Outsourcing talks with German military fail

Germany’s Defense Ministry has failed to agree on a multibillion-dollar communications outsourcing contract with the preferred bidding consortium, Isic 21, opening the door for a rival consortium to negotiate a deal.

Isic 21 is led by CSC Ploenzke AG, the German subsidiary of the IT services and consulting company Computer Sciences Corp. (CSC), and also includes German mobile phone company Mobilcom AG and the European Aeronautic Defence and Space Co. EADS NV.

Isic 21 and the Defense Ministry ended talks on Friday after failing to agree on a final price to equip the country’s armed forces, the Bundeswehr, with modern voice and data computer networks and wireless communications, and to provide related support and services, EADS spokesman Michael Meissner said Monday.

“We concluded that we weren’t able to supply the Bundeswehr with all the equipment and services it sought within its proposed budget,” Meissner said. “We were definitely interested in the contract but not prepared to subsidize it.”

In June 2002, the ministry announced that it had awarded “preferred-bidder status” to the Isic 21 consortium in the tender for the military’s ten-year €6.5 billion ($8 billion) IT modernization project, dubbed Hercules. The project is to play a key role in the Bundeswehr’s overall cost-cutting program, which has been underway since 1999.

After a due diligence phase, which began in September and ended last week, the ministry had to decide whether to award the contract directly to the Isic 21 group of suppliers or, failing an agreement, to initiate talks with a second consortium, called TIS, consisting of Deutsche Telekom AG, IBM and Siemens AG.

“In line with agreed conditions of the public tender, we will now enter into negotiations with the second consortium after having failed to reach an agreement with the first group,” a spokesman for the Defense Ministry said.

The spokesman declined to comment on when exactly the ministry plans to reach a decision, saying only that it expects “a swift decision.” He also declined to speculate on what the ministry will do if it fails to reach an agreement with the second consortium.

Seven consortia had initially bid on the tender in 2001 before the ministry narrowed the number of bidders to two the following year.

The Isic 21 group won the preferred-bidder status partly because of CSC, which has been working with several German ministries and had already implemented an information system for the Bundeswehr.

The Hercules project, which is scheduled to run through 2014, includes installing ERP software from Germany business software vendor SAP AG.