Consider the case of the Navy’s Littoral Combat Ship in Case Study 14.3. Take the position that terminating this project after having invested so much in research and development represented a good or bad decision by the Navy. Argue your case.

Case Study 14.3

In February 2012, the Minister of Justice of the Netherlands announced to the Danish parliament that the long-running development of a police IT system had been cancelled. The system was being developed by the multinational U.S.-listed IT company Computer Sciences Corporation (CSC). The project had begun in 2004, and the Danish parliament had approved the deal the following year. By late 2006, the Danish police had signed a contract for the final development of the system, which would be called Polsag. It was originally designed as a complete system that would manage case files and records and incorporate e-mailing systems. At this stage, it was stated that the system would cost $153 million. However, four years later, this figure had risen to a massive $425.2 million.
Denmark was by no means the only country in which CSC was facing problems with canceled projects.
In February 2012, just one week after the UK government announced a $1.5 billion write-down for them after the cancellation of the $20 billion National Health Service Programme for IT (NPfIT), CSC announced that it was shedding 500 employees. CSC had had a $4.7 billion contract as part of this project, which was to create a system for patient administration and health records. The company had been heavily criticized, and the UK’s Public Accounts Committee stated that their work was so poor it was unlikely they would ever be awarded a government contract again.
CSC had been aggressively expanding its healthcare systems across the world; however, the company had consistently missed deadlines, and in the space of nine years’ involvement with the UK’s National Health Service, it had only delivered three hospital systems.
The Department of Health had been convinced that it would cost more to cancel CSC’s contract than see it through to the end.
Clearly, canceling an IT project at such a late stage in the process is fraught with danger, particularly for the client. The Department of Health outlined the key costs that are common in all such cases:
• Contractual costs: This involves the minimum amount payable to the supplier under the terms of the contract.

• Damages: This would have to cover some of the supplier’s unrecoverable costs to date.
• Other costs: The supplier would expect to recover any accrued costs prior to the date of cancellation.
• Ongoing costs: Once the supplier knows the contract is being terminated, there is an expectation that any ongoing service cost would be charged to the client in an attempt to recoup some of the losses from the contract cancellation.
• Post-termination costs: Whatever replacement systems, support, and development had been part of the original contract, a new contract would have to be sourced by the client from another supplier.
• Legal fees: The client would have to pay any legal fees related to the termination of the contract, and in addition, consultants might be needed to organize the transfer of work and investigate the problems (and propose solutions) that gave rise to the termination of the contract.
Meanwhile, in Denmark, CSC was facing another challenge from the Danish Tax and Customs Administration, which was another major client for them. Things had gone wrong on an IT project for this client—delays and spiraling costs being the main concern—and this led to the resignation of CSC’s Danish manager, Carsten Lind.
CSC had become involved in Denmark in 1996, when they bought the state-owned company Datacentralen, which had developed and maintained the data systems for much of the public sector in Denmark. Initially, CSC had hired Danish consultants and programmers, but this changed in 2007 when CSC acquired several contracts to maintain the IT systems of some Danish businesses. CSC hired several hundred Indian IT specialists from its sister company in India but paid them far less than their Danish counterparts, which was in contravention of Danish law. CSC acceded to the demands to equalize pay, but then in 2010 the situation re-emerged.
This time, they wanted to increase the working hours of Danish employees and introduce a 10% pay cut. Relations between the Danish employees and CSC were acrimonious, and it would take nearly two years before there was a settlement. In the meantime, 120 employees were locked out of work and 330 employees were on strike.
The conflict, according to CSC, was instrumental in causing numerous problems behind the Polsag project and the work with the Danish Tax and Customs Administration. To put the dispute and project issues into perspective, during the period 2008–2009, the Danish IT sector lost around 5,400 jobs. In the previous four years, by contrast, the sector had seen a rise of 80% in terms of employment. Since 2009, Denmark has continued to lose IT jobs rapidly, with many workers moving permanently to India and other outsourcing locations around the world.

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CSC FIGURE 14.3 CSC has been criticized for failing to fulfil its commitments on several