CSC retracts $50 million contract announcement

Computer Sciences Corp. has issued a correction concerning a $50 million subcontract that it said six weeks ago it had been awarded.

In a statement to Washington Technology, the company said:

"The press release Computer Sciences Corp. issued Sept. 10 regarding work to be performed for Unisys in support of the Transportation Security Administration was incorrect. The press release should have stated that CSC had entered into a teaming agreement with Unisys to provide support to TSA under the IT infrastructure contract. CSC estimates the value to CSC of the work expected to result from the agreement to remain at approximately $50 million. CSC regrets the error."

The company's retraction comes after receiving inquiries from Washington Technology about the contract.

James Kane, president and chief executive officer of Federal Sources Inc., a McLean, Va., market research and consulting firm, said he couldn't recall another instance of a company announcing a subcontract has been awarded before negotiations on terms have been completed.

"My initial reaction was this is unusual, there must be something here I'm not aware of. There's got to be more to this story," Kane said.

The original CSC press release was distributed over PR Newswire, an electronic business information distribution service, and as late as Oct. 22 continued to be posted on CSC's Web site.

Washington Technology originally published CSC's announcement of the subcontract, but later discovered the contract had not been awarded when reporters were working on another story about Unisys' Information Technology Management Services, or ITMS, contract with TSA.

When asked about CSC's inaccurate claim, TSA spokesman David Steigman said: "TSA contacted Unisys and brought to their attention that there was an inaccurate press release from CSC. Unisys at that point said they would take care of it, and they contacted CSC."

Sources at Unisys confirmed that the company contacted CSC about the errant press release, but left it to CSC to make any corrections.

CSC does have a teaming agreement in place with Unisys regarding the ITMS contract, according to Unisys sources. A teaming agreement is an agreement to work together to pursue a particular opportunity, but it does not spell out terms and conditions or the specific assignments to be carried out. Those are detailed in a written subcontract.

While CSC and Unisys are negotiating a subcontract under the TSA contract, nothing has been signed to date, a Unisys spokeswoman said.

"Clearly, CSC is one of our partners on the ITMS contract, and we're just working through the mechanics of our subcontracting agreement," said a Unisys official close to the process.

Unisys was taken by surprise by CSC's announcement, according to informed sources. Companies usually get approval from their customers in advance of announcing contracts in the government market, said Greg Gieber, vice president of A.G. Edwards & Sons Inc., a stock brokerage based in St. Louis. Gieber tracks CSC among other technology companies.

James Jaconette, an attorney with Milberg Weiss Bershad Hynes & Lerach LLP, a San Diego law firm specializing in plaintiffs' securities lawsuits, said one issue raised by a misleading press release from a publicly traded company is the question of materiality ? whether the information might have been viewed by reasonable investors as influencing their perceptions of the value of a company. Companies must also take into consideration qualitative considerations, not just quantitative factors, in determining whether information is material.

The CSC retraction comes at a time when publicly traded companies are coming under increasing scrutiny for providing misleading information about their revenue, earnings and future prospects.

But while analysts agreed that CSC's misleading press release is highly unusual, they were less certain what consequences might arise from the initial press release and subsequent retraction.

In a company of CSC's size ? $11.5 billion in revenue for fiscal 2002, with about 66,000 employees worldwide ? a $50 million subcontract might not be not large enough in quantitative terms to be considered "materially significant," said law professors and securities lawyers. The Securities and Exchange Commission considers materially significant information to be information that a reasonable investor would consider in making decisions.

But Manning Warren III, a law professor at the University of Louisville and former member of the Securities and Exchange Commission, said that if a company sends out a press release announcing a new contract, it suggests the company regards the news as materially significant.