Ansett's $100m outsource deal under threat

Ansett's $100m outsource deal under threat

Ansett Australia's crisis could blow a hefty hole in forward accounts for IBM Global Services Australia.

The airline's troubles have come to a head mid-way through at least one long-term, big-dollar outsourcing contract with IBM GSA.

In 1997 Ansett agreed to pay IBM GSA an estimated $100 million to provide data centre services until 2007.

The deal included mainframe and midframe computer services, data communications and systems software but not database administration.

In a separate nine-year, multimillion-dollar pact, Ansett also turned over management of 6000 desktop systems to IBM GSA. Under the arrangement IBM was supplying PC repair, installation and maintenance services plus LAN server support and help desk facilities. That contract was later transferred to another supplier when Air New Zealand took over Ansett.

With Ansett facing dismemberment, so do those contracts. IBM GSA would not comment on the situation; however, outsourcing industry executives said it is likely to rank as just another unsecured creditor in terms of collecting any monies owed under the contract.

Trying to set out a position as a priority creditor is not seen as a winning ploy by outsourcers during contract negotiations.

Outsourcing contracts include provisions for termination if the customer goes into bankruptcy but the legalese doesn't cushion the financial blow.

Normally, the outsourcer has invoiced in advance so there is money on its ledger which represents a liability.

In addition, it has substantial obligations such as long-service leave and termination payments to staffers who underpin the contract. In the case of Ansett, about 45 data centre personnel were involved when IBM GSA took over operations.

On the plus side for IBM GSA, it is not a listed Australian company so the massive loss of forward revenues will not translate into a direct hit on share prices.

Based on the total value of its booked contracts, (reportedly around $3 billion) IBM GSA will also have factored in a risk percentage representing its exposure to unforeseen circumstances.

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