Bank of America shifts payroll services from Exult to Fidelity
13 April 2004 | 4528 views | 0
Exult, a California-based provider of outsourced human resources services, is set to lose $95 million in annual billings after its main client Bank of America awarded its payroll and benefits BPO services contract to Fidelity Investments following the bank's merger with FleetBoston.
Fidelity, which is FleetBoston's current benefits and payroll provider will take over the supply services to the entire Bank of America organisation beginning in 2005. Fidelity says it expects to create about 375 new jobs at its facilities in Massachusetts and New Hampshire as part of its resources to service the new business.
Exult, which has provided services to BofA since 2000, will provide additional services, such as recruiting, temporary staffing, accounts payable, travel & expense, fixed assets and associated IT support services to the merged organisation later this year.
Exult will continue to provide payroll services to the pre-merger portions of the organisation until April 2005 and benefits services until January 2006. The company expects to expand its retained services to merged FleetBoston units in Q3 2004.
The vendor says the loss of the benefits and payroll services, along with related HR IT and call centre functions, will represent a reduction in billings of $90-95 million per year by January 2006.
The revenue from the new services is expected to be $20 to $30 million annually beginning in Q3 2004. The overall impact of the changes in Exult's services to BoA is expected to be slightly positive in 2004 but would result in a reduction of $15-$25 million in 2005 billings and $60-$75 million in the vendor's 2006 billings.
John Adams, CFO, Exult, says the changes will not affect billings or cash expenses in 2004, but will impact GAAP results due to the need to amortize assets associated with BofA over the now reduced term of the contract.
"The Q1 2004 impact will reduce GAAP revenue and net income versus plan by $24-$28 million, the vast majority being a decrease in unbilled receivables resulting from a change in estimate. The impact in the subsequent three quarters of 2004 is an expected reduction of approximately $4 to $6 million per quarter in contract contribution versus the original contract plan," says Adams.
Exult says it expects to partially mitigate the impact of the changes through related cost reduction measures and it remains confident that it will have replaced the revenue impacted with new client revenue before the full effect of the billing changes occur in 2006.