According to a motion filed January 11 in U.S. bankruptcy court in New York, ACS has agreed to make two cash payments of $6.6 million and $1.1 million to Delta “in settlement of certain disputes regarding Affiliated’s performance of the services.”

The two companies also have agreed to limit the scope of services that ACS will provide to Delta going forward, eliminating recruiting, absence management and employee travel call center support, according to the filing.

Delta and ACS announced their seven-year, $120 million HRO agreement in February 2005. Having a rift this early in a contract demonstrates how difficult the implementation stage can be for providers and buyers, says Jason Corsello, an analyst at Yankee Group.

But given Delta’s financial state, reducing the scope of the contract may be a relief to ACS, he says.

Delta filed for Chapter 11 bankruptcy in September 2005, just seven months after the HRO agreement with ACS was signed.

“I would think that ACS was already losing money on this, so for them to pare down the scope of service was probably a good thing,” Corsello says.

“The settlement addressed past issues around implementation,” ACS spokesman Kevin Lightfoot said. “Those issues are now resolved and currently the relationship is progressing.” He declined to comment on the nature of the issues.

Carlos Santos, a Delta spokesman, declined to comment on the motion.

Delta isn’t the first HRO buyer to take recruitment process outsourcing out of its HRO agreement, and analysts predict it won’t be the last.

“When you see services being taken back in-house, it’s usually been recruiting,” says Lisa Rowan, an analyst at IDC. The elimination of recruitment support from the ACS-Delta contract signals how difficult it is for the large HRO providers to offer this support, analysts say.

When Bank of America switched HRO providers from Hewitt Associates to Fidelity Investments in 2005, the company brought recruitment back in-house.

“HRO providers are realizing that the recruiting piece is a lot harder than they thought,” Corsello says. As a result, analysts expect to see some of the large HRO providers announce partnerships with specialists in coming months.

“You are seeing more buyers want recruitment process outsourcing, but they are going to the specialists,” Rowan says. “And the big HRO providers know that.”

—Jessica Marquez