19 September 2002 | David Arminas
Financial services giant HBOS has ditched a 10-year outsourced IT contract after only two years and is to bring it back in house.
The original outsourcing deal was struck by the Bank of Scotland with IBM in mid-2000 in the hope of saving £150 million over the contract period.
But in September 2001 the Bank of Scotland merged with the Halifax to form HBOS. The decision to bring the contract back in house was made after a review of the bank's needs.
An HBOS spokesperson said: "The outsource deal was right for the Bank of Scotland. But the merged bank was three times the size of the Bank of Scotland."
HBOS faces penalty payments and may have to bring back former staff.
Les Anderson, director of Anderson Associates Consulting, said the decision showed purchasers should be well informed about merger and acquisition strategies if large outsourced IT contracts were to survive upheavals.
"People in charge of outsourcing can miss what is going on at board level in terms of business strategy," he said. "It may be that Bank of Scotland purchasers asked the tactical questions, but did they know what the business strategy was for mergers?"