Outsourcing Dispute: Provider Liable for Damages

In a case that illustrates how a complex IT contract can go wrong, the High Court has held that Atos Origin IT Services UK Limited was liable for damages for breach of a software development and supply agreement with De Beers UK Limited.

In De Beers UK Limited v Atos Origin IT Services UK Limited (2010) EWHC 3276 , Edwards-Stuart J assessed De Beers’ net loss at about £1.4 million, subject to claims for interest.

Atos had stopped working on the project to integrate the De Beers supply chain systems in Botswana in June 2008 because it considered that the project had altered substantially in scope, timescale and costs from the originally agreed terms, and De Beers refused to agree a formal variation.

Atos had submitted a fourth invoice in March 2008 (due for payment in April 2008) for approximately £320,000, which DeBeers failed to pay. The reason given by DeBeers for refusing to pay this invoice was its dissatisfaction with delays and with the quality of the work being done by Atos.

At the same time the Atos senior management had become very concerned about the substantial cost overruns on the contract and in a letter dated 21 May 2008 Atos claimed that the progress of the work had been delayed and obstructed by the lack of co-operation from DeBeers and by very significant increases in the scope of the work and that, unless DeBeers agreed to renegotiate the contract by 31 May 2008, Atos would suspend all further work. Atos relied also on the non-payment of the fourth invoice.

Although, at DeBeers’ request, the deadline was extended to 6 June 2008, DeBeers was not prepared to negotiate on these terms and Atos suspended work at the end of the first week in June. The work was never resumed.

Each party was asserting that the termination was the result of a repudiatory breach of contract by the other which it accepted.

The judge – criticising both parties’ behaviour – ruled that this amounted to a wrongful repudiation of the agreement which put Atos in deliberate and wilful breach of contract. He also found that the parties shared responsibility for delays and additional costs in the project: failures and delays by De Beers in finalising certain requirements, particularly finance; change requests from De Beers that represented an alteration in the scope of the work; shortcomings in the design of the system; and lack of effective communication within the Atos group.

The case demonstrates that unilateral action taken by one party without consent (written or otherwise) is considered a breach, despite any claims for justification by the other party’s failures or delays.