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Sears Exits $1.6 Billion Outsourcing Deal With CSC

In an SEC filing, Sears says CSC failed to perform as required under the 10-year contract.

Sears Holding Corp. subsidiary Sears, Roebuck and Co. has terminated its 10-year, $1.6 billion IT outsourcing deal with Computer Sciences Corp. less than a year into the agreement.

In a Securities and Exchange Commission filing, Sears said it ended the engagement "for cause, due to CSC's failure to perform certain of its obligations in accordance with the terms of the agreement." A CSC spokesman declined to comment. Sears' officials didn't immediately return calls.

Sears' SEC filing, dated May 13, also revealed that CSC sought a federal court injunction that would have prevented Sears from ending the contract. The court denied the request.

Sears and CSC struck the deal in June 2004. CSC was to provide the retailer with a range of IT services, including support for desktops, servers, and telecommunications systems.

Cindy Shaw, an analyst at securities broker-dealer Moors & Cabot, says Sears' decision won't likely have a major financial impact on CSC but notes that "it could hurt from a PR perspective."

With both sides not talking, speculation is rife over what's behind the deal's failure. The fact that Sears is backing away from the agreement in its early stages may suggest that "the transition has failed," says William Bierce, a New York City-based attorney who specializes in outsourcing contract law.

Others, however, believe internal politics at Sears may be a bigger factor. The company's outsourcing contract with CSC was authored by former CIO Gerald Kelly. Kelly, however, was ousted earlier this year following the merger of Sears and Kmart. Kmart CIO Karen Austin was given the top technology post at the combined company.

At the same time, Kmart chairman Edward Lampert wants to cut administrative costs at Sears and Kmart. Says Michael Guilbault, Technology Business Research analyst, "A $1.6 billion outsourcing deal may have looked like an easy target."

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