Mega military deal siphons EDS cash

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EDS' massive US$6.9 billion deal with the US Navy and Marines is running 18 months behind schedule and is siphoning off cash the company needs to compete for other big projects.

Along with another deal with the British government, the US Navy project is believed to have cost EDS US$1.8 billion in the past 18 months, with the Navy alone costing US$640 million in the first six months of this year.

The deal, signed in 2000, was the US government's largest ever outsourcing contract and was meant to become a template for other government outsourcing projects.

Problems getting legacy systems up to new security standards and additional testing requirements imposed by the US congress are believed to be behind the delays.

The cash shortage is beginning to bite EDS and is believed to be behind Proctor and Gamble's decision to put a deal worth a rumoured US$8 billion on hold.

Last month, EDS said it would fall short of third quarter profit expectations by around 80 percent. EDS also revealed it had spent almost $225 million on a series of option trades.

Following the revelations, the US Securities and Exchange commission launched an enquiry into EDS, but the company has pleaded no wrongdoing.

Last week, EDS CEO Richard Brown told employees via an internal email that the company would be cutting staff, but did not outline numbers or a timetable.

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