$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.