Industry news

The US State of Indiana and computer giant IBM are taking each other to court over a 10-year, $1.6 billion outsourcing contract that was designed to modernise Indiana's ageing welfare administration system.

Yesterday, the two parties filed claims and counterclaims against each other over the project, which came to a halt when Indiana Governor Mitch Daniels pulled the plug in October 2009, describing the system delivered by IBM as "unworkable".

Launched in 2007, the new system enabled state residents to apply for welfare benefits in person, online or via telephone and aimed to speed up and standardise eligibility determinations. High error rates and slow processing of eligibility requests quickly became a major source of contention between Indiana and IBM.

In an Indiana courtroom on Thursday, Indiana sued IBM for $1.3 billion, claiming breach of contract. The Indiana Family and Social Services Administration (FSSA) claims that processing errors from IBM led to faulty benefits denials that brought harm to needy citizens.

"FSSA was left with virtually nothing of value from IBM's failed performance, and indeed is now faced with expending hundreds of millions of dollars in re-programming and eventually entirely replacing IBM's failed systems, restructuring procedures and client services, and reengineering IBM's 'modernised' system," the state said.

In turn, IBM countersued for $52.8 million for fees and expenses outstanding. In a public statement, the company acknowledged that, although Indiana had the right to cancel, the contract requires the State to pay IBM "certain amounts", including deferred fees and equipment costs.

"By refusing to honor certain contract provisions, while at the same time relying on other provisions to remove IBM from the project, the State threatens to undermine the integrity of a public procurement process under which thousands of private companies conduct business with Indiana, expecting and depending on the State to fulfill its contractual commitments," the company said.

The UK National Grid has shortlisted Infosys, Mahindra Satyam and Cognizant for an outsourcing contract expected to total some $250 million (£172 million), according to reports in today's Economic Times.

National Grid already has a seven-year, $470 million contract with Computer Sciences Corporation (CSC), which is due to expire this year. The work involves developing software applications and maintaining IT infrastructure for the utility firm, which manages the UK's electricity and natural gas network.

When contacted by the Economic Times on Thursday, a National Grid spokesman confirmed that his organisation is reviewing its IT operations, but declined to elaborate any further.

CSC has announced today that it has won a high-performance computing outsourcing deal with US government body, the National Oceanic and Atmospheric Administration (NOAA).

NOAA is a scientific agency whose mission is to understand and predict changes in the Earth’s environment and conserve and manage coastal and marine resources to meet the US's economic, social and environmental needs.

The deal between NOAA and CSC takes the form of an indefinite-delivery/indefinite-quantity, or IDIQ, contract - a contract between a federal government agency and a contractor for the indefinite delivery of an indefinite quantity of services.

Under the terms of the contract, task orders will be funded to design and implement a new high-performance computing system to support NOAA’s environmental modeling program. This will allow NOAA to improve the accuracy of global and regional climate models and advance weather forecasting capabilities critical to the protection of life and property.

The IDIQ contract has a four-year base period, one four-year option and one one-year transition option, bringing the estimated contract value to $317 million if all options are exercised. The first year will be funded at $49.3 million by NOAA, using funds from the American Recovery and Reinvestment Act of 2009.

“We are proud to work with NOAA in helping the nation better understand how the Earth's climate is changing, which will aid in the development of adaptation and mitigation strategies,” said Mike Gaffney, president of CSC's Civil and Health Services Group.

“CSC is confident that, with the new high-performance computing facility, NOAA will be able to produce more accurate and agile models and share computing resources across the agency and its research partners.”

Tel Aviv-based IT services provider Ness Technologies announced today that is has won a multi-year outsourcing contract with Israel's largest hotel chain, Fattal Hotels, valued at 12 million New Israeli Shekel (NIS), or approximately £2.1 million.

The new contract builds on previous deal between the two companies.

Fattal Hotels recently acquired Azorim Tourism, adding 12 hotels to its portfolio of 29 hotels in Israel. The company also manages 30 hotels across Europe.

Under the terms of the contract, Ness Technologies will now operate and maintain Fattal's IT systems, including applications and infrastructure, as well as the chain's communications network. Ness also has responsibility for maintenance of Fattal's servers hosted at Med-1, a local supplier of collocation and IT room hosting solutions.

In addition, Ness Technologies' Unified Reference and Delivery (URD) Center, Israel's largest outsourcing helpdesk center, serves as Fattal Hotels' helpdesk, supporting hundreds of users across Israel.

Ness Technologies has 7,300 employees and offshore centres in Bangalore, Mumbai, Hyderabad, Pune and Chennai.

"The outsourcing of our IT activities to Ness Technologies enables us to focus on our core business and improve our customer service and satisfaction, ensuring our guests' complete enjoyment," said Gadi Priewer, General Manager of Fattal Hotels. "As part of the outsourcing contract, Ness will support our reservations system, which is critical to our business, and will enable us to maintain a high operational performance level in service, quality and efficiency."

A prison located in India's technology hub of Hyderabad is set to launch BPO services from its premises, according to reports in today's Times of India.

The unit in the southern Indian city's Cherlapally jail is to be staffed by educated convicts. Prison authorities are working in partnership with Indian information technology company, Radiant Info Systems. The company is to invest money and expertise in the unit, with prison authorities providing space and labour.

Chief of prisons CN Gopinatha Reddy told the Times that up to 250 prisoners could be employed from among inmates who had passed school and university exams.

"For starters, the convicts working at the BPO would not have access to phones as is the case in a call centre," he is quoted as saying. "They would be involved in bank-related work of data entry and transfer."

