Deloitte hit with $30M lawsuit over ERP project

California’s Marin County has sued Deloitte Consulting LLP for $30 million over an allegedly botched SAP Enterprise Resource Planning (ERP) project.

The lawsuit, filed in Marin County Superior Court last Friday, accuses Deloitte of misrepresenting its skills and capabilities when originally pitching for the project in 2004.

The 38-page complaint alleges that Deloitte was lying when the company promised to assemble a team of its “best resources” for the project and when it claimed to have “deep SAP and public sector knowledge” when marketing itself to the county.

Deloitte’s misrepresentation of facts resulted in a defectively designed and deficiently implemented project that resulted in the county having to pay millions of dollars to remedy, the lawsuit alleged.

Meanwhile, Deloitte is claiming that it fulfilled all of its obligations under the contract. The company filed an administrative claim last week with the Marin County Board of Supervisors seeking more than $444,000 in unpaid dues, and an additional $111,000 in late charges.

“To be clear, the SAP software was working properly when we completed our work in November 2007,” a company spokesman said by e-mail.

“Although we are confident that we will prevail in court, it remains our belief that this dispute can and should be resolved in a more logical fashion that benefits the County and its taxpayers,” the statement said.

According to Marin County’s complaint, the county hired Deloitte to replace its aging financial management, payroll and HR systems because the county did not have the skills to accomplish the task in-house.

At the time it was hired, Deloitte knew that the county would depend exclusively on Deloitte’s resources and on its recommendations for the project, the complaint noted.

“Throughout the months-long selection process County officials stressed to Deloitte that County officials did not have experience working on projects,” such as the SAP implementation, the complaint said.

Deloitte knew that its consultants were the only ones with SAP knowledge on the project and that it would be the “lead party” on the entire effort.

Deloitte was selected from a pool of 13 vendors, based on its claims about its skills, its integration testing processes and its change management abilities.

The company’s failure to deliver on any of these fronts resulted in a SAP system that that was full of errors and substantially worse than the legacy system it was meant to replace. For instance, the error rate on the new payroll system was about five-times higher compared to the legacy system forcing the county to limit its use of the system and turn to manual processes instead, the complaint noted.

The problems became so bad that the county fired Deloitte in late 2007 and instituted a “Get Well” project to stabilize the system. Deloitte treated Marin County as little more than a “trial-and-error public sector training ground” for its inexperienced consultants, the lawsuit claimed.

Much of the system had to be re-designed, re-tested and re-implemented over the past few years at substantial taxpayer cost, the complaint alleged.

Deloitte did not have the ability or intention to provide the skilled resources needed for the project, but it claimed otherwise, just to secure the county’s “lucrative” contract, the complaint noted while asking the court’s to order Deloitte to pay back the $30 million the county has spent so far on the project.

In its administrative complaint, Deloitte noted that Marin County officials had not informed it of any deficiencies nor of any breach of contract, and neither had it withheld any payments even though the agreement between the two parties clearly allowed for action.

If the county had any issues with Deloitte, it never made them known until after a specific change order was placed in June 2007, shortly before the company was fired. “We fulfilled each and every one of our obligations under the contract, as evidenced three years ago when all of our work was approved by the County officials responsible for the project,” the company noted.

Numerous lawsuits have been filed over the past several years in connection with failed ERP implementations. The only difference with Marin County’s lawsuit is that it targets the systems integrator rather than the ERP vendor. Almost all other cases have involved customers suing ERP vendors directly for botched implementations.

Just two months ago for instance, a lawsuit between SAP and one of its customers Waste Management was quietly settled for an undisclosed amount.

Waste Management had earlier sued SAP for fraud after incurring what it said were significant damages from a $100 million ERP project that it said had turned out to be a complete disaster. Similarly, last August, Public Health Foundation Enterprises, sued Lawson Software over a failed ERP implementation.

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Jim Love, Chief Content Officer, IT World Canada

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