Landmark decision in the case of BSkyB v EDS

The London Technology & Construction Court (a division of the English High Court) yesterday issued judgment in a long running case between BSkyB and Electronic Data Systems (now HP Enterprise Services). This is one of the most noteworthy IT cases to come before the courts. While the decision does not change the laws of Ireland and is not binding on Irish courts it would be of persuasive effect before an Irish Court. However, the lengthy judgment provides analysis of common risks associated with competitive bidding and with time and cost critical projects, in the technology sector and beyond. It provides invaluable insight into how a court is likely to approach contested pre-contractual representations and how they might be mitigated by bid teams and their advisers.

It is also reported that the decision, which rejected a number of the claims made by BSkyB, will be appealed by Hewlett Packard.

The Background

Following a tender process in 2000, BSkyB selected EDS to design, build, manage, implement and integrate the process and technology for a customer relationship management system at two of BSkyB’s contact centres. The relationship proved unsuccessful and ultimately BSkyB took over the implementation of the project. The project was stated to have an initial value of £47.6 million. BSkyB claimed that as a result of the failure by EDS to implement the system and the consequent delay that the actual implementation cost was in the region of £200 million. BSkyB claimed damages of some £709 million, which in addition to the claim for costs also included claims for lost business benefits and lost profits.

The Legal Issues

BSkyB claimed deceit, negligent misstatement and breach of contract in relation the manner in which EDS won the deal and implemented it. Significantly, the contractual limit of liability, which corresponded to the contract value, did not apply to instances of deceit and so the potential liability is significantly greater than the supplier had negotiated in the contract. No award of damages has yet been made, although it is reported that it could be in the region of £200 million. In particular, it was claimed that EDS represented that it had carried out a proper analysis of the amount of time it needed to implement and go-live with the system. It was held that no proper analysis was carried out by EDS and that it had no reasonable grounds for holding the opinion that it could deliver the project within the time scales. The court found that EDS made such representations dishonestly and intended BSkyB to rely on it. It was also held that EDS made negligent misrepresentations in relation to the analysis required to produce an achievable programme of implementation.

BSkyB succeeded in establishing breach of contract because it proved that EDS failed to properly resource and effectively programme manage the project and, as a result, failed to exercise reasonable skill and care or conform to good industry practice. The BSkyB claims were not entirely successful. The court found that EDS made representations in relation to the costs estimates for the project (they submitted an estimate of some £54 million in their Response to Tender) and that there were reasonable grounds for holding the opinion that they could and would deliver the project within the estimated budget. Therefore EDS was not liable to BSkyB for misrepresentation in relation to cost.

Lessons and Implications

The decision highlights how an over-zealous approach to competitive bidding for significant commercial contracts can have significant legal implications. It is likely to result in more cautious due diligence and engagement by supplier sales and bid teams in the early stages of procurements. It also illustrates how lack of certainty as to customer requirements and project planning can result in costly renegotiation and dispute. One of the most notable aspects of the case though is the finding of dishonesty in the sales process and the potential unlimited liability for suppliers as a result.