German Army Looks to Salvage IT Project

The German government has confirmed that it will enter into negotiations with T-Systems Inc., IBM Corp. (NYSE: IBM), and Siemens Business Services for a major $7.9 billion IT systems and data center contract, after failing to sign a deal with its preferred supplier, the so-called ISIC 21 consortium led by Computer Sciences Corp. (CSC) (NYSE: CSC) and including MobilCom AG and EADS.

Reportedly, the talks stalled after the ISIC 21 demanded an additional $608 million on top of the existing value of the contract, although neither CSC nor the German government would confirm this (see Germany to Award $7.9B IT Contract). A spokesman for the German Defense Ministry said today that the two parties had been unable to agree on price but refused to provide any specific details.

He did confirm, however, that negotiations with the T-Systems-led TIS consortium will begin next week as the German government attempts to resurrect the ambitious technology project to overhaul its armys IT infrastructure.

The deal underlines many of the challenges involved in major public sector outsourcing contracts. The ISIC consortium was initially named preferred supplier for the Herkules project in 2002, and despite two years of fine-tuning, the parties were still unable to reach agreement.

In many parts of the world, such as the U.K., governments are placing increasingly stringent controls on vendors of mission-critical IT systems.