EDS And Xerox End Legal Spat, Extend Outsourcing Pact

EDS and Xerox Corp. have ended their legal battle and are working together. Xerox last week signed a five-year, $1.5 billion outsourcing contract extension for EDS to host Xerox's IT operations and provide application development and management services worldwide through 2009. Xerox also will participate in EDS's $6.9 billion U.S. Navy Marine Corps intranet contract.

The extension builds on an existing 10-year, $3.2 billion outsourcing contract that Xerox signed with EDS in 1994. It signals the end of a contract dispute from April 1999, when EDS filed suit against Xerox for nonpayment of services.

Through 1998, Xerox had been paying discounted fees for EDS services and support of notebook PCs used by Xerox customer-service engineers. It was supposed to pay full fees starting in 1999. Instead, Xerox began to provide those services internally and stopped paying EDS altogether. EDS sued to get Xerox to pay the difference between the discount and the full fee for 1996, 1997, and 1998, because canceling the services nullified Xerox's right to lower rates.

The extension provides EDS with an incentive to drop its suit and represents a healing for the companies, says Charles Ansley, president of EDS Information Solutions in the United States.

In September, EDS signed Xerox to a five-year, $50 million contract to include Xerox products and services as part of EDS's Navy intranet contract. EDS will deploy Xerox Phaser color and black-and-white network printers and Xerox Document Centre digital systems to about 300 military sites worldwide that support more than 360,000 sailors, Marines, and civilians.

The relationship between EDS and Xerox is strategic for both companies, Dataquest analyst Bruce Caldwell says. It gives Xerox access to EDS's established services relationships and helps EDS broaden document-output management services.