Y2K Contracts Reach a Record Pace As
Companies Fail To Make Deadlines
' By: Stacy Collett
In opening talks with prospective Year 2000 clients,
Electronic Data Systems Corp.'s Tim Morton doesn't mince
words when breaking the harsh news: "Don't plan on
resolving all of your Year 2000 issues in time." At this late
date, time definitely is working against them.
"It's the 80/20 rule," says Morton, vice president of operations
for EDS' CIO Services 2000. "What are 20 percent of the
applications that run 80 percent of the business? Let's go after
them first, and as time and resources permit, we'll address the
others."
Despite the dim prognosis, companies are enlisting EDS and
other integrators for Year 2000 help at a record-setting pace.
EDS' CIO Services 2000 business unit tallied seven new
clients in the first quarter of 1998 totaling $26 million in contracts. And EDS officials expect that
figure to increase in the second quarter as companies, realizing the increasing scope of Year
2000 problems, turn from their internal staff to outside vendors. Ernst & Young counts three new
contracts for the same quarter, and $200 million in Y2K-related sales from October '97-March
'98.
At IBM Global Services Year 2000 contracts have nearly tripled in the last six months, from 700
in September 1997 to about 2,000 in March 1998,
although not all of them are full-scope engagements.
In a quarterly report querying 128 companies on Y2K readiness from January through March
'98, 78 percent say their rate of missed Year 2000 milestones increased.
"What happens when they get into this crunch mode, they start looking to outside help. That's
one of the things that's contributing to this spike," explains Malcolm Slovin, vice president and
services director of performance engineering and measurement strategies at The META Group,
the Stamford, Conn.-based research firm that conducted the study. Some 85 percent realize
they've underestimated Year 2000 costs, according to the report.
The nation's 250 largest companies are expected to spend $33 billion on Year 2000 conversions,
says Slovin. But to date, only 20 percent of that money has been spent.
These enterprises are increasingly forthcoming with their Year 2000 compliance pursuits, due in
part to the Securities and Exchange Commission's "strong recommendation" that companies
include their Year 2000 exposure in their 10K filings.
Ralph Szygenda, CIO of General Motors Corp., recently revealed that while GM had a budget of
over $500 million for Year 2000 compliance through December 1997, the company has spent
only $40 million to date, according to Morton.
Some of EDS' new clients, which include Adidas US, Banc One Corp., Moore U.S.A. and
Norwegian Cruise Lines, assumed they had a year and a half to complete their Y2K work. But
as client and vendor discovered, software expiration dates can catch them by surprise.
Some 30 days into a Y2K project for one of its new clients, EDS consultants found a purchasing
system that was going to expire in July 1998. "They were completely unaware of it, and it sent
the CIO into a panicked state," recalls Morton.
Fire extinguished, but a close and all-too-common call: Some 37 percent of companies in the
META Group's quarterly study have suffered a Year 2000 failure since Dec. 31, 1997.
Indeed, today's opportune words are "triage" and "contingency planning," according to EDS'
Morton. Integrators need to be confident that the time they have available is focused on
mission-critical applications. For the remaining compliance issues, they'll rely on manual
workarounds or consolidating systems from seven payroll systems, for example, down to one or
two.
But if a company finds itself looking for Y2K help after discovering it's in critical condition,
integrators won't be shy about turning business away.
"They want to be with the winners, not the losers," says META Group's Slovin. "They're
making sure they can complete what they say they're going to complete. If EDS came across a
company with a lot of embedded systems that had not started doing work in Year 2000, they
would probably pass it up simply because there would just be too much to do at this particular
point."
...
IBM Global Services, while not keeping figures on the number of projects turned away, also
picks and chooses its Y2K clients. "We go after those [contracts] that are within our expertise,"
says Colleen Arnold, IBM Global Services' general manager of worldwide Year 2000 distribution
industries and business services, adding IBM prefers mixed and distributed environments,
mainframe, midrange and desktop projects.
When an integrator does take on a project, there are limited guarantees of Y2K compliance. In
this second quarter of 1998, market research firm GartnerGroup says enterprises just signing
deals for Year 2000 work will face contract language offering little to no warranties for work
provided.
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