Boots to renegotiate £710m IBM outsourcing deal

High-street pharmacist Boots is in discussions to renegotiate a £710m IT outsourcing contract with IBM less than halfway into the 10-year contract.

Boots initially signed the deal back in 2002, aiming to save £130m over 10 years with IBM managing an overhaul of Boots' IT infrastructure - data centre, in-store systems, networks and telecoms - and handling the retailer's chip and PIN rollout.

But Boots said today it has entered into discussions with IBM about making amendments to the contract because much of its IT infrastructure renewal programme, including chip and PIN, new pharmacy systems and an SAP rollout, is now complete.

A Boots spokesman told silicon.com: "There's been a lot of transformation work and we've achieved a hell of lot a much quicker than planned. Our needs going forward are much more 'steady state'."

He confirmed that "all options" are being discussed with IBM from renegotiation of pricing and scope to ending the outsourcing deal early.

Last year Boots renegotiated its £90m seven-year IT contract signed with Xansa in 2002, extending it for another two years to 2011 in a £26m deal.

Boots is also investing in an overhaul of its supply chain, which will include an automated £70m warehouse in Nottingham to supply its retail chain.

The reconfigured supply chain is expected to result in around 2,250 job losses over the next three years, Boots said.

The company estimates the IT and supply chain changes will lead to operational savings of around £60m per year by financial year 2010/11.