DCS Contract - Assignment from Xerox to Atos

​March 3, 2015

After a competitive reprocurement, the Texas Department of Information Resources (DIR) executed a contract in December 2011 with Xerox State & Local (Xerox) to provide data center services. Within the same competitive reprocurement, DIR executed two additional contracts: one with Capgemini to provide data center integration and oversight functions and one with Xerox Corporation to provide bulk print/mail services.

DIR received notification in December 2014 that Xerox has agreed to sell its information technology (IT) outsourcing business to Atos SE (Atos), an international IT services company headquartered in France. Xerox now seeks DIR's consent to assign the data center services contract to Atos. An assignment of a contract occurs when one party to an existing contract ("assignor") transfers the contract's obligations and benefits to another party ("assignee"); where, in essence, the assignee would "step into the shoes" of the assignor and assume all the contractual obligations and rights.

To achieve a legally binding assignment of the contract, Xerox is contractually obligated to first obtain DIR's consent to the assignment. As such, DIR is performing due diligence on Atos and is seeking Atos' assurance that they are capable and committed to fulfilling the terms of the contract; of which DIR's consent to assignment is contingent.

Xerox is not selling its contract for bulk print/mail services, which is a separate contract between Xerox and DIR.

The following are some frequently asked questions and answers about this proposed sale.

Frequently Asked Questions

What is Xerox selling?

Xerox intends to sell its IT outsourcing business to Atos, which includes approximately 400 outsourcing contracts Xerox holds with both public and private sector customers. One of the contracts that Xerox intends to sell is the Data Center Services (DCS) contract, which includes server, mainframe, network and data center services.

Who is Atos?

Atos SE (Societas Europaea) is a large, global provider of Information Technology services with 2013 pro forma annual revenue of approximately $11.2 billion and 86,000 employees in 66 countries. Atos is the largest IT Managed Services and Cloud Operations provider in Europe. Atos SE is listed on the NYSE Euronext Paris market. The ticker symbol is "ATO". For more information on Atos' technology services and competencies, please see Atos' 2013 Annual Report.

What is the schedule for the sale?

Atos and Xerox expect to close the sale by the end of May 2015.

Does DIR have a say in whether Xerox can sell the DCS contract?

Yes. The DCS contract requires DIR's consent before Xerox can assign the contract to Atos. DIR is undertaking its own due diligence on this proposed acquisition to ensure Atos understands and commits to the requirements of the DCS contract. As the due diligence moves forward, DIR will continue to advise and seek consultation from the DCS Business Executive Leadership Committee (BELC) which is comprised of executives representing agencies receiving services through the DCS contract, state leadership, and the DIR Board of Directors.

What is the expected impact to Texas of this sale?

Although there is much due diligence remaining, to date DIR does not anticipate a negative impact to the state. All current Xerox employees, contractors, facilities and assets will move to Atos ownership. Atos plans no change in any daily operations. DCS customers will continue to be served by the same people, processes and facilities in place today. Based on the evidence and data collected to date, DIR believes the assignment will likely result in a net benefit to the state, largely due to the fact that Atos' core business is IT Managed Services.

Does this sale mean DIR will reprocure the DCS contract?

In order to reprocure the contract, DIR would need to first terminate the current contract for convenience. At this time, based on the anticipated impact of the assignment, DIR does not anticipate terminating the contract. The current contract expires in August 2020, so the contract is not up for reprocurement until that time. DIR will initiate a new procurement some period of time prior to August 2020.

Could DIR terminate the contract now rather than agree to assignment?

Terminating a contract prior to assignment is called "Termination for Convenience" and this type of termination carries significant financial penalties or Termination Charges for the state. The financial impact is estimated to be over $30 million.

What choice does DIR have if it chooses not to consent to Xerox's assignment of the DCS contract to Atos?

Xerox would be obligated to continue performing per the terms of the contract. However, since Xerox will have sold its technical outsourcing competencies to Atos, Xerox may no longer be equipped to perform the services contracted with the State and would then most likely seek DIR's approval to sub-contract the services to Atos or another third party.

What happens if DIR consents to assignment and then Atos doesn't perform?

Many technology outsourcing contracts in the industry contain provisions in the event the provider proposes to assign the contract to another entity. The DCS contract stipulates that in the event of a change in control of service provider, DIR has the right to terminate the contract within twelve (12) months following the formal change of control. If DIR did choose to terminate after the assignment, DIR would still be required to pay Termination Charges, although those charges would be 30% less than the Termination Charges associated with terminating the contract before assignment. In addition, as is the case with a termination for convenience, a competitive reprocurement would be necessary and with it, all the same inherent risk of service delivery quality through the procurement and transition.

Who has the authority to approve the sale of the DCS contract?

Statute requires the DIR Board to approve all material changes to contracts managed by DIR.

Where will Atos headquarters be located?

Atos leadership for the DCS contract will remain in both Austin and Dallas. Whereas, local decision making regarding the DCS program will remain in Austin, Atos has expressed a commitment to preserve Xerox's current IT outsourcing headquarters in Dallas.

Does Atos have any other business in the US?

Yes. Atos is seeking to expand its IT outsourcing capabilities in the US with this acquisition. Atos currently has data centers in four US cities.

What happens to agency software currently assigned to Xerox for use?

Atos and Xerox are planning to transfer all software licenses from Xerox to Atos and they are seeking software vendor consent for Atos to use all software licenses. DIR is actively seeking documented assurances to ensure there will be no financial impact to DCS customers for transfer or assignment.

What about hardware agencies are currently using?

All hardware owned by Xerox will transfer to Atos ownership, retaining the contract requirement that asset ownership reverts to the state at contract termination. This is a standard set of activities and consistent with what transpired when Xerox took over the program from IBM.

Is Xerox selling the bulk Print/Mail Contract?

No. DCS bulk print/mail services will continue to be provided by Xerox Corporation within the DCS program.

Atos is a French company. Does Atos intend to support the state of Texas with staff outside of the US?

No. Atos will provide all US-based employees, primarily in Texas.

Will there be any impact on the Multi-Sourcing Integrator's services from Capgemini?

No. There will be no change in the services currently provided by Capgemini as a result of this sale.

What is the expected financial impact to the state as a result of this sale?

If the assignment is approved, there is no expected financial impact to the state.