Nearshore Americas

Carlson Ordered to Pay IBM $14M for Abruptly Ending Outsourcing Contract

A U.S. court has ordered travel and hospitality firm Carlson to pay US$14.2 million to IBM Corp. for abruptly ending an IT outsourcing contract it had signed with the IT services firm in 2005.

U.S. District Judge Joan Ericksen ruled last week that Carlson wrongly terminated the 10-year, US$646 million agreement with IBM to manage its IT and finance & accounting operations.

Minnetonka, Minnesota-based Carlson had cited IBM’s poor performance for ending the contract, but the judge said she found no evidence to prove the allegation, noting that the travel company had in fact fallen into a financial problems soon after it wrapped up the deal with IBM.

Though it was a 10-year contract, Carlson terminated the deal at the end of five years, largely due to the operating losswa it suffered following the onslaught of the economic recession in 2008, the court papers said.

In other words, the court is of the belief that Carlson was compelled by its internal financial situation and aggressive cost-cutting initiatives to terminate the contract with IBM.

Neither company has issued statements as to how they will resolve the dispute. Carlson entered into the agreement with IBM in 2005 and terminated it in 2010.

The deal was designed to consolidate back-office functions of Carlson’s six business units, including its Radisson and Country Inns & Suites hotel operations, TGI Fridays restaurants, Carlson Wagonlit Travel and Carlson Marketing.

The judge said that IBM was not without fault in the contractual relationship with Carlson. But there was no substantial evidence at the time that IBM performed poorly. Carlson, according to the ruling, gave IBM favorable performance reviews during the time the companies worked together.

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The ruling comes as a severe blow to Carlson, which was seeking nearly US$76 million in damages from IBM.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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