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FLIMS, Switzerland-Solving the Year 2000 problem could cost businesses and governments around the world more than $3.5 trillion, a software consultant warns.

Speaking at last month's corporate customer symposium held by Zurich Insurance Co., Capers Jones, chairman of Software Productivity Research Inc. of Burlington, Mass., told international risk managers that the major costs from the Year 2000 problem will be litigation stemming from systems that fail to work after the turn of the century.

Any business that by the end of this month hasn't begun to remedy problems in its own software and hardware systems will have little hope of correcting the problem before the millennium dawns, Mr. Jones warned.

Computers and software systems that have not been updated likely will fail to operate because they will not be able to distinguish the "00" denoting the date as 2000 from 1900.

The problem is the result of shortsighted decisions to save time and money in data entry costs, as well as computer memory space, by using two digits to record the year rather than four. As a result, in just a little more than two years, uncorrected computers will assume that time has jumped back a century.

Mr. Jones said the problem of aging software will be "a national crisis" for the United States by 1999. Currently, he estimated more than 180 billion lines of code need to be corrected in 35 million programs and on more than 1 million systems. More than 45% of software in use is threatened by the millennium bug, he said, and 15% of that software cannot be repaired. Already some systems are beginning to fail, prompting litigation.

If just 10% of Year 2000 problems are missed, severe problems will ensue, said Mr. Jones.

The best-case scenario for the United States is that 85% of repairs will be corrected, he said. If that figure drops to 80%, he predicted possible recession. An additional 10% drop could result in depression. If only 60% of problems are fixed, economic chaos could result, he said.

The Year 2000 problem "will affect most major corporations and governments," said Mr. Jones, and for any organization starting out next year on putting it right, it will be "most likely too late."

The scenario is much worse for Western European businesses because the millennium coincides with the introduction of European economic and monetary union, he said.

Mr. Jones' estimate of the best case for Western Europe is 75% of problems repaired. To try to deal with the millennium bug-perhaps the most expensive business problem in the world-is bad enough, but adding to it the move to a single European currency is "one of the most dangerous decisions," he said.

"Trying to do both together would be laughable if it wasn't so serious," he said, predicting that neither will be achieved.

Organizations that do solve the Year 2000 problem may still have trouble through their links with non-compliant businesses. In these cases, particularly where there are computer links, the lack of compliance of one may well bounce back to the other.

Whatever the individual scenarios, overall Mr. Jones predicted severe damage and massive litigation as a consequence. His own calculations, which he said were conservative compared with others', assess the global litigation and damage for the Year 2000 issue at $300 billion-a figure that other specialists put closer to $1 trillion, he said. In addition, he predicted repair costs prior to 2000 of almost $1.5 trillion, and post-2000 damage and recovery costs of almost $2 trillion.

In the United States, "any cost of litigation is going to be much, much more than the cost of fixing" the millennium bug, said Mr. Jones.

He identified 10 possible sources of litigation:

Client lawsuits for financial loss.

Shareholder suits for stock losses.

Shareholder suits for violation of fiduciary duty.

Damages for injuries or deaths caused by computer malfunction problems.

Class actions by commercial software users.

Suits resulting from incompetent Year 2000 fixes.

Suits against computer hardware companies.

Malpractice suits against corporate attorneys.

Suits against government agencies.

Suits against insurers.

Other statistics Mr. Jones produced implied that organizations will be able to do little to protect themselves from litigation. For example, any organization starting Year 2000 fixes at the beginning of next year and using search engines rather than manual searches for the problems will only be able to repair 90% of its problems.

However, this figure could be boosted to 100% if programmers are put on the problem round the clock, and other non-standard strategies can be called into action. These include suspending relevant antitrust regulations until the Year 2000 problem is sorted, so key industries can share their resources. Mr. Jones also suggested delaying the introduction of EMU by five years and suspending all other non-emergency software repairs.