Ill-fated IT costs WS Atkins £120m

The total cost of WS Atkins' ill-fated investment on a troublesome new IT system in Worcester could be as high as £120m, said two industry sources this week.

The total figure is thought to comprise two elements: £60m paid to software provider JD Edwards, one of five global enterprise resource planning (ERP) providers; and £60m as a result of Atkins' incorrect billing to customers.

"The terrible cost centre problems have been a total cock-up and are one of three big mistakes that Atkins has made recently," said a source.

"As well as the IT cost, there is the issue of the unquantifiable bills that Atkins has been faced with issuing, a result of it not having the necessary documentation. It has been unable to substantiate the hours billed and as a result the bills have not been paid in full."

As an example, if Atkins undertakes 60 tasks for a client, at a total cost of £3m, but can only substantiate 50 of these, it can either send the client a bill for the 50 tasks (and make a loss on the contract) or send out a bill for £3m based on an element of bluff.

"The client would then say 'prove it' and having thus called Atkins' bluff," said the source, "the two sides would probably compromise at a figure covering the cost of 55 of the 60 tasks. Hence a loss for Atkins, but not as bad as if the cheque only covered the 50 items.

"For Atkins to have switched its back-office IT system before knowing that the new one worked was heinous."

One analyst at a City stockbroker that specialises in support sector groups said: "Atkins' IT system is nearly working, it's 90% there, although it's still not doing what it was put in to do. The cost is about £50m, at least that's what it's telling us.

"When your market capitalisation [ie. the value of the company, calculated by multiplying the number of shares in circulation by the share price] is just £112m, then £50m is a lot of money to have thrown away - it's unbelievable," said the analyst.

"Atkins was being overly ambitious. The expected spend to achieve its IT needs would have been £1.5m or possibly £2m. Given the financial situation Atkins is now in, the challenge it faces now is to knock out the cost [ie. make a profit that cover its IT investment]."

Chairman Mike Jeffries described the figure of £120m as "absolute rubbish".

Critics say that ERP systems are inflexible and costly. Analysts see Atkins' two other problems as taking on a lot of facilities management work at low margins despite having a high cost base - "Atkins is too goldplated," said one - and its slowness at admitting its recent mistakes.

A spokesman for JD Edwards said: "no comment."