Penalty clause in TCS deal won't help cover extra expenses paid to 63 Moons: MCX

PLI

An agreement with technology vendor Tata Consultancy Services will not help Multi Commodity Exchange (MCX) recover the additional expenses it has paid 63 Moons Technologies till now for extending the contract, and also the future payments to it. This was told to analysts in separate calls over the last one month.

Between October 2022 and June 2023, MCX has paid around Rs 242 crore to 63 Moons for the extension of the contract, first for one quarter and then for two quarters. The contract has been extended for another couple of quarters till December 2023 for a charge of Rs 125 crore per quarter. All together, MCX will fork out around Rs 470 crore as additional expenses.

“There are penalty clauses. They will kick in obviously, but then, again, every penalty has a cap, you know. Obviously, they will not let go the complete development fee. It is that way. There are penalties, of course, not doubt,” the management said in a call with Franklin India Mutual Fund on June 1, according to the transcript of the call.

The company has not given details of the penalty clause. A questionnaire to MCX on this issue has not been answered so far.

63 Moons has been a long-term technology services provider to MCX – since 2003. However, MCX chose not to continue with its services and floated a Request for Proposal (RFP) in October 2020 for developing the Exchange’s Commodity Derivatives Platform (CDP) – about two years before the contract was supposed to expire.

Tata Consultancy Services (TCS) was selected eventually as the vendor for development of the CDP and issued a letter of intent for the same in February 2021. TCS, in September 2021, informed that it would help MCX to “transform the exchange’s core systems”.

MCX and TCS have been working on developing a new platform in which the trading software-T7-is from Deutsche Deutsche Börse Group, which operates Frankfurt Stock Exchange and the settlement software customised by TCS.

The platform was initially expected to go live by July 2022. Since then delays and “complexity in platform development and integration” have marred the deployment of software.

“When we gave the contract to TCS, there was hard bargaining. We won't be able to recover these additional expenses that are there, but there are penalty clauses,” the management said in a call with ICICI Prudential MF.

“It would be linked to the contract value. It is obviously not up to the contract value. There is a percentage that we can kick in, but it won't be substantial to recover the additional amount that we have paid,” the management said.