By Richard Agnew
Deutsche Telekom is to enter arbitration over a dispute with Danish facilities management group ISS, in the latest twist regarding the huge, long-term services contract it handed to the outsourcer in 2017.
In its Annual Report, just published, ISS confirmed that the disagreement, first flagged in November, was continuing, and that, “following an agreed dispute resolution mechanism, certain contractual disagreements are subject to arbitration proceedings initiated by ISS” (Deutsche Telekomwatch, #119).
The proceedings do not get a mention in the litigation section of DT’s own Annual Report, and neither ISS nor DT have fully elaborated on the exact focus of their argument. However, in November, when reporting its results for the quarter to 30 September 2022 (Q3 FY22), ISS said it was in “constructive” talks with DT over the deal’s terms. Chief Executive Jacob Aarup-Andersen indicated they centred on “interpretations of aspects of the contract — and that is completely natural given the size and complexity” of the deal.
Troublesome DT deal finally out of the red
The wrangle wraps another layer of complexity around ISS’s contract with DT, which sees the provider deliver facilities services across the Group’s vast German estate and has been described as its largest ever client win.
Loss-making until now, the contract is undergoing a long-running turnaround programme, and, although ISS said in its FY22 report that the engagement “continues to be structurally challenging”, it achieved a key target of bringing the deal to breakeven by the end of the year.
This, along with other business improvement efforts being carried out under its wider OneISS business improvement strategy, helped the outsourcer improve FY22 margin by 90 basis points, to 3.8 per cent, while growing revenue by 7.8 per cent, to DKK 76.5bn or £9.0bn/€10.3bn(US$10.9billion).
ISS is aiming to extend operating margin to 4.25 per cent–4.75 per cent during FY23, and Aarup-Andersen said the business was now ready to enter a growth-oriented “new phase” of OneISS, driven by price increases and the ‘return-to-office’ trend seen since the pandemic.
Regarding the DT account, the CEO said ISS was “continuing to drive operational improvements” and aiming to push the contract into the “low single-digit” margin range in the current FY.
“”We have made it very clear that we believe that, over time, this contract should be contributing like any other contract to the performance of the Group. And that has not changed in any way. ”
ISS’s contract with DT was agreed in 2017 (Deutsche Telekomwatch, #67) and saw the provider supplant Austrian group STRABAG International (the acquirer, in 2008, of DT’s former internal services unit DeTe Immobilien) as DT’s facilities management partner in Germany. It commenced in 2019 with a term of 10.5 years, and was originally talked up as a major driver of revenue and “lighthouse” for innovation at ISS.
However, it has subsequently given the provider severe difficulties in terms of cost control, IT migration headaches, lockdown disruption, and a large-scale cyberattack that affected ISS’s wider operations in early-2020. Its turnaround plan has included development of a “tailor-made” IT system for the contract, which went live in July 2021 with the aim of improving “compliance and transparency” on service delivery. The revamp has also seen a clean-up of processes and systems, staff cuts, and a rethink on use of sub-contractors, with ISS taking on more tasks in-house (Deutsche Telekomwatch, passim).
