A high court ruling this week on a long-running IT-services dispute between BSkyB and EDS will have been watched closely by IT contractors and users of outsourcing services alike. This kind of litigation and the values at stake should give even the strongest outsourcing relationships cause to pause. 

This is the first case in the UK in which deceit of this sort has been established and looks like it might become a landmark ruling for services procurement. The risk of litigation has been an ominous threat post-recession and this will be unlikely to ease nerves. 

First a quick recap:

BSkyB hired IT company EDS to construct a £48m customer relationship management system in 2000. Relations between the companies broke down in 2002 and Sky ended up building the system itself at a cost of £265m.

BSkyB sued EDS, claiming that the company behaved fraudulently concerning the development and timescale of the project during the sales process.

The contract signed by the two companies contained a limitation of liability clause which would apply if the project faced difficulties. That cap would not apply, though, in the event of fraud.

In addition to “ordinary” breaches of contract by EDS, the Court found EDS liable for a deceitful misrepresentation which induced BSkyB to contract with it, exposing EDS to potentially unlimited liability. The claim is for £700m and expected damages are likely to run to £200m.

In essence, a service provider, and not a disrespuble one it should be noted, made claims on a large contract which it was ultimately never going to be able to deliver.

Some commentary suggests that the outcome highlighted the errors of one individual, rather than systemic problems in IT purchasing. David McIlwaine at law firm Pinsent Masons writes on the firm’s Out-Law.com blog that he felt the judgment was not likely to call into review the whole sales process.

Perhaps he is right, but if tomorrow you have a meeting with a prospective service provider, is it likely that you are not going to want to exercise that little bit extra caution?

To reiterate, it cost Sky £265m to rebuild its system. And liability cap-busting deceit claims aren’t likely to start being approved en masse, for those wondering if they too could handle a situation where a deal like this turned sour.

It seems there’s nothing new in the outcome, but the service providers and customers alike will be feeling the repercussions simply because as a cautionary tale, it’s a big one. The damage will have already been done to customers faith in large outsourcing providers, but the ruling shows that service providers have just as much reason to be very careful and upfront.

This week speaking to Stewart Buchanan, research director in Gartner's IT procurement management team, on IT outsourcing in general, he was definite, “It’s an issue of trust.”

As if that wasn’t hard enough to earn already...