In its 10-Q filing with the Securities and Exchange Commission in 1998, GM had agreed to pay EDS $75 million as an incentive if its computer systems and microprocessors--embedded in a wide variety of cars and auto parts--continued working "before, on and after Jan. 1, 2000, without causing significant business disruptions."
GM paid EDS only $62 million of the $75 million proposed bonus, with the remaining $13 million paid to EDS by Delphi Automotive Systems, according to an EDS spokesman. Delphi assumed responsibility for the balance of the bonus payment when it was spun off from GM in the second quarter of 1999. EDS is also a spinoff from the automaker.
GM paid EDS the bonus at the end of the first quarter of 2000 because the automaker's computer systems did not cause "a significant business disruption resulting in material financial loss," GM reported in its current annual report.
The countdown to the millennium was fraught with fear that computer systems would crash because of the date rollover to Jan. 1, 2000. But the much-feared Y2K bug hardly raised its head at the beginning of the new century.
Analysts pointed out that most IT (information technology) firms work on straight time and materials billing, with a few exceptions, including Cambridge Technology Partners, which distinguishes itself with a fixed price arrangement. Fixed pricing, guarantees and bonuses are something IT firms seem to be happy to do without.
"The arrangement was a little out of the ordinary," said Gregory Gieber, an analyst at Brown Bros. Harriman. "It was shrewd on GM's part--a good way to incentivize something that is important to make sure it gets done right."
GM paid about $472 million, not including the bonus, to EDS from January 1997 through December 1999.