EDS Says $4 Billion U.K. Contract Won't Bring Same Problems As U.S. Navy DealEDS Says $4 Billion U.K. Contract Won't Bring Same Problems As U.S. Navy Deal

A consortium of IT vendors and defense contractors led by EDS has won a $4 billion contract to modernize the United Kingdom's defense information systems, the country's Ministry of Defense said late Wednesday.

Under the 10-year deal, EDS, along with subcontractors Fujitsu Services, General Dynamics, and several smaller partners, will ultimately manage and host thousands of software applications for use by more than 300,000 U.K. military personnel at more than 2,000 locations. The team, which calls itself the Atlas Consortium, will also build an intranet to connect the applications across a secure, IP-based network.

The Atlas Consortium's contract covers the first phase of the U.K. Ministry of Defense's three-phase plan to modernize its IT environment. Ultimately, the entire project could be worth more than $7 billion to IT and defense contractors. Contracts for the second and third phases will be awarded under separate bids. EDS already provides HR outsourcing services for the ministry under an existing contract.

In winning the contract, the Atlas Consortium beat out a rival team led by Computer Sciences Corp. CSC's partners included BT Group and Thales Defence Information Systems.

EDS is deploying a similarly massive intranet for the U.S. Navy under what was originally a $6.9 billion contract. While the company's experience with the Navy Marine Corps intranet likely factored into the Ministry of Defense's selection process, the project until recently has been more boondoggle than boon for EDS. Delays and cost overruns cost the company millions in profits and drained cash reserves. While EDS has righted most of the problems affecting the intranet, it can ill afford to let the Ministry of Defense work turn into a similar sinkhole.

EDS officials say the Ministry of Defense's IT infrastructure is more up to date than the Navy's was when work commenced on its intranet project and thus should be easier to upgrade and manage. For instance, a spokesman says that the Ministry of Defense has 500 legacy applications that need to be moved into a Web-environment. The Navy had 8,000. The spokesman adds that EDS "has gained a lot of unique insights in how to manage a project of this scope" from its work on the Navy project.

Cindy Shaw, an analyst who follows EDS for Moors & Cabot, estimates that up-front expenses associated with the Ministry of Defense contract will lower the company's current 2005 earnings-per-share projection of 50 to 60 cents by 15 to 30 cents. Still, Shaw says in a report that by winning the deal, EDS has "turned the corner."