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A troubled CRM installation at BSkyB [2] has ended up costing HP [3] some £200 million in interim damages and likely to result in greater scrutiny of service level agreements by senior decision makers. 

HP's EDS arm was found guilty of fraudulent misrepresentation in a legal battle over the failed system - and there could be more to come.

The case, in which judge Sir Vivian Ramsey ruled against HP last month [4], dates back 10 years to a time when EDS is alleged to have misrepresented its ability to sell a software system used for customer interaction to BSkyB. HP, now the owner of EDS, intends to appeal the judgement, but has agreed to make an interim damages payment.

BSkyB's original claim was for £700 million but the two sides are in ongoing negotiations over the amount that should be paid. In a statement, BSkyB said: "EDS have agreed to make interim payment of £200m to Sky within the next 14 days. The full amount of damages will be finalised in due course."

Whatever the final outcome, it's clear that the ruling will have a wider impact, with vendors taking much greater care over contractual liability when signing deals and paying much closer attention to what their sales people are promising clients.

The ruling centred on communications made by an EDS employee who was found to have misrepresented to BSkyB that it had carried out a proper analysis of the time needed to complete the initial delivery and go-live of the contact centre, when it had not done so.

The employee in question was also found to have lied about his MBA qualification. He had claimed to have studied at a collage in the Virgin Islands while working on a project for Coca-Cola there, but there was no such college or any such Coca Cola project. His 'qualifications' had been downloaded from the internet.

"As a result of the ruling, IT vendors will need to take special care in tightening up their recruitment policies and making proper background checks," notes Patrick O'Brien of research house Ovum [5]. "We doubt that many vendors restrict sales personnel in terms of what they promise in negotiations; instead they have concentrated on making contracts watertight. This attitude will need to be reassessed in light of BSkyB's court victory. Vendors will need to ensure they train sales executives in methods of selling that do not involve promising what they know cannot be delivered, or at least not promising it in such a way that the company can later be called to account.

"The UK IT services industry is littered with contracts that have ended acrimoniously, but clients have tended to shy away from expensive litigation. It took a company with the deep pockets and determination of BSkyB to land such a blow, but now IT vendors will be nervously assessing the conduct of their sales executives."

Richard Hunter, VP Distinguished Analyst at Gartner, agreed that the ruling would have far reaching consequences. "The sheer length of the 500-page decision in this case indicates that Justice Ramsey is aware that this is a closely watched case," he noted. "Legal authorities vary in the extent to which they believe the case will set precedent, in part because the decision was strongly influenced by the credibility and behavior of specific individuals involved. The specifics of this decision aside, we believe that a higher standard of diligence for vendors is an industry trend, with several longer-term implications for vendors and users.

"Vendors and service providers will increase their transparency in response to pressure from current and prospective customers to back up their claims for products or services with factual data. Customers will increase their due diligence to add scrutiny in the evaluation and selection process for providers to determine whether arbitration or litigation has been brought against them for performance issues, and utilize third-party second opinions to evaluate the viability of the schedule and price. Customers will include misrepresentation risk among their evaluation criteria. Software and services prices will rise to cover vendor liability risk. Vendors will weigh liability risks heavily in determining which contracts to bid on."