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EDS loses out on big Brit bid

Cap Gemini and partner Fujitsu Services win out as the preferred suppliers for a 10-year, $5.2 billion IT-outsourcing contract with the United Kingdom's Inland Revenue service.

Electronic Data Systems has been ditched by the United Kingdom's Inland Revenue service in the bidding for its prestigious 10-year, $5.2 billion IT-outsourcing contract.

Cap Gemini Ernst & Young and partner Fujitsu Services have been chosen as the preferred suppliers for the Aspire technology contract.

The announcement comes at the end of an intensive procurement competition that lasted almost two years and is seen as a major blow to EDS and partner Accenture, which, together, currently run the tax agency's IT systems.

But the government has said it is looking to increase competition for public-sector IT contracts, following a track record of high-profile failures. EDS in particular is under intense scrutiny from members of parliament and other politicians for its record on government contracts, most recently with the botched rollout of the new tax credit system for Inland Revenue.

Inland Revenue said the transition to the new supplier will begin Jan. 5, with the contract valued at 300 million pounds ($5.2 billion) per year, formally starting on July 1. The deal involves developing the future technology platform for the department in addition to the support and maintenance of more than 70,000 desktops, 177 IBM and Hewlett-Packard Unix servers and 200 ICL mainframes.

Sir Nicholas Montagu, chairman of the Inland Revenue, said in a statement that all the bids had been "extremely strong" and thanked EDS and Accenture for contributing "significantly to our success."

Cap Gemini, he said, demonstrated through the competition that "they have the skills that they need to make a reality of these changes and others that the future may bring, while still supporting our daily business."

About 2,500 employees are expected to join Cap Gemini from EDS, with 900 of those joining Fujitsu Services under U.K. employment regulations. Accenture's National Insurance NIRS2 contract will run until the end of April 2005, following a contract extension agreed upon earlier this year, and the company said it is too early to say whether any of those staff will then transfer to Cap Gemini.

Martin Cook, U.K. vice president at Cap Gemini, said the staff members moving over "are central to the Inland Revenue's ability" to deliver its service.

Fujitsu will provide data center, application, file and print services, as well as disaster recovery support.

Although there were rumors circulating in the past week that EDS had been dropped, Phil Codling, analyst at Ovum Holway, said the news was still "stunning."

"The government has become a lot more aware of the need to foster competition in procurement, and incumbency is no longer a guarantee," he said. "This has to be bad news for EDS and Accenture but very good news for what has been a troubled company in (Cap Gemini), and it is a big boost in the U.K. for a couple of companies that really needed it."

Andy McCue of reported from London.