Y2K fix costlier than first expected Sunday, December 19, 1999 By LOUIS LAVELLE Staff Writer Talk about rude surprises. North Jersey companies thought they knew what it would cost to repair their year 2000 computer problems last year. And it wasn't pretty then. Fourteen local companies who made predictions last year were looking at nearly $1.2 billion in Y2K remediation costs. But in recent months, many have discovered that those original estimates, as high as they were, were optimistic -- in some cases extremely so -- and have been forced to readjust them upward. The new estimates for those 14 companies: more than $1.4 billion, a 17 percent increase. North Jersey is not alone. A soon-to-be-released survey on Y2K spending by U.S. companies shows that 90 percent now consider their original estimates too low, up from 82 percent in September 1998. Eight out of 10 companies are spending more than a fifth of their information technology budgets on year 2000 remediation. "It's taken a while for people to gain awareness of why it's a big problem and that's why they've been so surprised," said Noah Ross, a vice president for Cap Gemini America, the New York company that conducted the survey. "Once they started digging into it, they found there was more to it. That's a common finding." Local companies have been struggling for several years to repair or replace computer systems that may be vulnerable to the Y2K problem, a computer error that may cause software to misinterpret dates, resulting in system failures or corrupted data. In most cases, costs have mounted as a result of decisions made to replace equipment ahead of schedule -- as opposed to making less expensive repairs -- or simply because new, unanticipated problems cropped up. Peter Rogers, vice president of information systems for American Standard Cos., said the $6.7 billion Piscataway-based global company turns up new computer systems that need to be repaired or replaced every time its technology experts gather for a monthly conference call. The most recent discovery: 10 servers in the headquarters office that were not Y2K-compliant. The repair cost: $50,000. "It seems like in every conference call, every month, something new crops up. That's where these costs are coming from," Rogers said. "We keep finding new areas over and over again that need year 2000 compliance." The additional Y2K costs have driven up the company's estimate to $22 million, an increase of $5 million or 29 percent over its year-ago estimate of $17 million. But American Standard is far from the worst-case scenario. Schering-Plough of Madison now expects to spend $95 million on Y2K remediation, an increase of $45 million or 90 percent from last year, and A&P in Montvale expects to spend $10 million, an increase of $5 million or 100 percent. A&P did not respond to requests for information, but Schering-Plough in a statement said the increase in its Y2K budget was the result of additional computers in the company's research operation that required repair or replacement. As costs at North Jersey companies mount, some -- such as Warner-Lambert in Morris Plains, where Y2K cost estimates have risen a modest 4 percent since last year -- have been able to keep other information technology projects on track. But some have had to reallocate internal resources to the Y2K problem, delaying implementation of new technology initiatives until 2000. At American Standard, the installation of new financial and management software was delayed nine months. Ross said he expects companies that have put off new technology initiatives in order to devote resources to Y2K finally to turn their attention back to profit-making and innovation. "They've been spending their money on this instead of other things," Ross said. "The firms are poised for post-Y2K initiatives. There's a big, pent-up demand for new Internet activities." Not all companies were taken by surprise by increased Y2K costs. At AT&T in Basking Ridge, Y2K remediation costs increased 23 percent, from $600 million to $739 million. But the increase was the result not of unforeseen Y2K expenses, but because of its $53 billion purchase this spring of Tele-Communications Inc. TCI's Y2K costs have been folded into AT&T's, said company spokesman Dave Johnson. "Y2K spending at AT&T has remained level and is closing right on target," Johnson said. The company's extensive inventory of potential Y2K problems -- everything from mainframes to electric staplers -- precluded most surprises, he said. "Because we did that inventory . . . from right up front we had a pretty darn good focus on what was time- and date-sensitive and what needed to be done." Some experts say the latest round of Y2K cost increases won't be the last. While the repairs to so-called "mission critical" systems will be finished by Dec. 31, unanticipated computer failures, lawsuits over Y2K issues, repairs to non-critical systems, and replacing temporary Y2K fixes with more permanent solutions will continue to drive up costs. John Hayes, editor of Mealey's Year 2000 Report, which tracks Y2K lawsuits, said litigation costs alone could dwarf remediation costs as companies, insurers, suppliers, and customers struggle to assess liability for computer and business failures. Keith Rhodes, director of computer and information technology assessment at the federal government's General Accounting Office, said the vast majority of U.S. companies have used a temporary solution to their Y2K problems and will need to make permanent repairs over the next 50 years. "The bill comes due," Rhodes said. "If anybody thinks the price of year 2000 has stopped, they're incorrect. . . . Many people think on Feb. 1 God will be in heaven and all will be good with the world. That's not the case." Company officials acknowledge the limitations of Y2K remediation estimates, which do not include litigation expenses and can not anticipate unforeseen computer failures or their consequences. "We have lawyers, we have financial people, and we brought in outside people to make sure we're doing it right," said Rogers. "I honestly do think we'll be in good shape and we shouldn't have any major, major problems. We're very optimistic, but we're not taking anything for granted." Copyright © 1999 Bergen Record Corp.