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By | Mark Ballard 26th June 2006 11:03

EDS gets its pound of flesh from MOD

But government won't say how much

The Ministry of Defence (MoD) has agreed on the level of compensation it should give EDS for having changed its mind about what it wanted from the £2.3bn Defence Information Infrastructure (DII) project.

EDS confessed in its annual statement in March to pressing the MoD for more cash under an innovative contractual term that allowed the buyer to change its mind without putting the supplier out of business - a lesson that EDS learned to its cost, but not its destruction, with another gargantuan defence infrastructure project, the infamous US Navy Marine Corps Intranet (NMCI).

The MOD said in a statement that it had reached a "satisfactory agreement" with EDS, the prime contractor of the ATLAS suppliers consortium, which was awarded the DII contract last spring.

Talks had been running since January about the MOD's need to revise the project to take account of climate changes such as the Gershon efficiency review and the restructure of the Royal Air Force.

A deal was reached at the end of May, an MOD spokesman said. But he refused to say how much more it was going to pay the US IT firm.

EDS refused to comment, saying further details would be provided in its August financial statement.

According to analysts at Ovum last year, the project was estimated to bring savings of £170m within the first three years. £43m of this was expected to be gleaned in the first year. But the project is running late. Work was meant to begin in April when the deal was being renegotiated.

The MOD was not able to say how the increased payment would effect the projected savings. It said only that it "reflected" the "appropriate adjustments" that were "necessary" to "take account of a range of changes".

The DII contract has been commended by Ovum for its maturity, in that it assumes there will be changes to requirements and allows for them upfront. The alternative could mean losses for the supplier, as EDS found with NMCI. The firm has stated that the lessons it learned from NMCI would be applied to DII. ®

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