The outsourcing industry has been watching with interest the developments in the Sky and EDS case. The results of the court case will have wide reaching implications for the industry as a whole. So what’s all the fuss? In a nutshell, Sky is seeking £709 million in damages from IT services company EDS, for allegedly acting “dishonestly” when pitching for a £48 million contract to build Sky a new CRM system back in 2000.

Sky claims the system had multiple failures, which have resulted in a huge loss of sales, hence the mammoth claim. The nub of the issue is the liability cap within the contract. The cap means that EDS is liable for losses only up to £30 million, should anything go wrong. Obviously, the cap pales into insignificance when compared to the huge sum that Sky claims to have lost.

Sky is calling into question the validity of the liability cap. Why should Sky suffer this massive hit to its profit line and have to carry the consequences when it says the damage was caused by EDS? Its justification is its claim that EDS over promised on the contract, promising things it knew it was unlikely to deliver and then hid behind the protection of a liability cap.

Whatever the outcome, there are already lessons to be learned for suppliers and customers alike. Suppliers should know that they should never over promise on a contract, despite the fact they are eager to win the business and possibly someone’s commission is at stake. Customers should actually understand what they want and be careful with promises made upwards, maybe a career/promotion at stake? Both sides should make sure that all of these promises are carefully documented in the contract and form the basis of the solution, service level agreements and key performance indicators. In major contracts of this size it might be prudent to employ an independent third party to verify the solution and deliverables!

Until then, we will wait to see how it unfolds, but there can never really be any winners as both companies have lost out already.