BSkyB v. EDS – how can Procurement help major outsourcing projects avoid the courtroom?

There has been enormous press coverage of the BSkyB v EDS trial, where EDS were required to pay over £200m for fraudulent misrepresentation on an outsourcing contract. BSkyB’s budgeted £46m for the project, but ultimately paid £270m for an incomplete delivery at significant delay. Although EDS were vilified, the case raises the obvious question for procurement – how can we avoid time and cost overruns of this magnitude on major procurement projects?

The key term for any major procurement is “relationship”. From the outset, all internal stakeholders must be aligned on the objectives, scope, timescales and requirements for the project. Alignment between Procurement, IT, business user groups, HR, Finance and Legal teams with governance from Board level will avoid creating confusion with suppliers, reducing risk of supplier misunderstanding and assumption.

Internal stakeholders should agree on a realistic set of requirements and timescales, with sufficient time set aside to negotiate the contract prior to work commencement, or at a minimum, clarity on what work can be completed prior to contract signature, for example a work definition phase. This permits any supplier assumptions to be tested before costs are finalised, whilst allowing for switching of suppliers if contract negotiations are not successful.

The heart of any tender lies in assessing suppliers’ ability to deliver against your requirements. This is vital in major outsource projects. If you can clearly define the output that you’re looking for, you will reduce supplier confusion and assumption, driving more accurate supplier responses. This comes down to clear, concise, and contract-worthy requirements, drafted such that they can be lifted straight into the contract, linking deliverables, SMART SLAs and granular costs into one structure. As well as enabling you to quickly spot misrepresentation in a supplier response, clear requirements will facilitate performance measurement against that required output during the life of the contract. You can then identify and tackle poor performance early on rather than resorting to court.

Companies often use ‘input’ rather than ‘output’ based requirements. Success should be linked to the outputs that you wish to see, not necessarily how the project is done, or ‘inputs’, unless you have clear reason to dictate what technology or process is used. Specifying the ‘how’ too closely can stifle supplier innovation, which is, after all, one of the reasons you are approaching the market rather than doing it yourselves. Instead, the requirements should concentrate on the results that you wish to gain.

Finally, the tender process must assess the proposed relationship with bidding suppliers. As well as assessing the more usual supplier financial stability, cultural fit and team structure, this means identifying the supplier’s core delivery team and running background checks on their stated experience and qualifications. A major blow for EDS at trial came when Joe Galloway, the mastermind for their tender response, was found to have lied about his education. The prosecution showed that his MBA was false, and secured the same qualification for the prosecutor’s dog. Would you believe a tender response produced by someone who lied about their qualifications? For major outsource projects, it’s essential to verify the background of the core team members, as you must be able to trust that they can deliver as promised.

So, whilst BSkyB seemingly gained justice in court, Procurement’s skill in the initial tender can drive success for major procurement projects without needing the courtroom.