Tag Archives: BSkyB

Software sales hype and the law

Effective and ethical stakeholder management is becoming mandatory. For decades the software industry has been able to largely ignore the needs of its clients, but the world is changing. The UK Construction and Technology Court is following the lead set in the BSkyB v EDS judgment and making software vendors live up to their promises! You can bet the rest of the world won’t be far behind….

In 2006 the Kingsway Hall Hotel paid £49,999 plus an annual licence fee of £7,528 for software vendor Red Sky’s Entirety package, which covered bookings, check-in and sales. Kingsway selected the system based on Red Sky’s recommendation.

Problems arose almost immediately. Issues included incorrect room availability and no-show reports, unallocated mini-bar charges and a main server crash. Entirety could not cope with group bookings and the servers frequently froze.

Kingsway’s solicitors wrote to Red Sky saying that Entirety was unfit for its purpose and Kingsway was entitled to reject it and seek damages. Kingsway claimed for loss of profit on lost room sales of between £222,000 and £311,000, plus £13,500 for an additional reservations manager, £36,333 for three additional shift leaders and £13,500 for wasted staff costs.

Red Sky claimed Kingsway had bought an off-the-shelf package after having ample opportunity to investigate it.

The judge held that Red Sky had been aware of Kingsway’s requirements and under section 14 of the UK Sale of Goods Act 1979 it could be implied that the Entirety software system would be fit for the purpose of increasing revenue and occupancy levels and allowing quicker check-in and check-out. Entirety did not meet that purpose, nor the standard a reasonable man would consider acceptable.

The court awarded Kingsway £50,000 in lost profits £24,000 in wasted expenditure and £38,000 for extra staff costs.

To avoid similar problems, effective requirements analysis is becoming mandatory backed up by delivering on the contracted promises to meet the identified stakeholder requiremets.

References:

Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd [2010] EWHC 965 (TCC) – UK Technology and Construction Court May 2010

BSkyb Ltd & Anor v HP Enterprise Services UK Ltd & Anor (Rev 1) [2010] EWHC 86 (TCC)

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IT Business Sued for US$300 million+

The IT industry is moving ever closer to mainstream contracting and vendors will be sued for non-delivery. Construction and engineering companies have been used to litigation over the non-delivery of contractual obligations for well over 100 years. Following the BSkyB v EDS judgement, the IT industry is now firmly in the same boat!

Earlier this year, the UK High Court handed down its decision in the long running case of BSkyB v EDS (now owned by HP) with the damages awarded against EDS likely to exceed £200m (US$300 million). The judgement will be appealed but stands as a warning for all IT vendors world-wide.

The dispute concerned the failed implementation by EDS of a new customer relationship management (CRM) system for use in BSkyB’s Scottish call centres. The project did not go well. After numerous key deadlines had been missed and various attempts to rectify the situation had failed (including re-planning delivery of the project by signing a ‘Letter of Agreement’ to supersede the primary contract), BSkyB severed its relationship with EDS in 2002 and completed the project in house (at a reported cost of £265m).

Litigation ensued, in which BSkyB made claims of, among other things, deceit (fraudulent misrepresentation), negligent misstatement and breach of contract by EDS. Despite EDS arguing that the project was derailed by the inherent risks in an IT project of this nature and BSkyB’s ‘vague and shifting requirements’, EDS was held liable for fraudulent misrepresentation, negligent misstatement, and breach of contract.

This decision highlights the fine line that must be trodden by service providers in promoting their offerings whilst pitching for jobs. Above all else, service providers should ensure that during tender processes they do not exaggerate their capabilities and should conduct thorough, documented assessments of prospective delivery timing before making any representations. Reliance on inherent risks in IT projects is unlikely, in itself, to be sufficient to substantiate any failure to meet representations “made by the sales guys”.

Welcome to the ‘real world’ guys…… See more on the judgement