IBM threatening Defense with massive damage claim over failing tender for IT system upgrade: report

The Ministry of Defense temporarily put the tender process for a new information system on hold, according to internal documents in the hands of Trouw, other media in the Netherlands, and investigative journalism platform Investico. A consortium led by American IBM and French Atos, that has been working on this tender for years, is now threatening to claim hundreds of millions of euros in damages from the Ministry, Trouw reports.

The Ministry of Defense has been struggling with its outdated IT system for years. According to the newspaper, Defense's current IT system consists of some 2 thousand aging systems that can't optimally run new equipment like the JSF fighter jets, ships, and fighter helicopters. In 2014 the Ministry therefore drew up a plan to replace the current system. In 2016 the tender process was started. For the past 18 months, a consortium led by IBM and Atos have been the only party still tendering.

But around 18 months ago, the ICT Review Office - an independent advisory body of the government - issued a critical report on this tender. According to the office, the Ministry is taking too great a risk by placing the tender in the hands of one party. State Secretary Barabara Visser therefore decided to place the process on hold while she investigates to proceed, the newspaper writes.

That to the annoyance of IBM and Atos, who have been working very closely with Defense officials on this tender for three years. According to the consortium, 100 to 150 people have been working with "excessive efforts" on this tender for more than two years. That IBM and Atos may now not be awarded the tender is "not only unreasonable, but also unlawful", the consortium said in a confidential letter to Defense in October, which Trouw has in its possession.

IBM estimates the investments made in man-hours, lost income, missed orders, and reputation damage in the "many hundreds of millions of euros", the newspaper writes.

The Ministry of Defense told Trouw that it recognizes itself in the image sketched. But because this involves an ongoing tendering procedure, the Ministry did not want to comment on it.

This is not the first time Defense is struggling with a major IT project. In 2015, then Minister Jeanine Hennis Plasschaert had to pull the plug on another ambitious project, costing the state 900 million euros, according to Trouw.

"Claims are being threatened and accusations are being made," Thomas Muntz of Investico said to NOS. "That is a shame, because this is a ten year project involving 13 billion euros."

According to Muntz, the problem lies with a combination of too much ambition and too little capacity to steer such major projects. "They want to have the entire IT system replaced, including the data centers. You wonder why they want to this all at once," he said to NOS.