Delphi gets court OK of IT outsourcing agreements as part of $450 million expense reduction plan

By Caroline Salls

Pittsburgh, Oct. 23 - Delphi Corp. obtained court approval of information technology infrastructure outsourcing agreements with Electronic Data Systems Corp., EDS Information Services, LLC and Hewlett Packard Co., according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The agreement with Electronic Data Systems and EDS Information Services covers the outsourcing of global desktops, service desk and mainframe systems hosting, and the agreement with Hewlett Packard covers the outsourcing of server systems hosting.

According to the filing, the company's decision to enter into the outsourcing agreements is one step in the implementation of its transformation plan, under which the company intends to transform its salaried workforce to ensure a competitive structure aligned with its product portfolio and manufacturing footprint.

To achieve this goal, Delphi said it is designing and implementing a shared service delivery model that will contribute to the reduction of its global selling, general and administrative expenses by $450 million per year, and one aspect of this effort is Delphi's accelerated consolidation and outsourcing of information technology functions and the transition to common processes and systems.

Delphi said benchmarking analysis conducted with independent consultants concluded that Delphi's 2005 information technology operating budget of $588 million could be reduced by $256 million - a figure that is included in the $450 million objective - through transformation actions, including outsourcing information technology services, reducing the number and type of unique, non-common systems, moving to common operating platforms and running a streamlined information technology shared service organization.

Outsourcing of information technology services, which is expected to achieve a portion of the expected $256 million in savings, will be completed in three phases.

Delphi said its shared service model calls for the outsourcing of global infrastructure services, including desktops, service desk and mainframe and server systems hosting, which were the subject of this motion, in addition to system development, maintenance and support and network services, such as data networks and voice services.

The latter two phases are expected to occur in the first half of 2007.

The specific terms of the agreements were filed under seal. Generally, Delphi said each agreement is a global services contract with a seven-year term, and that the total cost of both contracts is between $700 million and $800 million over the seven-year term.

In addition, monthly operating expenses and one-time transition costs will be charged directly or allocated to the Delphi affiliates that use the services, with about 35% of operating and transition costs being borne by Delphi and the remaining costs by Delphi non-debtor affiliates.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, filed for bankruptcy on Oct. 8, 2005. Its Chapter 11 case number is 05-44481.

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