£1Bn contract – No Thanks says IBM!!

£1Bn contract – No Thanks says IBM!!

IBM’s today announced that it will not seek to renew the London Congestion Charge contract worth in excess of £1Bn pounds due to be renewed in October 2014. With a 12 month’s notice clause now invoked, the management of TfL are astonished and embarrassed and now have a huge credibility problem in bringing this contract to market.

This is a carefully planned move on IBM’s account. TfL’s Nick Fairholme is on record last year in stating that innovation and new technologies would be needed to deliver the services going forward. Demonstrable additional value for money clauses are also behind IBM’s decision to withdraw. This huge investment to design, build, configure, test and implement new technology and without interfering with the existing systems means new players will be undertaking huge risk and the ability to recover this within any five year contract make it impractical and uneconomic.

IBM’s move is astute and calculated. They undercut the original pricing by £200m to secure the contract and informed sources suggest that the contract has only just become profitable four years later. IBM will likely still have lost money overall.

However Lex predicts that IBM will be given an extension under new and advantageous terms whilst TfL tries to find bidders who will all be seeking a seven to ten year contract in order to gain real returns on the capital expenditure needed to ensure lower running costs. Whoever steps up to the plate next will also pay heavily for IBM’s continuity and expertise assuming key people are not already preparing their CV’s.

Capita the last incumbent lost a fortune before losing the contract – could they be tempted. Yes they could but they will extract (behind closed doors) some heavy commitments before being prepared to stump up the £2-3m for the bidding costs. The real loser here is the TfL’s executive, as this reflects a typical “civil servants” attitude of squeeze suppliers at every opportunity – however it has or will backfire this time.

IBM looks forward to recouping monies and we all pay for it in increased congestion charges within the next eighteen months.

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One Response to £1Bn contract – No Thanks says IBM!!

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