NationsBank Sidelines Perot as Its Outsourcer

NationsBank Corp. has reassumed control of two major data centers, altering a ground-breaking outsourcing agreement entered into with Perot Systems Corp. more than three years ago.

Over the April 1 weekend, NationsBank took back the reins of its data centers in Richardson, Tex., and its hometown of Charlotte, N.C. These centers support the company's mainframe systems, including a data network.

Under the revised arrangement, Perot Systems' role is reduced to technical consulting and operational support.

Although NationsBank and Perot Systems officials hailed their new agreement as mutually beneficial, it represents a reversal in the midst of a five-year contract signed in November 1991.

Industry insiders say that the renegotiation was not surprising, given Perot Systems' lack of experience in bank outsourcing and its inability to meet all the needs of one of the nation's most dynamic and demanding financial institutions.

Under the initial pact, part of a wave of big-bank outsourcing deals, Perot Systems purchased the data centers and hired most of the 200 NationsBank employees.

Financial details of the original and amended agreements have never been disclosed. But at the time of the initial deal, NationsBank's estimated annual technology budget of $200 million made it the largest to be switched over to an outside service provider.

"Since 1991, both NationsBank and Perot have grown substantially," said John J. Sponski, executive vice president of NationsBanc Services Inc., the bank's service company. "We both had different orientations."

Without going into details, Mr. Sponski said the new arrangement would only aid the bank in improving its back office.

John King, vice president of strategic marketing at Perot Systems, echoed that sentiment, characterizing the transfer of power as a "natural progression" of the relationship.

Mr. King said his company had initiated the renegotiation and was "very happy" with the amended financial provisions. He added that Perot Systems - founded by the Electronic Data Systems Corp. founder and onetime presidential candidate H. Ross Perot - would turn more to providing client/server systems, particularly abroad.

Outsourcing experts saw the NationsBank-Perot connection as shaky from the start.

"There was a general belief by NationsBank that Perot was going to become a big player in bank processing," according to Bill Arnold, an analyst with Towers Perrin.

Although Dallas-based Perot Systems had sought more business with banks, the only other one it signed was First American Bankshares. That Washington-based institution, which got caught up in the Bank of Credit and Commerce International scandal, switched vendors after it was sold to First Union Corp. in December 1993.

Mr. Arnold surmised that NationsBank, seeing little "synergistic benefit" from the outsourcing relationship, probably chose to take the reins.

M. Arthur Gillis, a consultant and president of Computer Based Solutions Inc. in New Orleans, took an even dimmer view of the computer outsourcer.

"I don't think Perot Systems has the industry competency to make it," Mr. Gillis said. "Perot has never understood the banking business."

Mr. Gillis perceived recent events as the "natural outcome (of) an unnatural event three years ago."

He asserted that the original deal was born almost entirely out of the reportedly close friendship between Ross Perot and NationsBank chairman Hugh L. McColl Jr.

Mr. Gillis called it a "clublike arrangement (based on) camaraderie." Mr. Perot resigned from Perot Systems in June 1992, leaving Morton H. Myerson, a longtime associate from EDS, in charge. Mr. Myerson remains chairman.

Neither Mr. Arnold nor Mr. Gillis could point to any specific blunders by Perot Systems in running NationsBank's data centers. There was, however, a serious glitch in retail transaction processing systems in December 1992 that lasted four days and tarnished NationsBank's image.

Both Mr. Sponski and Mr. King said no other bungles of that nature occurred during Perot Systems' management of the data centers.

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