Interview: Oakton chief on lawsuits and other liabilities

It can't have been an easy few months for Neil Wilson, the managing director of Melbourne-headquartered IT services firm Oakton.

The company has recently been hit with a number of extraordinary problems that have had tongues wagging in Melbourne's close-knit IT industry. 

In December 2009, the news broke that six employees working for one of its customers, Victoria's Industry Plumbing Commission, had resigned en-masse. Just two weeks later it was the company's Victorian general manager Christine Scammell.

Oakton had already been forced to lay off staff due to sinking income as the global financial crisis took its toll on reduced customer spending, and further cuts were made in the second half of 2009.

But the worst was yet to come.

On February 15 -- the day before Oakton was slated to file its half-yearly financial results with the Australian Stock Exchange -- one of its long-term Victorian customers, Tenix, hit it with a lawsuit with a damages claim totalling $19.35 million [PDF].

"It was a great surprise to us," Wilson told iTnews in an interview this week. Oakton had been engaged in arbitration with Tenix for some time and the executive thought the pair was working towards a resolution. Instead, Tenix had brought out the big guns.

It didn't help matters that Wilson was slated to go on a roadshow the next day to spruik the company's results and press the flesh with the investment community.

"It overshadowed it a little," he admits. "The investment community was as surprised as us about the first announcement. We were very disappointed about the timing."

At the heart of the Tenix dispute is a traffic infringement management system that Oakton has been re-developing for its customer. The IT services firm is actually a sub-contractor to Tenix, which holds the main deal with the Victorian Government to deliver infringement management and enforcement services.

Wilson says a number of issues with the project have been resolved -- but some haven't.

Wilson said there was no risk of redundancies as a result of the Tenix action, as Oakton had been winding down the project in any regard because of the disagreement between the pair. And it won't impact the company from a revenue perspective -- Oakton didn't have any of the contract money booked in to its accounts for the next six months.

The larger issue is the question mark over the company's Victorian business -- the resignations, redundancies, and the lawsuits. Last Friday, Oakton returned fire on Tenix with its own $12 million countersuit [PDF] in the Victorian Supreme Court.

"We believe we have met the contractual requirements," says Wilson of the Tenix work. But what will Oakton's other customers think of it all?

Wilson says the Tenix debacle is an "isolated" problem for Oakton. "We don't have another project under dispute -- it's not a systemic issue," he says, describing the legal action as a "legacy issue that unfortunately came into play at the wrong time".

And despite the problems, the executive says he is "very confident" about the outlook for Oakton's Victorian arm. The company nabbed Mark Fretz from rival IBM Global Services to lead the state, and Wilson says the headcount figure for recent redundancies there didn't reflect the underlying business as some of them came from the closure of Oakton's contracting business.

In general, Wilson says Oakton's segment of the IT services market is looking up at the moment. For example, with much of the more dramatic impacts of Sir Peter Gershon's report into the Federal Government's use of technology out of the way, he says, public servants are starting to open their departments' wallets.

"There's no doubt in our mind that there's a significant backlog of work in Canberra. Our view is that it's coming through on an incremental basis," he says.

Customers are also committing to more projects, Wilson says. The projects were still there during the global financial crisis -- but sometimes clients would go to market and then withdraw their approach. "It was volatile," he says. "[Now], when clients actually go to the market for something that needs to be done, it stays there."

The executive also sees the company's modest revenue decline (4.9 percent to $93.37 million) for the six months to 31 December 2009 as positive, given that it also boosted net profit after tax from $6.4 million to $10.2 million compared with the same period the year previously. Most of the expense cuts came from lower staff costs.

"Most of the analysts have been very pleased with the performance of the business," he says.

Ultimately it'll be up to Oakton's customers to make up their own mind about the companies' problems.