RealTime IT News

Oxford Health Scraps Outsourcing Deal

Bucking the trend of outsourcing IT systems, Oxford Health Plans (OHP) said today it would end its outsourcing agreement with Computer Sciences Corp. (CSC) just 18 months into the five-year, $195 million deal. The Trumbull, Conn.-based company said it will bring the functions back in-house.

Oxford struck a deal with El Segundo, Calif.-based CSC in Nov. 2000, calling for CSC to take responsibility of a variety of the health-care company's information systems (IS), including its data center operations, help desk, desktop systems, and network management. Along with those functions, CSC took on 150 of Oxford's IT staff. Now, the IS functions and much of the staff are returning to the Oxford fold.

In a statement announcing the move, Oxford President and Chief Operating Officer Charles Berg cited cost savings. "We believe that fully integrating the entire function will allow us to deploy technology solutions in a more flexible, timely and cost-effective manner to meet our business goals," he said.

But at the time of the deal in 2001, Berg's predecessor, Charles Schneider, cited much of the same mantra of lower cost and improved flexibility: "This agreement will help us reduce our costs and upgrade our technology capabilities so that we can enhance the quality of services we provide to our members and employee groups."

Oxford said the companies were discussing a financial settlement to ending the outsourcing agreement, but it expects any fees to be less than $10 million. According to its recent annual report, Oxford faced a termination fee of between $15 million and $20 million if the deal was cancelled in 2002. Last year, CSC billed Oxford $31.6 million for IT services.

The market for IS outsourcing is huge. Last May, IDC estimated the IS outsourcing market reached $56 billion in 2000, and forecast it would top $100 billion in 2005. CSC has been somewhat sheltered from slower corporate spending since a large part of its business comes from contracts with government agencies. However, the company took a hit when its $400 million contract with Global Crossing fizzled after its bankruptcy.