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Contract dispute leads to S&P downgrade

12/29/2011

Standard & Poor's recently downgraded its rating of Computer Sciences Corp. stock to triple-B-plus in light of an ongoing and potentially unresolvable major contract dispute.

Since May, Virginia-based CSC has been in talks with the U.K.'s National Health Service regarding a contract for an overhaul of the NHS' information technology systems, including the introduction of an electronic patient records system. After awarding the contract to CSC, the British agency scaled back the parameters of the deal, leading to a dispute and an amended agreement. However, the British government has indicated it will not approve the agreement, which led CSC to announce it may write off the entire value of the NHS contract, worth $1.5 billion.

On December 28, S&P announced its downgrade of CSC, a day after Moody's put CSC stock under review for downgrade.

In addition to the uncertainty stemming from the disputed U.K. contract, investor confidence in CSC has been eroded by an ongoing Securities and Exchange Commission investigation of the company's accounting practices in Scandinavia and Australia. According to the Wall Street Journal's MarketWatch, the company's stock declined about 50 percent in 2011.

The CSC downgrade illustrates how damaging a contract dispute can be for a large and well-established tech company, demonstrating the care that businesses of any size should take when drafting software contracts or other legal agreements.