P&G awards $3 billion outsourcing to HP

Procter & Gamble has agreed “in principle” to award a giant IT outsourcing contract to Hewlett-Packard, valued at US$3 billion over 10 years, the companies announced Friday. HP and P&G expect to sign a definitive agreement by mid-May.

The contract calls for HP to manage P&G’s IT infrastructure, data center operations, desktop environment, networks and some applications development and maintenance. The scope of the services is global, applying to P&G’s operations in 160 countries.

About 1,850 P&G employees will go to work for HP, most of them from P&G’s Global Business Services unit.

P&G chose HP for its cost, quality of service and technical expertise, according to the statement. P&G expects that outsourcing these IT tasks will let it lower costs and improve its IT operations.

If the contract is finalized, this would be a very significant win for HP as it continues to strive to improve its position within the IT services space, one of the stated goals of its Compaq acquisition. HP beat out IBM and  Electronic Data Systems (EDS) for this contract, P&G spokesman Damon Jones said Friday.

A variety of major IT service providers went after a very sought-after P&G outsourcing contract last year that was more comprehensive, and Affiliated Computer Services and EDS both at different points went into final negotiations that eventually fizzled out.

After those negotiations failed, P&G decided to break last year’s bigger contract into four smaller pieces: an IT services deal, which is the one announced today; a facilities management contract to manage and maintain P&G’s buildings and real estate; an employee services contract to manage human resources tasks, such as payroll, benefits and corporate travel; and an accounts payable contract, Jones said.

P&G expects to award the facilities management contract within the next three to four months, while the other two will not be awarded for at least another 12 months, Jones said. None of those three contracts are primarily about IT services, he said.

P&G decided to break up the larger contract into smaller pieces because it decided it would be able to hire companies that specialize in each area and at a lower cost than if it chose one provider to handle everything, Jones said.

P&G, based in Cincinnati, is a giant maker of household products, such as Pampers diapers and Crest toothpaste.

In related news, LM Ericsson signed a memorandum of understanding to outsource its IT infrastructure worldwide to HP, Ericsson announced Friday.

The companies expect to sign a final agreement before the end of 2003’s second quarter. Financial terms weren’t disclosed.

The agreement will involve the transfer of a yet undisclosed number of Ericsson IT employees to HP. Ericsson has decided to outsource IT tasks to lower costs and to improve its IT operations by making them more flexible and easier to adapt to changes in its business. The development, implementation and management of applications will not be outsourced, Ericsson said.