Beware: Snake Oil Salesmen and Software

The judge in the recent BSkyB v EDS case, appears to have taken the view some software sellers inhabit the same world as the snake oil salesmen of old: they talk of miracles but deliver little.

Back in 2000, BSkyB awarded DS (now part of HP) a £48 million software contract. The relationship, however, quickly soured with BSKyB terminating the contract in 2001. It began proceedings against EDS alleging, among other things, that its sales team had made fraudulent statements that were instrumental in BSkyB giving it the deal. While the case trundled on, BskyB brought the software work “in-house” at a cost of £270 million.

The trial on liability concluded in January this year with judgment on the fraudulent misrepresentation aspect of the claim going in BSkyB’s favour. In his judgment, Ramsey J was critical of EDS’ Joe Galloway and the truthfulness of both the representations he made to BSkyB and his evidence to the court.

The parties were due to return to court this summer with BSKyB looking for £700 million in compensation. EDS had sought to cap its liability at £30 million but the contractual provision did not apply where there was fraudulent misrepresentation.

Earlier this month, HP (on behalf of EDS) and BSkyB agreed to settle “out of court” with HP paying £315 million. Arguably, given the amount of time and money expended on the case, a settlement made sense for both parties - HP can distance itself from a problem not of its making, and BSkyB has certainty on its compensation and closed off any prospect of an appeal by EDS

Pursuing or defending a claim for fraudulent misrepresentation may be costly - BSkyB’s legal bill was £45 million and EDS are likely to have been of a similar order. Our experienced Technology team can guide software sellers and buyers through this potential minefield. Practical steps that both should carry out include:

• checks on the sellers’ sales team’s qualifications and expertise;
• a review of all sales and marketing materials to ensure accuracy and truthfulness;
• a review of the training programme for sales’ personnel;
• ensuring the procurement process is appropriate to the contract;
• providing for appropriate forms of alternative dispute resolution in the contract;
• a review of the contractual warranties and representations
• a review of the liability clause in the agreement; and
• for the buyer, monitoring the sellers’ performance against agreed service levels/KPIs and enhancing the termination rights

For further information, please contact John Yates, Solicitor in our Technology Group.

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