no clear idea of what it wanted and did not properly specify its requirements.

"Sky knew it wanted a super-dooper CRM system but had little more idea of what it wanted or needed," said Mark Barnes, counsel for EDS.

Although the contract limited EDS liabilities, BSkyB argued that in a case of fraudulent misrepresentation, such limits should be set aside. The court agreed, and Hewlett Packard has already paid £200 million in advance of the court's decision on damages later this month.

"The model of selling IT and IT services has always been based on the model of capping liability and putting insurance in place against that," says John O'Connor, head of the technology practice at law firm Matheson Ormsby Prentice.

"This decision means the risk has jumped substantially, and customers are more likely to take on a supplier [ in the courts] if a contract is going wrong."

With the stakes so high, neither BSkyB nor Hewlett Packard skimped on legal costs. They are believed to have racked up legal bills of about £40 million each. BSkyB's legal team even flew an investigator to the British Virgin Islands to prove that Galloway did not have an MBA from a college there.

"When you are running a project going into millions like this, there is a line between advertising puffery and outright lying," says David Cullen, a partner with William Fry solicitors who specialises in IT contracts. "[ Galloway] crossed that line."

Both lawyers say that while an English high-court decision is not binding on the Irish courts, it would have a "persuasive effect". Whether this ruling will be tested in an Irish court remains to be seen.

Cullen says few disputes over technology contracts end up in the courts here because of the costs associated with taking a case.

In the meantime, O'Connor says he is advising clients who sell technology to ensure their salespeople "don't get carried away and stick to company guidelines" when trying to win contracts.

With such a large part of IT salespeople's salaries consisting of commission, it probably won't be long before another Joe Galloway promises the world to win the business - and then finds his employer is getting sued.

"When you are running a project going into millions, there is a line between advertising puffery and outright lying