EDS dealing with NMCI strain

NMCI Web site

EDS officials today said the Navy Marine Corps Intranet is their biggest "problem contract," but reaffirmed their commitment to it as they laid out a plan for putting the company on stronger financial footing.

The $8.8 billion NMCI contract is costing EDS serious money, according to Michael Jordan, the company's chief executive officer and chairman. It, along with a few other problem contracts, has knocked the company's profit margins down by half since 2000 and has been a "huge strain on the balance sheet."

NMCI alone accounted for a $334 million loss in the quarter that ended March 31. Balancing NMCI with the company's other operations led to a $126 million net loss for the quarter.

Speaking to an audience of financial analysts gathered at a New York hotel and via a Webcast, Jordan and EDS chief financial officer Bob Swan said they expect the money drain to ease during the next year.

The largest expenses for NMCI have been paid already, Swan said, so costs will be lower in the future. Meanwhile, the company has identified broad areas that its problem contracts have in common, and have developed policies to avoid them in the future.

The weaknesses revolve around the company's performance and delivery, including meeting milestones, a problem that calls for better project management. To help improve in that area, EDS is developing a more unified organizational structure for the company, Swan said.

Other problems lie in careless contract language, and faulty assumptions that EDS has made in evaluating deals and clients' credit profiles, he said. The company is addressing those problems by requiring that high-ranking company officials approve contract changes. It also is developing some standard contract language for key provisions.

"I'm not sure our work will ever be done, but our intention is clear, to avoid repeating problems we've had in the past," Swan said.