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Blaming ERP

Once again, problematic ERP installations are making headlines. It's time to ask, How much of the problem is really the software?

Most of these recommendations are not new. What’s striking is that at this date, more companies don’t follow them.

Payback Time?

For most of this decade, enterprise computing has been a fee-generating gold mine for consultants. But payback time could be around the corner.

On November 2, 1999, W.L. Gore & Associates, the maker of GoreTex, filed a lawsuit against Deloitte Consulting, which Gore had hired to install a human-resources software package back in July 1997. The project did not go well. Gore is charging Deloitte with breach of contract, fraud, and negligence, and seeks recovery of the $3.5 million in fees it paid to Deloitte. For good measure, the Gore suit also names PeopleSoft, the maker of the software, for certifying an incompetent party.

Another company, SunLite Casual Furniture, accuses Deloitte of worse. Along with allegations of incompetence and overbilling, SunLite’s suit, filed in Arkansas, charges the consultant with maliciously “indoctrinating in SunLite a total dependency on D&T that D&T hoped would result in lucrative fees for years to come.”

And, of course, FoxMeyer Drugs blames a botched implementation of SAP’s R/3 software for pushing it into bankruptcy back in 1996. The trustee for FoxMeyer’s customers is suing Andersen Consulting and SAP for $500 million, despite the fact that the company spent only $30 million on the project.

There may be only a handful of such suits out there, but they could be a sign of things to come, says John Keitt, a lawyer in the technology practice of Dewey Ballantine LLP. “If Gore gets past the summary-judgment phase, it may open the door for a lot of similar suits,” says Keitt. There are certainly enough ERP-addled corporate managers to suggest that.

Gore’s basic complaint is that Deloitte promised expert staff and delivered incompetent trainees who learned the software at the company’s expense. A Deloitte spokesman says that Gore never raised that objection during the engagement.

It’s called the “bait-and-switch” maneuver, says Keitt. “The consultant rolls out the first team. They’re talented and engaging and they pitch the deal. If you’re sophisticated, you put in the contract that you want these guys on the job,” explains Keitt. If you’re not, you get stuck with whomever.

What’s clear is that consultants, particularly the Big Five, who now have huge ERP practices, have at times been severely stretched for resources. In the mid-1990s, when most of the thousands of companies with ERP systems embarked on their projects, there was a major shortage of ERP-experienced staff. It’s equally clear that consultants don’t like turning business away. “They’re like the airlines,” says Kamalesh Dwivedi, the chief information officer of ADC Telecommunications, which turned the key on an R/3 system in 1997. “They overbook their people.”

Is that fraud? If the Delaware or Arkansas court determines it is, the consultants may not be protected by contract caps that limit their liability on ERP projects. They could be on the hook for treble damages, not to mention punitive damages a jury might tack on. And given the number of firms that have struggled with ERP systems, and felt poorly served by their consultants, the price tag could be huge.

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