For more than a decade, BAE Systems has provided a benchmark for huge IT outsourcing contracts. In 1994, the global defence and aerospace company handed its wide-ranging and complex IT functions over to CSC, originally known as Computer Science Corporation.

CSC took on a daunting task. The deal currently involves supporting 60,000 PCs in 130 locations across the UK, North America, Sweden and France. If longevity is a measure of the success of any relationship, then CSC and BAE Systems must have hit it off. The initial £1bn deal was due to run for six years, and was extended for a further six in 2000.

The IT world is plagued with lazy and imprecise language, and outsourcing suppliers frequently refer to “culture” without any intelligent understanding of the word. But in CSC, BAE Systems clearly identified a contractor with a long and distinguished history of supporting US aerospace endeavours at clients such as Nasa, General Dynamics and Pratt Whitney.

How is this huge deal managed? Ivor Canavan, CSC’s European vice-president, says that the key to understanding the relationship is not to view the contract as one entity. “In many ways, it might look like one big contract but BAE Systems is comprised of operating units, so each piece of the business has a CSC equivalent.” These units are all managed via a cascading series of weekly, monthly and annual meetings that ensure the IT staff are aligned with the business they support. “Technology has changed a lot over the past ten years,” Mr Canavan points out, “so we have had to renegotiate the terms of the contract on three occasions.” He describes these talks as “fairly standard” in an arrangement of this size, but the key message for any outsourcing deal is that regular realignments of the precise terms of the contract are essential. “Too many people think that this business is about signing a service level agreement and forgetting it. But you must be ready and willing to change the contract as often as necessary.”

With a current annual spend of around £300m, BAE Systems must expect quite a lot from its IT supplier. Chris Coupland, IT director at BAE Systems, talks of the benefits that accrue from having “a single point of responsibility for all our requirements. This makes it easier for us to develop common systems and draw upon best practices.” In real terms, this translated into IT cost savings of £50m in 2003, with CSC investing £100m of its own cash in joint purchases of hardware, software, networks and services that allow BAE Systems to benefit from bulk purchasing.

In many ways, the relationship is not about technology, but is a question of applying economies of scale to major purchasing decisions. Contracts with the 30 suppliers that represent 80 per cent of BAE Systems’ IT systems spend have been renegotiated and licence agreements have been revised to allow applications to be deployed throughout the organisation. BAE Systems has seized on a core truth about managed services. The best supplier is one that sees its role as an active agent for change in every aspect of the customer’s business. By looking beyond the detail of IT and working as a high-powered business partner, CSC has kept its customer’s technology up to date while reining in the cost of computing. Eleven years after the contract was first signed, this services deal has now reached a cumulative value of £2.5bn.