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Double Trouble for Cap Gemini: Integrator's Problems Suggest A Different Approach to Contracting for Technology Services

Written By: D. Geller
Published On: December 15 1999

Event Summary

An article in the New York Times states that Cap Gemini, an international provider of IT services, has recently been removed from a total of almost $150 million dollars worth of projects. The United States Chamber of Commerce, The United Way and the French Government have all expressed extreme dissatisfaction with Cap Gemini's performance; in at least one of these cancellations involving the Chamber of Commerce, the companies are suing each other. On the other side of the equation, International Micro Systems sued Cap Gemini America for backing out of a contract to develop custom software.

In a published statement Cap Gemini stated that their policy of respecting client privacy would not allow it to comment on most of these matters. The company did confirm that it is engaged in litigation with the U.S. Chamber of Commerce over an issue of non-payment of $5.3 million for a system that Cap Gemini built and delivered but which new management at the Chamber no longer wants. However, according to the Chamber, "Cap Gemini couldn't do the job, the software has to be scrapped, and they fired any number of their own employees working on the project The new system doesn't work -- it never did what Cap Gemini said it would."

Cap Gemini America is a $623 million company and points to its "strong track record for delivering quality services," with a satisfaction rating of 4.63 out of 5.0 from 2,035 engagements so far this year and an on-time delivery rating of 98%. The larger ($4.4 billion) European parent company was chosen European Company of the Year by the European Business Press Federation.

Market Impact

Cap Gemini is the largest IT service provider in Europe and has a significant U.S. presence. No company likes to have problems with its contracts, but it does occasionally happen. It may simply be that these disputes, coming closely together, follow the same statistical law that predicts that independent events with low probability will tend to cluster. It may also be that these events are not independent - see User Recommendations.

Regardless of who is at fault, this is not good news for Cap Gemini. The IT services market is intensely competitive, and some companies would rather choose another equally capable vendor than have to think twice about the possibility of a multi-million dollar disaster. Expect Cap Gemini's current customers to hold its corporate toes closer to the fire on schedules and performance guarantees, and we expect to see a short-term dip in its new contract signings in the Spring (probability 65%).

User Recommendations

What we find disturbing about the Times report is the indication from three of the four companies that the problems were due to Cap Gemini being unable to keep staff on their projects. The current E-commerce boom has created an employment scarcity throughout the IT marketplace. Every company feels the pinch in terms of being unable to hire and of its talent being hired away. On the other hand, someone contracting for a large development of integration project has the right to expect its vendor to weather these problems and manage them in a reasonable way. When United Way claims that an independent systems audit discovered 400 "large problems", and the French Government blames Cap Gemini's failures for employee discontent and a strike at the National Library, it is obvious that management has not been successful. In this environment, a technology company's number one priority is making its staff want to stay. If Cap Gemini can not do that - and we do not claim that these particular problems are proof that it can't - it has serious trouble ahead. We do want to point out that Cap Gemini claims that their employee turnover rate is lower than for the industry as a whole.

So what do you do when the Cap Gemini salespeople come calling? First, ask them about this story, how the company is addressing it, and see whether you find their response open and credible. But, regardless of who is choosen, the organization should consider the particular risk of the project being derailed due to the seller's market in technology recruiting? What will the vendor do if key people on your project leave in mid-stream? What are the risks to you if those people can't be replaced? What does the vendor do to make its employees want to stay? Answers to these questions should be part of your evaluation process with every vendor, and the final negotiations should include a way to mitigate these risks. It may be wise to add another ten to fifteen percent on the estimated cost of the project to hire a third party firm to monitor compliance with development schedules, delivery standards, and overall quality every step of the way. This way, if the project has a serious problem you may be able to negotiate coverage of some of these costs with your chosen vendor, especially if the vendor appears vulnerable to staff loss as a result of your evaluation.

 
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