RealTime IT News

$1.6B Deal in IBM's Pipeline

IBM has won an outsourcing and consulting contract from NiSource worth $1.6 billion over 10 years, the companies announced this morning.

NiSource, a natural gas and electricity supplier with nearly 4 million customers, expects to save $530 million over the life of the contract, much of it from payroll cuts.

Under the terms of the agreement, 572 NiSource employees will join IBM or its subcontractors. Another 445 jobs will be slashed by NiSource by Dec. 31, 2006.

"This agreement will enable NiSource to transform its business to further focus on core strengths of providing safe, reliable utility and pipeline services to our customers," Gary L. Neale, NiSource chairman and CEO, said in a statement.

The changeover takes effect July 1 and strengthens ties between the companies.

"[The companies] had an ongoing relationship over the years, entailing a variety of activities, but nothing of the scale of today's announcement," Jennifer Galitz, an IBM spokeswoman, told internetnews.com.

In addition to IT, IBM will help manage a number of functions for NiSource, including human resources, finance, supply chain, customer service and billing.

Today's deal comes a week after Disney Corp. tapped IBM for a seven-year, $730 million pact. It is also IBM's second recent contract from the energy sector. Previously, it extended a 10-year services agreement with BP by two years to outsource finance and accounting processes to IBM.

Big Blue sees outsourcing as a way to expand beyond server, desktops and laptop sales. It has notched a number of successes as well as some setbacks, causing some industry watchers to ask why the on-demand portion of IBM's outsourcing model isn't catching on faster.

In September, JP Morgan canceled the remainder of a seven-year, $5 billion outsourcing contract, deciding after a merger to take the operations back in-house.

In other outsourcing news today, Accenture , which IBM bested for NiSource's business, announced a seven-year IT outsourcing contract to develop a supply chain system and manage IT systems for Japanese chipmaker Elpida Memory.