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.

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