Outsourcing deal breakup

Tuesday, June 14, 2005

Sears, Roebuck and Co . have terminated its 10-year, $1.6 billion IT outsourcing deal with Computer Sciences Corp. Deal was terminated in less than a year into the agreement. In a Securities and Exchange Commission filing, Sears said it had cause to pull out of the contract, citing CSC’s “failure to perform certain of its obligations.” But the company is now facing arbitration on the dispute over the grounds of cancellation and what fee sears have to pay to CSC for the termination. The amount at stake is 96 million dollars termination fees. According to CSC, Sears has to pay that fee to terminate the contract.

Sears’ filing in SEC on 13th May also revealed that CSC sought a federal court injunction that would have prevented Sears from ending the contract but the court has denied the request. According to CSC in its motion filed with the court, sears terminated the contract “for convenience due to change of control”. This was because of the sear’s merger with Kmart Holding Corp. The merger has created new parent holding company Sears Holding Corp. in November. Sears and CSC made an agreement in June 2004 according to which CSC was to provide Sears with a range of IT services, including support for desktops, servers, and telecommunications systems.