News & Reports
5 Unsuccessful Outsourcing Contracts in the Industry’s History
A report published by “Magellan Solutions” reviewed examples of unsuccessful outsourcing agreements between governmental or private entities and outsourcing service providers, which resulted in significant losses for both parties.
- IBM and the State of Texas:
In 2006, the State of Texas contracted with IBM to consolidate the activities of 27 government agency data centers in a deal worth $863 million over 7 years.
However, after only 4 years, IBM had completed only 12% of the tasks assigned to it, leading to a backlog of work and increased costs. - JPMorgan Abandons IBM:
In 2004, JPMorgan Chase & Co. decided to bring its IT staff back in-house, canceling the remaining seven years of its $5 billion IT contract with IBM after acquiring Bank One Corp during the same year.
JPMorgan claimed at the time that after its merger with Bank One, it would be able to manage its IT infrastructure more effectively in-house than through outsourcing.
IBM lost billions of dollars, and JPMorgan paid a heavy price for choosing to dismantle and rebuild its in-house IT team, even though JPMorgan did not accuse IBM of breaching its contractual obligations. - Virgin Australia and Navitaire Incident:
Navitaire, specialized in outsourcing e-commerce services for airlines, caused the reservation and distribution systems of Virgin Australia to fail in September 2010 due to negligence, resulting in the disruption of communication with 50,000 customers.
Navitaire immediately identified the root cause of the problem – a faulty hard drive. However, it was unable to quickly address the pressing issues. - Navitaire decided to repair the damaged drive instead of immediately switching to a backup drive, which led to a 24-hour suspension of operations. Virgin Australia incurred significant financial losses and customer attrition due to this error.
- Financial Penalties for the Royal Bank of Scotland:
The Royal Bank of Scotland (RBS) faced hefty fines in 2012 due to technical difficulties it encountered while dealing with an unidentified IT provider. This incident prevented millions of consumers from accessing their bank accounts. - Accenture and Hertz Contract:
To update its website and mobile applications, Hertz contracted with Accenture in 2016, setting out work plans and specific goals to expand its services. However, Accenture completely disregarded these matters and developed a product that was not viable outside of North America.
In April 2019, Hertz filed a lawsuit against Accenture, demanding $32 million in compensation.
