Three years before its current contract is to expire, Xerox announced that it is extending its outsourcing contract with Electronic Data Systems another five years, until 2009. The value of the extension is US$1.5 billion.
Two years ago, EDS filed suit against Xerox over the scope of the original contract, but with new management at both companies, that lawsuit has been dropped, said Charles Nesley, president of information solutions for EDS in the U.S.
A second contract, also announced today, makes Xerox the preferred provider of document products to the Plano, Texas-based outsourcer as well as to EDS customers. In a third agreement, the two companies entered into a joint marketing alliance that involves promoting each other's products and services and developing new technologies, company representatives said.
The contract extension covers two years with an option for three additional years. Under the terms of the deal, EDS will continue to run Xerox's computer and telecommunications network. It will also broaden some of the services provided to Xerox, the company said.
The agreement follows other outsourcing deals, including those between EDS and travel reservation giant Sabre Holdings Corp., IBM and Air Canada and Computer Sciences Corp. and United Technologies Corp.
The outsourcing contract is an extension of a 10-year, $3.2 billion contract Xerox awarded to EDS in 1994.
In addition, Stamford, Conn.-based Xerox will receive $50 million to provide network printers as part of EDS's U.S. Navy Marine Corps Intranet contract. The Navy deal is part of the agreement to make Xerox the preferred document technology vendor for EDS clients.
The announcement comes at a time when Xerox is struggling to return to profitability. In an announcement last week, Xerox President and CEO Anne Mulcahy said part of the turnaround will require Xerox to "ensure liquidity through transferring equipment financing to external partners." Xerox has already sold $2.2 billion in assets and cut another $1 billion in costs.
While EDS won't see any of the contract money for a few years, there are some short-term benefits for the company's market position, said Nesley.
"Absolutely, it's important. They're one of our largest customers," Nesley said. He added that the scope of the contract -- and consequently the price tag -- could increase within the term of the extension.
"We look forward to growing that over time," he said. "They are trying to get into new markets. We look to be a key part of that."