IBM, P&G Fine Tuning HR Outsourcing Pact

August 29, 2003 ( - International Business Machines Corp. may well soon be taking on a big new chunk of HR outsourcing business if it can hammer out final details of a potential long-term pact with consumer products giant Procter & Gamble.

According to news reports, Cincinnati-based P&G would transfer to IBM about 700 employees who administer P&G’s compensation, benefits, payroll and travel services. IBM, the world’s largest computer services company, often takes on employees in such contracts, which can last up to 10 years, the reports indicated.

P&G spokesman Damon Jones told reporters that the company was now dealing exclusively with IBM after a contract competition that also include Accenture Ltd. and Convergys Corp. as bidders.

The contract would be IBM’s first major win for human resources work since it bought PricewaterhouseCoopers LLP’s consulting business in October for $3.5 billion in an effort to broaden its services portfolio.

The potential value and duration of the employee services contract are subject to negotiation, P&G’s Jones said. However SoundView Technology Group analyst John Jones, who follows IBM, told the Associated Press that he estimated the potential outsourcing contract would be worth about $500 million and that it would last for at least six years.

The IBM pact would represent the third deal by P&G to cut costs by transferring services to outside companies, including Hewlett-Packard Co., Jones said. In May, Hewlett-Packard Co. received a 10-year, $3-billion contract to take over P&G’s information-technology operations, a deal for which IBM also competed. In June, Jones Lang LaSalle Inc. received a five-year, $700-million contract to manage P&G’s facilities.

Analyst Jones said he expects the terms are favorable for IBM because such business process outsourcing deals generally tend to be more profitable than managed technology services contracts.