"The idea is to ensure that on being released, the prisoners find it easy to get absorbed in the mainstream. Prisoners often find getting suitable employment post release a tough task. So, this is an attempt to ensure that their employers know them well in advance," said Reddy.

IT and BPO services company Cognizant, based in Chennai, India, has today announced its acquisition of The PIPC Group, a global project management consulting firm based in London.

PIPC has a workforce of around 200 staff, based primarily in the UK, Australia, New Zealand and the US. Established in 1992, PIPC has assisted companies including the BBC, banking group Santander and Malaysian Airlines to deliver business-wide transformation projects, using the firm's Project Management Office (PMO) methodology and Project Health Diagnostic (PHD) tool.

A particular area of specialism is post-merger integration, which accounts for some 35 percent of the firm's business.

"At a time when cyclical and secular pressures are driving clients to seek new performance thresholds, effective program management is essential to ensure measurable business outcomes. PIPC’s strategic program management offerings will strengthen our ability to manage increasingly complex global projects while expanding our geographic footprint, particularly in Australia, New Zealand and the UK,” said Francisco D’Souza, President and CEO of Cognizant.

The terms of the deal were not disclosed.

Private equity firm Apax Partners has made its first investment in Brazil, with the announcement that it has bought a 54 percent stake in TIVIT, a supplier of IT and BPO services.

TIVIT operates out of 16 locations in Brazil, handling operations on behalf of a client base that includes 300 of the country's 500 largest companies, including financial services providers, manufacturers, public utilities and retailers.

Luiz Mattar, CEO of TIVIT, will retain a "substantial" portion of his ownership stake in the company and has committed to continue leading the company, describing Apax Partners as a "patient investor".

Meanwhile, Jason Wright, a partner at Apax described the rationale behind the firm's purchase: "Apax is attracted to TIVIT's market leadership in both IT Outsourcing and Business Process Outsourcing. Luiz Mattar and his team have build a solid foundation for continued growth and expansion and enjoy the tailwinds of a strong Brazilian economy."

Apax is buying its stake from Tivit's controlling shareholders at 18.10 reais a share ($10.14), valuing the company at approximately $1 billion.

With that pesky Icelandic volcano once again dishing out clouds of ash and intermittent misery to travellers across Europe this past weekend, aviation regulators have warned of a "summer of disruption" for airline passengers.

From an outsourcing perspective, I wonder if this could be very good news for providers of managed video conferencing services?

Already, the video conferencing industry has been quick to jump on the marketing opportunity offered by 'Volcano Chaos', with leading providers quick to report a significant uptick in business during the initial April disruptions.

Some commentators have said that their eagerness to exploit the marketing opportunity of a natural disaster smacks of desperation. "To me, it suggests that most organisations are still not sold on the whole concept," said one.

I'd be inclined to agree, if it weren't for the fact that market analyst company IDC recently reported that, well before Eyjafjallajokull kicked off, sales of video conferencing equipment managed to achieve 16.7 percent growth over 2008 figures, in an otherwise sluggish year for the IT industry.

Where I DO agree is that video conferencing is still viewed as a prohibitively expensive technology by many business leaders. But if it's true that businesses face months of disruption thanks to volcanic ash from Iceland, then it seems likely that some - especially those with significant overseas interests - may be looking for a managed services approach to video conferencing, where they simply hire the equipment and it's managed for them by a third-party specialist.

It's the old capex versus opex debate that so frequently arises in discussions of outsourcing today. Companies such as mvision, for example, are building healthy businesses around bringing visual collaboration for a fixed monthly cost to organisations that are unable or unwilling to make the substantial upfront investments required to buy, install and manage their own video conferencing systems.

Perhaps the threat of ongoing Volcano Chaos in Summer 2010 will be enough to convince others to take the same tech-savvy, cost-conscious approach to tackling business travel disruption?

Two Japanese IT services providers, Fujitsu and NTT Data, are said to be in talks to acquire a majority stake in Patni Computer Systems, according to reports in India's Economic Times.

Also alleged to be in the running is Indian engineering company, Larsen & Toubro, which already operates its own IT services division.

The newspaper cites unnamed sources who claim that the company’s three founders, brothers Narendra, Gajendra and Ashok Patni, are looking to offload part of their combined 46.5 percent holding in the company, along with private equity firm General Atlantic, which holds a 17.7 percent stake.

"The talks are on. But there are no exclusive talks to any of them at this point in time," said one source. "Patni is still talking to various suitors and a deal is still sometime away," he said.

It is likely that both Japanese companies would use Patni’s resources to boost their European businesses were the bids successful, as Japanese demand for offshore services is typically served from China.

Computer hardware, software and services giant IBM this week announced it has acquired Cast Iron Systems. The move is expected to give the company the technology and experience it requires to connect customers' cloud-based and in-house applications.

IBM expects the global cloud computing market to grow at a compounded annual rate of 28 percent from $47 billion in 2008 to $126 billion by 2012. 

But a key challenge that businesses face in successfully adopting cloud delivery models is integrating the disparate systems already running in their data centers with new, cloud-based applications. 

In the past, this involved time-consuming and resource-draining coding work. By contrast, Cast Iron Systems will offer IBM customers a platform to integrate cloud applications using a physical appliance, a virtual appliance or a cloud service, and from providers including Salesforce.com, Amazon, NetSuite, ADP, SAP and JD Edwards, according to the company release.

“The integration challenges Cast Iron Systems is tackling are crucial to clients who are looking to adopt alternative delivery models to manage their businesses,” said Craig Hayman, general manager, IBM WebSphere.  “The combination of IBM and Cast Iron Systems will make it easy for clients to integrate business applications, no matter where those applications reside.  This will give clients greater agility and as a result, better business outcomes,” he said.