The darker side of outsourcing went on display in the high court yesterday when media group BSkyB launched a claim for over £700m compensation from former supplier EDS. The US specialist was brought in to run the broadcaster’s customer service system in 2000, but was stripped of the £48m/year contract in 2002 after attempts at renegotiation broke down. Sky claims the outsourcing pioneer’s failure to meet its agreed service standards resulted not just from incompetence, but from fraud and deceit in the way it pitched for the contract, leading to breach of contract, for which the action launched yesterday is seeking redress.

The fraud prosecution, believed to be one of the largest by one private company against another, is a test case for the classification of poor supplier performance as a criminal act, and for the compensation that applies if guilt is established. Sky alleges that EDS knew its winning tender for management of the call, centres was unrealistic, promising what the company wanted without a well-formed plan for its delivery. It will tell the trial – held at London’s specialist Technology and Construction Court (TCC) – that it was a victim of “deliberate and dishonest” misrepresentation by the outsource, in its sales presentation and in the service agreement it signed.

Sky is claiming the higher figure, £709m, on the basis of the profit it says was destroyed as a result of customer service failings under EDS. The satellite TV and broadband company says it later resolved the problems by spending £170m on a new customer relationship management system (CRM).

EDS will dispute the former client’s assessment of its performance as “woeful”, and argue that it did nothing to merit prosecution even if it failed to meet agreed service standards. It is likely to suggest that the losses alleged by Sky occurred after it ended the contract, and was left without a CRM system. The original contract provided for compensation for underperformance, but capped it at £30m.

Texas-based EDS, whose billionaire founder Ross Perot was once a US presidential contender, has fought off a number of past prosecutions by dissatisfied customers, and last month paid US$500,000 to settle an action by the US securities regulator without admitting any guilt over charges related to overstatement of contract revenues in 2001-3. Those doubts led to a share-price fall in 2002 which, in turn, left the company fending off legal action from American shareholder groups.

EDS recently announced further steps in its offshoring of outsourced work to lower-cost countries, but hopes to avoid a similar confrontation with unions by offering additional retirement benefits to persuade up to 12,000 staff (9% of the global workforce) to leave voluntarily.

The prosecution gives BSkyB’s legal team a chance to see the other side of the courtroom: it is currently fighting a Competition Commission probe into its purchase last November of an 18% stake in ITV, which has been viewed by critics as a continuation of spoiling tactics against cable-broadcasting rival Virgin media. And Sky’s decision to replace free with paid-for channels on the Freeview broadcasting platform, whose free terrestrial digital services have emerged as a major competitor to Sky’s satellite channels.