EDS Corp is to miss out on a landmark, multi-billion-dollar outsourcing contract in France, after Paris-based engineering company Alstom SA terminated talks between the two companies.

Alstom said the two companies were unable to reach mutually unacceptable terms for the transaction, but said that it still considers outsourcing to be a good way to reduce costs and improve efficiency and the quality of its IT services.

This opens the door for other IT services companies including IBM Global Services and Computer Sciences Corp to launch bids for new outsourcing projects with the client. Alstom’s annual IT spending totals about $400m, and EDS said last year that the deal was potentially worth several billion dollars over a multi-year period.

Plano, Texas-based EDS announced last November that it was in final contract discussions with Alstom over signing what it claimed at the time was one of the largest IT agreements in the history of the manufacturing and energy industries.

Under the terms of the planned deal, EDS would have managed Alstom’s IT infrastructure and applications in 14 countries, covering Europe, North America and Latin America. Approximately 1,300 Alstom employees in these countries would be transferred to EDS.

This is the second multi-billion-dollar deal in which EDS has reached final contract negotiations as a sole service provider, only to be dropped at the last minute. Last November, consumer products goods giant Procter & Gamble Co decided against outsourcing its entire back office technology operations to EDS in a deal estimated to be worth $7bn over 10 years.

IT outsourcing vendors have historically found France to be a tough market to crack, due in part to the strength of the local workers’ unions that have strongly opposed the transfer of large numbers of employees to non-French companies. Alstom spokesperson Gilles Tourvielle refused to comment on whether staff transfer or pricing issues were the main reasons behind the termination of the contract.

EDS recently declared that in it will future target contracts that do not require large up-front investments and which will quickly deliver free cash flow. An EDS spokesman this week refused to comment on whether this stance helped to scupper the negotiations with Alstom.

Separately, this week, newly appointed EDS CFO Robert Swan told an investors conference that there were risks in meetings its 2003 earnings target of $1.80 to $2.00 per share. According to reports, Swan said, There are more risks than opportunities.

The EDS spokesman said that Swan’s comments did not represent a change in outlook and that the company was maintaining its guidance. We’re not saying it’s more risky, he said.

Meanwhile, EDS announced it had received the go-ahead to begin moving over all 160,000 seats currently ordered under its Navy Marine Corp Intranet contract, and that a further 150,000 seats had been ordered. EDS’s current financial projections will not be changed as a result, said the spokesman, as it had already been factored into its forecasts.

Source: Computerwire