ECI sues HP for NIS 38m

Communications equipment vendor ECI Telecom Ltd. is suing HP Israel Ltd. for NIS 38 million. In the lawsuit, filed with the Tel Aviv District Court, ECI claims that HP Israel did not meet the terms of an agreement to upgrade its computer systems.

Several years ago, ECI, controlled by Shaul Shani, decided to outsource its computer system. It was one of the first Israeli companies to switch to cloud computing, using a server farm in France. In 2010, ECI signed a contract with HP Israel to provide all of ECI's computer needs, including maintenance, support, and upgrades.

The contract was one of the first big computer contracts in Israel, amounting to $120 million over ten years, and ECI expected to see massive savings in its computer costs. Things did not go according to plan, as is often the case in computer services agreements. The lawsuit offers a rare peek at large computer services operations and the dynamics between the parties when things go wrong.

ECI claims, "Out of the eight milestones which HP promised to complete through April 2011, it failed to reach even one." ECI says that, as a consequence, it has not been able to upgrade its computer system as stipulated in the contract. It claims that HP provided only a fifth of the services set out, and that the French server farm supports only 900 users, rather than the company's 3,000 employees, as required.

In the statement of claim, ECI submitted its correspondence with HP over the past two years until HP cancelled the contract six weeks ago, citing "breaches of contract by ECI, including $900,000 in arrears (one month of payments) and failing to meet the bank guarantee in favor of HP."

HP Israel said in response, "Following a worsening of ECI's business and financial position, ECI stated to HP that it was not able or willing to meet the terms of the agreement with HP.

"Consequently, and following repeated breaches of the agreement by ECI, including failure to make payments it was committed to make, HP decided to annul the agreement with ECI, and demanded that ECI should pay the cancellation fee of $19 million provided in the agreement.

"We have no doubt that the lawsuit filed by ECI today is no more than a tactical step aimed at countering HP's demand for the fee for cancellation

Published by Globes [online], Israel business news - www.globes-online.com - on April 8, 2013